HOW LARRY KOTLIKOFF WOULD FIX THE FINANCIAL SYSTEM

February 15, 2010

Boston University economist Laurence J. Kotlikoff wants to take all the risk out of banking, hedge funds and insurance companies.  He insists that all the Obama Administration is doing is "putting a band-aid on cancer." And some people are listening, says BusinessWeek. 

Here's how the Boston University economist would reorder the financial system: 

Bank Deposits 

  • Banks couldn't lose depositors' money.
  • Deposits would be safeguarded in a mutual fund that holds nothing but cash.
  • Withdrawals would be via check or ATM, as now. 

Loans 

  • Banks wouldn't be exposed to loan losses.
  • All loans would be made by mutual funds using money raised from investors.
  • Those investors would swallow any losses from defaults. 

Insurance 

  • Insurers couldn't be ruined by big claims.
  • Policies would be issued by a mutual fund that collects insurance premiums.
  • Payments would be limited to whatever is in the fund. 

Investment Banks 

  • These would become pure advisors.
  • They would be banned from holding assets or borrowing to buy them, so they would not be exposed to market losses. 

Source: Peter Coy, "The Man With the Meanest Bank Shot," BusinessWeek, February 15, 2010. 

For text:

http://www.businessweek.com/magazine/content/10_07/b4166042289206.htm 

 

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