I am curious about the Austrian philosophy about regulations on the banking/insurance industries.
Would it be a total hands-off approach? Examples would be the Statutory Accounting Principles placed on insurance companies by state regulators to help ensure proper loss-reserving and solvency. The SEC. Etc.
Thank you.
Government hands off, always and for everything is I suppose the hardline approach.
We support market-derived regulation, not the poor substitute that poses as such, e.g. the SEC.
If you want to restore faith in the banking system then you really need to have low -to- zero fractional reserve setting and get rid of the Federal Reserve. The Fed is the lender of last resort that serves to bail out the banks when they take on too much risk. Once banks know that no one has their back and that if depositors loose faith in their banks due to their risky undertakings, there is a risk of a bank run. This fear forces banks following prudent and sound lending practices.
The Fed lowering the fractional reserve setting for banks (allowing more debt to be issued based on reserves) to borrow to issue/buy more mortgages and allowing bankers to package these mortgages into CDO’s to be sold to hedge funds & investors was perhaps one of the riskiest things that any banker has been permitted to do under gov’t determined regulation. Gov’t regulation encouraged brokers to give mortgages to jobless people that had poor credit rating - to buy houses with no down payment - in order to keep the bubble inflating. I don’t think there has been anything this crazy/stupid in the history of the world.