Tuesday, March 13, 2012

How Is this for an Un-thought Idea, Privatize the Fed

John Goodman made a blog post describing how bad the Government insurance programs that are breaking the Federal Government budget are but he leaves out FDIC.   Here is my very short critique of the FDIC  and a possible solution.
The FDIC charges the same premium to an institution that is leveraged to an insane extent as to an institution that is modest.  This is bad policy.  Perhaps the Federal Reserve should be privatized, made into a for profit organization and should provide insurance to member banks.    The Federal Reserve could insure the banks because it cannot run out of many because it has the ability to create money.  Each american could be given shares in the resulting organization.  We would need to change the legal tender laws so that the threat of competition would keep it in line but it might work.  It has been shown that even the threat of competition can be enough to keep a monopoly in line.


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