In my last blog I talked about how Uncle Sam has acquired what is the single largest share of the private sector in the USA and how he should use that clout to make the securitized debt market transparent. What I did not mention is that he acquired all this on the cuff, i.e. by selling Treasure bonds and other government securiites to pay the tab. What we have wound up with is that the private sector has financed Uncle Sam to buy this massive stake in the private sector. Again, what it took the Bolsheviks a sea of blood to do in Russia, Uncle Sam has done in the USA for chits. Exquisite humor bordering on the sublime.
However, there is a way that Uncle Sam may be able to use his position to finally put an end to the continued uncertainty about the health of our various banks and other financial institutions. Remember, Uncle Sam got into the banking business by injecting funds directly into banks to restore balance to their balance sheets savaged by devaluation of their securitized debt holdings. Since then the Feds have been badgering banks to rebuild their capital bases.
Now for my suggestion, why not have Uncle Sam hold all bank capital reserves? Each bank would have an account with the Feds known as their, “capital reserve account.” The bank would put funds into this account held by the Feds. But more importantly the Feds could contribute to the account if and when needed to bolster the bank. This would be a loan for the bank to repay, but it would be a quick and flexible way to keep banks “healthy.” It would also allow the Feds to control the banks’ lending and investment activities, e.g. purchase of securitized debt.
This would be similar to, but short of, nationalizing the banks. However, it avoids the controversy of such an action, while allowing the Feds much the same control.
Just a thought.