ARNOLD KLING
August 14, 2011
The Top Political Contributors
August 11, 2011
Gender and the New Commanding Heights
August 11, 2011
Jamie Galbraith Makes an Assumption
August 11, 2011
Macroeconometrics: The Science of Hubris
August 10, 2011
Real and Nominal Bond Yields
BRYAN CAPLAN
August 14, 2011
The Effect of Thumb Sucking on Income
August 12, 2011
The Voice of Cold, Hard Truth to All Would-Be Educators
August 12, 2011
Ability, Morality, and Prosperity: A Paper and a Report
August 11, 2011
The Theory of Time and Frittering
August 10, 2011
Male Variance and the Remnants of the Gender Gap
DAVID HENDERSON
August 9, 2011
Hayek in "Unbroken", Part Two
August 8, 2011
Hayek in "Unbroken"
August 5, 2011
James Bovard on the Peace Corps
August 4, 2011
Summers Way Off on FDR and 1941
August 3, 2011
The "Amazon" Tax
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I am "filling in" for Gorton here, but perhaps he would argue that the unregulated, run-prone sector will in general be more profitable than the regulated sector. At the margin the unregulated, run-prone sector will increase in size and scope, etc. That's not inconsistent with your Basel citation (though the timing is a bit off, given that Gorton cites the 1980s).
Gorton is very likely well aware that a smaller banking sector might be more profitable. The point still remains that the unregulated, run-prone mode of financing that sector might be more profitable yet and so we return to the basic dilemma.
So while I don't mean to endorse everything he is arguing, I'm not sure that your arguments provide a smackdown of it either. I'm not objecting to your points, but rather your view and his view (if fleshed out in more detail) don't need to be so far apart.
The lesson from the late 1800's is that small banks also have extremely high political pull. Breaking up the large banks won't really fix the problem imo. The problem is a result of the power of regulators to regulate. Once that exists, politicking and corruption are inevitable.
I'm with you on breaking up the banks.
Too big to fail plus hostility to anti-trust is the libertarian road to serfdom, as I said about 5 years ago.
Don't break up banks. Just end government insurance on deposits.
Banks should be in the business of matching deposits to investments that meet the risk and time preferences of the depositors.
Vault cash for the risk-averse who want the right to withdraw their cash without notice, then money-market deposits. Then, mortgage investments (not government insured) for those who want more risk and return, without the right to withdraw funds, except as the mortgages mature or pay off.
Banks make money from intermediation, but no one would deposit money into a bank that does this, without the implicit subsidy of a government guarantee to repay the deposits. Why should the government be subsidizing banks?