Banks already have trade able bonds, they call them CD’s.
The reason banks are failing has nothing, zip, zero, nada to do with people withdrawing money from the banks. The sole reason banks are failing is that they made bad loans. They have a lot of excuses for why they made those bad loans, but that is the bottom line. Banks have more debt than assets, they are broke and the only reason they are still in business is that the Fed has been lending them gobs and gobs of money, which they are now lending to the government.
Once again I agree, but the only reason people arent racing eachother to the banks is because their money is guaranteed by the federal reserve. If we are to remove that guarantee, which I think we should, then we need a better way to handle the resulting fallout. Again, I’m not looking to bail the banks out, only restructure the banking system so that it reflects that the assets are long term ones.
The Certificate of Deposits are pretty much exactly what I had in mind, though if the bank could not back CDs with assets of longer maturity than the CD, there would need to be CDs of longer maturities than mentioned on Wikipedia.
That helped, thank you.
If we now assume a bank whose issued CD’s are all of equal or longer maturities than the assets backing them, and are tradable on an open market, we pretty much have what I have imagined. In the event that a bank should begin to look shaky (not having quite failed yet), the value of it’s CD’s would drop slightly, and risk averse depositors could sell ther CD’s to less risk averse depositors. This would help the economy by allocating possible losses to people or companies who can bear them (along with the associated higher expected yield).
Perhaps we can advocate for a class of CD only banks, subject to less regulation, whose CDs are of equlal or longer maturity than the assets backing them. These banks would not be insured by the fed, and would be excempt from any insurance related tax. Divide the CD’s into tranches and you have a fully free market alternative to the current banking debacle, while still supplying equally secure investments in the lower tranches.
All that remains to be figured out is how make your CD holdings accessible by debit card. Ie one should be able to sell arbitrary amounts, on demand, when charging to a card, with some backup solution, like short term credit, kicking in if the price was depressed for any reason.
I’m liking this idea more by the minute.