Tuesday, November 22, 2016

Stiglitz scores on credit system overhaul


Cousin it Stiglitz has a draft of a better credit system

Start with a closed end e - money system
"The central bank (government) auctions off the rights to issue new credit."

Nb : 
"The system is symmetric. The central bank may decide that there is too much money in the economic system—that is, the banks are lending too much, using “money” that they receive in repayment. In that case, the government can buy back rights to issue credit: they buy back the money that they have allowed the banks to effectively manage on their behalf. Again, there can be an open auction for those most willing to give up rights to issue credit. This would literally drain money out of the banking system. "

"The government would allow for entry into the banking system; indeed, separating the depository and lending functions and the open auction of rights to issue credit should make entry easier, and thus competition more vigorous " 

"Entry would presumably occur to the point where the beforetax return to capital (measured over the business cycle) would be slightly in excess of the normal return to capital. Some excess return may be necessary to induce more responsible social behavior on the part of bankers."
For example 

" if the economy is weaker, it will provide more credit to stimulate the economy" "Note that in this system, banks cannot create credit out of thin air, 
and the amount of money being created each month is known with considerable precision."
 "Conditions would attach to selling the “rights to lend” to the banks. Minimum percentages of the loans would go to small and medium-size enterprises and to new enterprises or to underserved communities; a maximum would go to real estate lending (perhaps apportioned by location, on the basis of local changes in prices), to purchases of other existing assets, or to those engaged in speculative activities, like hedge funds. None would be allocated to socially proscribed activities, like those contributing to global warming or associated with the promotion of death, such as cigarettes. In short, there would be minimum standards for social responsibility. There would be limits on the interest rates charged. Discriminatory lending practices and other abusive practices by credit card companies would be proscribed. So, too, would connected lending. "