I thought I would share with you a creative inspiration I had this morning about financial regulation. Currently banks and other financial institutions contribute monies to insurance programs such as the Federal Deposit Insurance Corporation (FDIC). What if these institutions were forbidden from taking on risks greater than the amount of insurance they had purchased? That would mean that financial bailouts were pre-funded. That would mean that bailouts would not come out of the hide of the public.
I will try and explore whether or not this is feasible. One potential unintended consequence would be a seizing up of lending by financial institutions while they got their insurance premiums in accord with the risks they already have on their books. If this were a problem however, this could be handled by phasing in the regulations over the course of 5-7 years.
Hmmm. This might just work.
Jason
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