Jimmy Stewart Is Dead : Ending the World's Ongoing Financial Plague with Limited Purpose Banking

Discover how the global financial plague is poised to return, and what can be done to stop it This is not your father's financial system. Jimmy Stewart, the trustworthy, honest banker in the movie, It's a Wonderful Life, is dead. And so is his small-town bank, Bailey Savings & Loan. Instead, we're watching It's a Horrible Mess with Wall Street (aka the Vegas Strip) playing ever larger craps with our economy and our tax dollars. This book, written by one of the world's most respected economist, describes in lively, humorous, simple, but also deadly serious terms the big con underlying the big game?the web of interconnected financial, political, and regulatory malfeasance that culminated in financial meltdown and brought us to our economic knees. But it also proposes an amazingly simply solution?Limited Purpose Banking to make Wall Street safe for Main Street. This book, as well as the financial fix described within it, have received rave reviews from a veritable who's who of policymakers and economics, plus five economics Nobel Laureates Written by a leading economist whose insights on this topic are unparalleled Outlines the first and only proposal to fundamentally fix our financial disaster for good Jimmy Stewart Is Dead will fundamentally change the way you think about the economy, financial markets, and the government. Jimmy Stewart Is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking 13 Contents 17 Foreword 23 Preface 27 Acknowledgments 31 Chapter 1: It’s a Horrible Mess 33 It’s Not Bailey Savings & Loan 34 Economics Diary, Spring 2009: The D Word 39 Economics Diary, August 22, 2009 41 The Treasury’s No-Stress Stress Test 43 Economics Diary, August 26, 2009: The State of the States 43 It’s the Psychology, Duh! 45 When Lexington, Massachusetts, Turns into Camden, New Jersey 47 Economics Diary, August 29, 2009: The Great D or the Great R? 50 Systemic Risk Insurance 52 Who’s Backstopping the Backstop? 53 Trust Doesn’t Come Cheap 55 Full Nondisclosure 56 A System with No Firewalls 58 Chapter 2: The Big Con: Financial Malfeasance, American Style 63 Richard Fuld or Elmer Fudd? 64 Playing Bridge as Bear Burned 66 Macho, Macho Men 70 Stan the Man 71 Economic Diary, August 11, 2009: Uncle Sam Sues Uncle Sam 72 Economics Diary, September 14, 2009: Judge Rakoff to the SEC: “Drop Dead” 74 The Prince of Redness 74 CDOs to the Races 76 CDO Liquidity Puts 77 AIG’s Three-Hundred-Million-Dollar Man 79 Franklin Delano Raines 83 Speculation with Other People’s Money 84 It’s the Leveraging, Not the Leverage 86 Stealing Other People’s Money 89 Madoff’s Ponzi Scheme 90 The Essence of Ponzi Schemes 90 Economics’ Take on Ponzi Schemes 93 Don’t Show Me the Money 94 The Real Crime in a Ponzi Scheme 97 Is the U.S. Banking System a Ponzi Scheme? 97 From Ponzi Schemes to Full Disclosure 99 Disclosure Is Essential 101 Disclosure Is Not Enough 102 Uncle Sam’s Ponzi Scheme 106 Fiscal Gap Accounting 107 Why Is the U.S. Fiscal Gap So Large? 108 Social Security’s Unfunded Liability 109 Is the U.S. Bankrupt? 110 Chapter 3: Uncle Sam’s Dangerous Medicine 113 Sam’s Got Your Back 115 Maturity Transformation in Theory and Practice 116 Backing the Buck 118 Opening Pandora’s Box 121 Economics Diary, September 14, 2009: Trade/Financial War with China? 122 Our Once and Future Horrible Mess 123 Big Brother, Can You Spare One Hundred Billion? 123 Bailing Out Corporate Pensions 126 Recapitalizing the Banks 130 Buying Up Toxic Assets 134 GASP—The Geithner and Summers Plan 135 Putting More of Someone Else’s Skin in the Game 138 Leverage upon Leverage 141 “Weapons of Mass Financial Destruction" 142 Proposed “Control of Derivatives” 144 The Dangers of Putting Wall Street on a Leash 144 Chapter 4: “This Sucker Could Go Down” 147 Taking Stock 148 We Are Not All Keynesians Now 150 Reviewing the Case for Radical Surgery 154 Chapter 5: Limited Purpose Banking 155 Full Disclosure—No Plan Is Perfect 156 Banks = Mutual Funds 158 The Federal Financial Authority 158 Ending Insider Rating 160 Bye-Bye, Bernie, Bye-Bye, Allen 160 Initiation, Not Securitization, Is the Problem 160 Securitizing Death 162 Cash Mutual Funds 163 Obviating FDIC Insurance and Capital Requirements 164 Cash Mutual Funds and Narrow Banking 164 Regaining Control of the Money Supply 166 Insurance Mutual Funds 168 Illustrating a Life Insurance Mutual Fund 169 Insuring the Uninsurable—A Life Insurance Example 170 The Financial Risk of Swine Flu 172 LPB Life Insurance Mutual Funds and Tontines 174 Illustrating Other Types of Insurance Mutual Funds 175 LPB Lets Us Leverage Us, But Not Our Countrymen 176 Using Insurance Mutual Funds to Buy and Sell CDSs 177 Sharing Aggregate Risk 178 Parimutuel Betting and Insurance Mutual Funds 180 Betting on More than One Horse/Mortality Rate 180 Illustrating a Homeowner’s Insurance Mutual Fund 181 Helping Solve the Corporate Governance Problem 182 Relationship of Limited Purpose Banking to Glass-Steagall 182 Isn’t LPB Simply Imposing 100 Percent Capital Requirements? 183 Chapter 6: Getting from Here to There 187 Implementing Limited Purpose Banking 188 Zombies and Gazelles 189 Deleveraging Investment Banking and Trading 190 An End to Rogue Trading 191 The Politics of Limited Purpose Banking 193 Chapter 7: What About? 195 Can We Just Agree to Agree? 197 Will LPB Reduce Liquidity? 198 Will LPB Reduce Credit? 198 Who Will Lend to Business? 199 Will LPB Reduce Leverage? 199 Will LPB Shrink the Financial Sector? 200 Doesn’t LPB Force Us to Become Our Own Bankers? 200 Isn’t LPB Reducing the Amount of Safe Assets? 200 Does LPB Require Homemade Insurance Policies? 202 Insuring Against Changes in Insurability 203 With LPB You Don’t Know the Odds Until It’s Too Late 204 Why Not Simply Correctly Price the Government’s Guarantees? 204 How Will Monetary Policy Operate? 206 What about Foreign Assets? 207 Won’t Americans Just Bank Abroad? 207 Doesn’t LPB Dramatically Shrink the Money Supply? 208 What’s the Role of the FFA in Investment Banking? 209 What about Venture Capital, Private Equity Firms, and Hedge Funds? 210 Is GE a Bank under LPB? 210 Can’t Nonfinancial Corporations Play Conventional Bank? 211 Why Let Proprietorships Run Traditional Banks? 211 Will LPB Prevent Financial Panics? 211 LPB Will Destroy Valuable Relationships and Information Banks Have About Their Borrowers 212 Economics Diary, November 11, 2009: Whither the Economy? 213 Chapter 8: Conclusion 221 Afterword: Fixing the Rest of Our Economic Mess 223 Fixing Taxes: The PurpleTax 224 Fixing Healthcare: Medicare Part C for All! 229 Fixing Social Security and Retirement Accounts: The Personal Security System 233 Removing the Fiscal and Economic Swords of Damocles 236 Notes 239 About the Author 259 Index 261 0470581557,9780470581551,0470608994,978-0470608999

