(This post is U.S. centric, but I think most people can see how it applies to the financial systems in their own countries, and extrapolate similar solutions from there.)
Since the 2008 financial crisis that was was supposedly resolved by government bailouts, there have been rumblings about the possibility of another financial crisis, and another round of bailouts.
The purpose of this post isn't to go into detail about the causes of the crisis, or what's need to fix the financial system. However, what I have to say to the bankers, economists, and politicians who helped the current economic mess is, "Your centrally planned financial system is bad, and you should feel bad,"
There were a lot of bad behaviors that lead to the previous financial crises, and instead of allowing financial institutions, and the politicians who supported them, reap the rewards of their bad behavior, they were given what seemed like a free pass.
It's understandable, really. It seemed like the entire global financial system was on the brink of collapse. Governments and financial institutions believed that there would be "blood in the streets", and maybe even the need for martial law; as a result of the collapse; and they were probably right.
At the time, it was easy to say that we were blind sighted by the 2007-2008 financial crisis. Sure, there were people who predicted the crisis, before it happened, but the idea wasn't mainstream. It won't be so easy to say the same thing, when it happens again.
The bailouts appeared to benefit the banks, at the expense of the people, and the people were pissed. It would not be much of an exaggeration to say that a large numbers of people were pulling out their hanging ropes, and sharpening the blades on their guillotines; as they prepared to purge the population of bankers and politicians.
There's a huge part of me that screams, "When the next financial crisis hits, let it burn. Kill it with fire. "
The kid in me says, "Kill it with fire," but the adult in me says, "Nuke it from orbit. It's the only way to be sure."
Since the option of letting a bad system burn is probably off the table, I'll move on to the next least likely solution; which is requiring the CEOs of institutions seeking a bailout to contribute 90% or more of their current assets toward the bailout; as a condition of the bailout. The essence of the idea is, if you make the bailout painful to the person sailing the ship, it's less likely that the ship will need a government sponsored course correction.
I don't know how many CEOs of financial institutions would be willing to do such a thing, but I'm reasonably sure it wouldn't take many who choose to take their money and run; before letting the system burn becomes the default option.
A core cause of the instability of the financial system, is that people and institutions have taken on more debt than they can reasonably repay. The reasons for this should a topic of another discussion, and they would bring me back to my first solution; which is to let it burn.
Instead of bailing out the banks, the federal government should bail out the people. What I have in mind, looks a little like this:
The federal government.. encourages.. the federal reserve to buy as many 100 year bonds as are needed to complete the bailout, at a 0% rate of interest. (Yes, that is basically money printing, and part of why it's not the first possible solution; I listed.)
Then the money would be given to the people. The bailout would be split evenly among all legal U.S. residents, but if the money was accepted, they'd be required to apply that money toward debts; before spending any of it. However, whatever amount was left over would be spendable money.
There should be a penalty for accepting the bailout money, and spending it, without paying off debt; maybe a prison sentence. However, convoluted enforcement mechanisms would ad unnecessary cost and complexity.
The third option would re-stabilize banks, by getting bad debts off their balance sheets; without rewarding financial institutions for bad banking behavior. It would also minimize the inflationary effects of the bailout, because most of the money would go to repaying loans, that essentially created money from thin air. It'd perform a sort of modern day, debt jubilee.
The downside is, it'd still transfer bad debts from bank balance sheets, to the federal government's balance sheets. It wouldn't eliminate the systemic problems and bad banking behavior that lead to the creation of repeated financial crises. However, it wouldn't incentivize those bad baking behaviors either.
It wouldn't eliminate the systemic problems of the financial system, but it would be still be less bad than another bankster bailout.
It'd re-stabilize the existing system; without rewarding bad banking behavior. Better yet, it'd do so without causing regular people to want to physically remove bad bankers, and the politicians who enable them.
It isn't my first choice, but it'd prevent the chaos that'd come from a complete collapse of the money and credit system.
The choice is clear. When the next financial crisis hits, the federal government can either let a bad, centrally planned financial system die a well deserved death, or it can choose to bail out the people; instead of the banks.
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