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You argue that there is too much prudence in any proposal designed to modify the current system to make it sounder if such proposal would cause some investment not to occur.

That's overstating anything I said. I was responding to the argument you posted concerning 100% reserve requirements for banks. Yes, given all we know about default rates, that's an unnecessarily high degree of caution.

The degree to which that policy would reduce investment is not paid back in increased safety. On the other hand, I would not argue that we couldn't tweak the reserve rate one way or the other a few points to see what happened. My hunch is that "tweaking" is exactly how it got to where it is, which makes me suspect that it's probably in about the right place already.

Presumably, you would also argue there is too much risk in a proposal that allowed anyone who wishes to invest to just use his own IOU (rather than use the bank?s IOU)

I just think it's impractical. Even if Bill Gates himself writes me an IOU for $50,000, the first time I go to pass the damned thing, people are going look at it and say, "Oh yeah, right. Bill Gates. Why just yesterday, somebody was in here with an IOU from Elvis." Maybe this system could work in a little tiny village somewhere, but not in a continent-spanning nation of 250 million. How the Hell do I know whether an IOU from some guy three states away is worth anything?

It's much less costly if the people who have to accept an IOU have some clue that whoever wrote it can be expected to pay up. If I go into Fry's and offer them my bank's IOU, they swipe the card, get it authorized, and out I go with hundreds of dollars worth of stuff. They know the bank will pay, and then it's up to the bank to chase me for the money. If they let just anyone do that, they'd have to have their own army of skip tracers and bill collectors. That just ties up assets in something that's really not related to the business they are in.

As best I can tell, your mindset is: we?ve been changing for the better for hundreds of years so now we must have it just right.

I don't claim we have it just right, but I do believe we need to respect the accumulated wisdom of people who have been working the problem for a long time. That attitude is pretty typical of political conservatives; we tend to distrust social (or financial) engineering and favor solutions that have evolved by trial-and-error over time. Liberals always see those as old fashioned, or even as the work of oppressors; they want to pull the two-parent family out by the roots and substitute this new and better idea. Or they want to ban cars and re-engineer the whole country's transportation system from the ground up, because they know how to do it better. Conservatives tend to believe that these things got to be the way they are because a lot of people tried a lot of things, and the stuff we see today is the collection of what worked, minus the things that didn't work. New ideas are still welcome, go try them somewhere and we'll see how you did. After all, that's how everything else in the current system got there. Just don't try to smash what we have now that sort of works, in order to put in your gleaming new idea. One thing we all know for sure is that Revision 1.0 of anything sucks.

Your answer is relatively unintelligible

That's because it is another one those box canyons I got you into, and your dependable response to those is always to pretend that you didn't read or understand them. You'll recall we had a money supply divided into "amount in reserve" and "amount available to invest." You were going to provide the benefits of fractional reserve banking, which is to have an amount not in reserve, so as have money available to invest, but you were going to simultaneously move all of the money into reserves, so as to elininate risk. It sounded amazing to me, so I welcomed your contribution to investment theory and even offered to back you for a Nobel prize if you could tell us how to hold all the money in reserve while still making investments with it.

Unfortunately, you would not tell us your secret plan. Instead you proposed a formula for assessing risk and asked whether I would agree with it.

Risks are too great if the people who reap the rewards when things go right are incapable or unwilling to absorb (or buy insurance against) the losses when things go wrong.

Absolutely not. By that criterion, what entrepreneurs do is unacceptable unless they are risking their own money. No wonder people haven't made you King; you have more schemes for holding people back and keeping the peasants in their place than Ivan the Terrible.

Here's mine: Risks are too great if, when we add up all the gains and losses from all the things we invested in over a ten-year period, the losses were larger than the gains. Risks are too little if, when we add up all the gains and losses from all the things we invested in over a ten-year period, we find we had no losses but no gains, either. That's not investing, that's just washing money. If the CFO tells us we had spectacular gains and no losses, we need to bring some independent auditors in, and quickly.

My hunch is that "tweaking" is exactly how it got to where it is, which makes me suspect that it's probably in about the right place already.

It got "tweaked" to 0% on time deposits?

I just think it's impractical.

that's your primary objection to people writing their own IOUs?

They know the bank will pay

The bank pays in the form of bank IOUs!!!!!!!!!!!

I've now just finished the rest of your post. Are you not interested in an intellectual discussion. Do you get more pleasure out of putting words in my mouth. You'll notice when I criticize you it is about something you have directly said. When you criticize me, you first establish a straw dog perversion that you pretend is my position and attack it.

It's time for bed. I'll decide in the morning whether it is worth trying to get you to pursue a subject honestly or whether you are more interested in protecting your beliefs than the truth.

What you're peddling is a bunch of alarmist nonsense that, if implemented, would cause tremendous human misery.

Let’s discuss it. So far, you have only offered silly mischaracterizations, good arguments against positions you pretend I hold, and bad arguments against my actual views. Here’s a very short summary of my actual views.

My Basic Position: The current monetary system is too risky. To fix it, I favor:

1. No taxpayer bailouts of failed banking enterprises.
2. No FDIC guarantees to bank deposits.
3. Accurate accounting for bank operations;
4. Open disclosure of bank operations;
5. No Federal Reserve System
6. Required matching of maturities of assets and liabilities for banking

Your Basic Position: The risk in the current monetary system is just about right.

You acknowledge that the current system is risky but without it you feel it is impossible to have an economy. You also see little distinction between the various alternative ways money can be funneled from lenders to borrowers.

In order to pursue this intellectually, I previously suggested OBJECTIVE measures of risk to evaluate our respective positions against. I suggested:

Risks are too great if the people who reap the rewards when things go right are incapable or unwilling to absorb (or buy insurance against) the losses when things go wrong.

You proceed to interpret this totally incorrectly (initially, I was sure you knew what I meant but purposely misinterpreted it, but I’ll give you the benefit of the doubt and assume it was an honest misinterpretation on your part).

What I am actually saying is that if you put money in a bank because you think it is a beneficial thing to do, you should be willing to do so without FDIC protection. And if a bank lends money to an enterprise that fails the bank and its depositors should withstand the loss not the uninvolved taxpayer public. That was being offered in support of items 1 and 2 on my above list. In other words, anyone who supports the idea that we should not socialize losses (as FDIC and taxpayer bailouts do), should theoretically favor my first two suggested reforms or at least explain why they don’t.

You offered the alternative NON-OBJECTIVE measure of risk:

Risks are too great if, when we add up all the gains and losses from all the things we invested in over a ten-year period, the losses were larger than the gains. Risks are too little if, when we add up all the gains and losses from all the things we invested in over a ten-year period, we find we had no losses but no gains, either.

The problem with this formulation is that it is not useful for evaluating alternative policy directions and vaguely refers to a collectivist “we.”

Anyway, are you interested in exploring whether my position AS STATED ABOVE is alarmist nonsense or a thoughtful prescription for reform? (yes or no)

P.S. I agree there is zero chance of these reforms being adopted without a cataclysmic crash and/or support from corporate America to rein in an out of control financial system. The latter may not be as far fetched as it sounds. After all, when corporate America was largely immobile manufacturing plants it favored high tariffs; now that capital is highly mobile, corporate America favors low tariffs.