The Aleph Blog » Blog Archive » What I Would Do

What I Would Do

My friend Dr. Jeff wrote in response to one of my articles:

  1. Jeff Says:
    Most of the questions you ask have been answered on the public record. They are available for our evaluation.

    In the case of Lehman, the Fed could not take the collateral because it did not qualify. If they had, you would have been leading the charge in objecting. Treasury had no authority.

    In the case of AIG, there was concern about counter-party risk that extended worldwide. We got a demonstration of that from Lehman.

    I am mystified by your criticism of the Obama administration — yet to weigh in on this.

    As a careful, loyal, respectful, and interested reader of your work, I have some questions. You have been critical of elected officials, appointed officials, independent bodies — in fact — every agency of government. Just how do you think we should be setting policy?

    Is there some other country or system that is doing this better?

    Just wondering…

Look, Jeff, I feel the same way,  I hate being merely a critic.  That is one reason that I submitted many of my policy ideas to the Obama administration.  Given the limitations of their website, though, I can’t easily point to what I submitted.

Aside from China, the competitive fringe in Asia is doing better.  Aside from that, other countries are a tie at best.

But what I would propose as a solution to our current crisis is this:

If I were offered the opportunity to fix things, I would take it, and:

The last one I like the least, but I’m afraid it would have to be done.  Phase two would be:

  • Move to a currency that is gold-backed.
  • Replace the Fed with a currency board.
  • Create a new unified regulator of all depositary institutions.
  • Slowly raise bank capital requirements, and make them countercyclical.
  • Bring all agreements onto the balance sheet with full disclosure.
  • Enforce a strict separation between regulated and non-regulated financials.  No cross-ownership, no cross-lending, no derivative agreements between them.
  • Bar investment banks from being publicly traded, and if regulated, with strict leverage/risk-based capital limits.
  • Move back to balanced budgets, and prepare for the pensions/entitlements crisis.

That is my proposal, and it is better thought out than the politically driven drivel that occupies DC today. I am thinking longer term than most politicians do, and aiming for a society that can work in the long run.






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6 Responses to What I Would Do

  1. lostme says:

    I was absorbing everything until I got to the “move to a currency that is gold backed” Ah, the cry of Barry’s Boys: “Let’s go back to 1910, and start World War One all over, again”. Good grief, back to the gold standard?

  2. lostme — I just want monetary policy out of the hands of the government. When they have that power, they create disasters like the thirties and the present.

  3. matt says:

    “You have been critical of elected officials, appointed officials, independent bodies — in fact — every agency of government. Just how do you think we should be setting policy?

    Is there some other country or system that is doing this better?”

    This is incredibly ignorant–it is tantamount to saying, “We might as well not try to improve because we are the least bad.” This “lessor of two evils” ideology that Americans are so comfortable with is an impediment to progress.

    I really appreciate your point of view, Mr. Merkel. I also admire the letters you send to policy makers. Please keep up the good work.

  4. iron308 says:

    “I really appreciate your point of view, Mr. Merkel. I also admire the letters you send to policy makers. Please keep up the good work.”

    I agree with Matt. Your blog is a regular stop for me. It is refreshing to see a common sense, backed by real world experience, reward the prudent/punish the irresponsible view point explained in a way that is understandable. (unlike that sentence).

  5. LoanShark says:

    Brilliant. Political reforms would include a return to federalism. States could socialize all they wanted but the failures would be local and short lived. To lostme: Gold backed currencies control gov’t stupidity. No need to redeem your paper if the bureaucratic state acts responsibly.

  6. Ralph says:

    Money is nothing but stored Labor.

    I have 50 dollars, I can get someone to do 50 dollars worth of work.

    Anything that can keep that relation stable and there is a lot of it can be used as a currency.

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


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