Paul Volcker, almost as smart as Alan Greenspan

In what amounts to the smartest policy suggestion in recent history, Paul Volckler suggests that money market funds are "free riders" that "weaken the financial system." Money market funds are an incredibly important source of short term loans to business, and have a failure rate far below that of the banks. Yet, Volckler would prefer banks to be the only providers of short term liquidity.

Volcker speaks:

“In my vision of the new financial system, you obviously want to protect banks and have strong banks, and I don’t think they should be put at a competitive disadvantage vis-a-vis money-market funds”

So a free market concept providing higher yields to customers with a lower failure rate (around 1 fund ever 10 years) should be dispensed with in order to protect banks? Banks that require government insurance just to exist.

Thanks Paul. I will write that one down.

via bloomberg