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Comment by elliekelly | Hacker News Reader

> “Regulation is a playground for smart people,” said Oliver Ireland, a former Federal Reserve lawyer now in private practice, where he counsels banks on complying with Dodd-Frank. “It was inevitable that this set of rules was going to start to influence how people structure transactions.”

Regulators need a way to run some sort of "bug bounty" program for loopholes. If the government could crowdsource their limited resources in the right direction maybe they wouldn't be perpetually 5+ years behind.

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Just stop subsidizing the risks they take. Don't insure them.

Because of depositor insurance and pension fund insurance, risks are not treated as real risks. People know their lack of consideration of risk will be bailed out.

Make two kinds of banks. One very simple and safe with no incentives for risk taking. Another that is unregulated and you are risking your money. Those who don't want to deal with risk can put their money in the former and earn a safe return.

And that could be achieved by limiting a bank to writing mortgages, only loaning the first 60% of the 5-year moving average of a house's price. Require 20% down and let higher risk lender's lend the rest. Such a bank should also get paid back first.

This safe bank would not resell its mortgages and managers would never earn bonuses for a higher rate of return. Don't even offer checking accounts, just savings accounts. Don't have branches.

Keep the books completely open to the depositors 24/7.

https://en.m.wikipedia.org/wiki/Glass%E2%80%93Steagall_legis...

Insurance has nothing to do with this. The financial regulatory changes of the 1990s recreated this problem that we have today.

Of course it does. Depositors currently don't think about the risks to their money at all, because they know they will always be made whole.

Would you bother with your seat belt if the doctor would completely heal you, regardless of the cost, without any direct cost to you?

Of course, the reality is we do have to pay for every bailout. As taxpayers.

Or, rather, some day our children will.

Unless, of course, where you put your money is on you. Then there'd be real interest in banking with low risk.

I'm curious why you think the solution is to have everyday consumers "police" the risk to the financial system instead of giving regulators more resources/teeth?

Because it will save a lot of money for them in the long and we'll have fewer disasters that risk the world economy.

Human intelligence is distributed and responsibility should be as well. Concentrate the power and people take advantage and then weasel out of responsibility, leaving others to suffer the consequences.

The well connected get their risks socialized, because they are "too big to fail". The same story is repeated over and over again.

People who take the risks should get both the losses and the benefits. It's called "skin in the game".

it should be noted that ultimately bailing out the financial system comes at the expense of everyday consumers, though in a much more insiduous fashion than one they could see directly. if you believe that no amount of regulation can stop financial chicanery as long as they have those insurance guarantees, then it makes sense.

i'm not sure about this plan, i'll just say i prefer credit unions myself.

> Would you bother with your seat belt if the doctor would completely heal you, regardless of the cost, without any direct cost to you?

Of course I would.

SO would I. But I bet there are people who wouldn't if they stood to gain something valuable that is unavailable if their seatbelt is fastened.

In other words, people do indeed take greater risk with their money if the interest rate is higher. And expect to earn less if the investment is very safe.

History has demonstrated time and time again that markets can’t regulate stable banking.

The only long period of sustained banking stability was the period with the strongest regulatory system.

And what I'm suggesting is a very specific form of a bank. Strict regulation is implied.

I just prefer to give people of choice of what kind of institution they want to trust. And bail out none of them, a regulation of what government is allowed to do.

Probably better just to proscribe the banks.

The job of the banks is to lend capital to firms and households for the capital development of the economy. So you just make any loan or activity outside that remit unenforceable for regulated banks.

Banking should be boring, particularly if there is an expectation the taxpayer is on the hook in extremis.

Then the game will be that Goldman offers you more cash if you go to them first, sign the NDA, and never talk about the loophole again.

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