Banking Ceased to Operate Under Free Market Rules Decades Ago

The Banking Mess

“Basel Becomes Babel as Conflicting Rules Undermine Safety” says a Bloomberg headline. This refers to international banking rules being worked out in Basel,  Switzerland.

The truth is that banking ceased to operate under free market rules decades ago. Now it is just an artificial hodgepodge of irrational rules run by government. It would be clearer if government admitted what it has done and overtly nationalized the whole thing. At least then it would be clearer who is responsible for the mess.

The 2010 US Dodd Frank legislation ran to over 2,000 pages. After five years of rule writing based on it, the regulations are expected to run to hundreds of thousands of pages. On top of that there are the international rules worked out in Basel. These are also getting longer and longer and less and less understandable or enforceable.

Banking is already a high risk occupation from a legal viewpoint. You join a bank and have to sign a statement saying you have read  the rules. This is a lie of course because few have actually read all of it and nobody can understand it anyway.

It would not be hard to fix the mess. It would simply require bringing back a free market in banking. That should also include a competitive market in  money and no fractional reserve lending (lending money you don’t have).

In one stroke we would get a functional banking system and get rid of an enormous amount of crony capitalism.

(From Bloomberg)

“They’re like a bunch of bumper cars,” Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc., said of revamped banking regulations. “On their own, each might do some good things, but they bump into each other over and over. That could render them useless, or worse perhaps harmful.”

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