It seems incredibly moronic to discuss Moral Hazard in discussion of the rules of Banking, be it government-sponsored or Private. Anytime Anyone extends loans of Others’ ownership, then the pursuit will always be to the benefit of management, not ownership. As the rights of ownership are always condemned within this Scenario, the theft of those rights have already been accomplished. The funds owned will rarely ever leave the Banking system again, so Bankers feel totally justified in completely ignoring the complaints of Depositors. This stands as the real rationale for regulation of the Banking system by government, and fails miserably when it is accompanied when the government itself extends funds or guarantee of funding; the Bankers simply concluding that the government has become another Depositor. They have been too long effectively stealing from such Depositors to ever feel fright of them. It all means that there will be no real alteration of interior lending practice, or the award or infliction of Interest rates upon all concerned.
A fairly good presentation of Slack and it’s implications shows an positively wrong attitude towards Inflation. Inflation has never been restricted by suppression, and the enforced suppressed Interest rates with maintained business profits only has established enterprise funds to pay the higher Production Costs when they appear; which will be at such time that the Fed allows the Interest rates to rise. The only thing accomplished has been to establish flush Investment funds while curtailing all forms of Consumption Demand Income. The Fed has yet to comprehend that using the concept of banks being too big to fail has made the Fed, the Treasury, and the FDIC too small to survive. No one can save Thieves from their own destruction, especially if those Thieves insist on continuing previous depravation.
Fed and Treasury have only a few machinations which they can utilize to cancel already deviant financial policy. The first thing is to insist on FCIC replenishment of Fund by further taxation of banks, and not turn it into a further Profit-making endeavor for banks. The second thing is to set a tight schedule for repayment of all TARP funds with their return to the Treasury. The third thing would be to establish a Bank Bonding system where Banks could not exceed normal established Reserves of 8% without providing further Bond payment (non-refundable) of 1% of the magnitude of the extended loans paid to the Treasury to assure there will never be future need for any form of TARP procedure. The fourth element passage of a law stating all banking officials who have issued loans which fail in excess of 20% of their total loan extensions in Dollar terms must spend a mandatory 3 years in prison if proven guilty. The fifth and last component will be passage of law with banishment from employment or practice of financial affairs for life, if any false reporting is made to Employer or Government regulatory agency. The Bankers may come to understand the irritation of both Government bureaucrat and American citizen over their behavior. lgl