The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger
Rehypothecation strikes me as something that should be illegal. What right have they to use someone elses collateral to abck up their own loans?
As for Keen's thinking, he makes it sound like Bernanke did not declare his intention of using unlimited QE to keep inflation at 2% minimum, and whatever else he feels like doing. That's all from the Fed, not from private bankers.
To the extent that what he says is right, and I've heard it before, that the Fed will follow the lead of the banks, giving them newly printed money if their reserves fall below requirements, if you want "macroeconomic stability", how about not doing that? It is a source of inflation right there, both from the printing of new digital cash to cover the banks' reserve requirements, and the fractional reserve banking it covers for, meaning the loans of money they do not actually have. No matter what limitations you impose on the money after it's created, you can be sure of one thing, that it will be spent, or more accurately, used to act as a reserve for 10 times the amount in loans, which will be spent. That's the whole point of it. And newly created money or money lent that doesn't exist, aka credit expansion, is inflationary, so long at it is spent anywhere and anyhow, even if not on swaps or what have you.
Now it may well be that he wants to ban are risky ventures, nothing more than gambling with other peoples money [which is the money usually gambled].
These gambles are made because of moral hazard, meaning the banks know they will be bailed out if they lose. If you want to make sure they do not take irresponsible risks, one way is to make good and sure you do not bail them out, placing at least some of the risk on them, a la Lehman Bros, or you can impose limitations on what they do with their money, as Keen suggests.
So let's restate the question as follows: If a govt doesn't care at all about inflation, and also intends, by imposing the loss on the general public, to bail out banks who risk the depositors' money irresponsibly, and the banks know this full well, and said govt doesn't care about the fact that all limitations imposed by a govt on banks are used by the bankers to get rid of competition, usually because they decide what the limitations are to be, might it be a good idea to impose those limitations anyway, given that the govt has no intention of getting to the root of the problem, and so the limitations will not solve, but just reduce a little bit, the potentials for abuse by the banks?
Sadly, the answer might be yes.
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It's easy to refute an argument if you first misrepresent it. William Keizer