Make no mistake, Jimmy Stewart, the honest, trustworthy banker (a.k.a. George Bailey) in It's a Wonderful Life, is dead. And so is his small-town, virtuous bank—Bailey Savings and Loan. Today, a very different financial movie, It's a Horrible Mess, is playing on Main Street. This economic horror show—produced by Wall Street and directed by Congress—is no Christmas story, but a tale of pervasive and massive financial malfeasance that has devastated the lives of millions of people around the globe.

Though our financial system lies in tatters and economic misery stalks the land, the horrible mess is far from over. Uncle Sam, who aided and abetted the financial fraud, is working overtime to restore a financial system that's virtually designed for hucksters, that no one can trust, and that towers on a bed of sand.

Uncle Sam's strategy is Wall Street's—borrow short, place risky bets, make financial commitments you can't possibly keep, and let no one see precisely what you're doing. The sums involved are enormous and have leveraged us and our children far beyond our capacity to pay. Sam's bluff has put our economy at grave economic risk. Without the right financial fix, the global financial plague will strike again with even more devastating force.

Written by Laurence Kotlikoff—one of the world's most respected economists—Jimmy Stewart Is Dead describes in lively, but deadly serious terms the big con underlying the big game: namely the web of interconnected financial, political, and regulatory misconduct that culminated in financial meltdown and brought us to our economic knees. It's a tragic story that starts with our economic disaster and where it's headed, describes its causes, identifies its architects, and then shows how to fix the system for good.

Throughout the book, Kotlikoff not only surveys the disheartening events surrounding our economic collapse, but also conveys their deeper economic meaning, particularly the extraordinary danger of maintaining the financial status quo. Along the way, he proposes Limited Purpose Banking (LPB)—a straightforward and easily implemented plan to make Wall Street safe for Main Street. Featured in the Financial Times, Forbes, the New Republic, Bloomberg, and other top media, LPB transforms all financial corporations into pass-through mutual companies that can never fail, never leverage the taxpayer, and never sell fraudulent securities. LPB is the first and only proposal that could fundamentally end our enduring financial plague and restore economic prosperity.

Whether or not you agree with Kotlikoff's conclusion, you'll find his analysis of the crisis and his simple solution a true economic eye-opener. Indeed, Jimmy Stewart Is Dead will fundamentally change the way you think about the economy, financial markets, the government, and the safest way to shape our economic future.

Discover how the global financial plague is poised to return, and what can be done to stop it This is not your father's financial system. Jimmy Stewart, the trustworthy, honest banker in the movie, It's a Wonderful Life, is dead. And so is his small-town bank, Bailey Savings & Loan. Instead, we're watching It's a Horrible Mess with Wall Street (aka the Vegas Strip) playing ever larger craps with our economy and our tax dollars. This book, written by one of the world's most respected economist, describes in lively, humorous, simple, but also deadly serious terms the big con underlying the big game-the web of interconnected financial, political, and regulatory malfeasance that culminated in financial meltdown and brought us to our economic knees. But is also proposes a solution-Limited Purpose Banking, a straightforward and easily implemented plan to make Wall Street safe for Main Street. Outlines the first and only proposal to fundamentally fix our financial disaster for good Written by a leading economist whose insights on this topic are unparalleled Explains the tenets of the plan, such as the regained government control of the money supply and the new role of insurance companies Jimmy Stewart Is Dead will fundamentally change the way you think about the economy, financial markets, and the government-sand even if you don't agree with Kotlikoff's conclusion, you'll find his analysis of the crisis and his simple solution a true economic eye-opener.The EPUB format of this title may not be compatible for use on all handheld devices.