Proposal for Omnibus Fund to Devolve Commercial Banking Functions

solution is to devolve commercial banks into their separate deposit and lending functions, with separate stockholders and only incidental interaction. It is best for the free market to do this alone. The omnibus fund could be the decisive innovation. It too is possible today. It would offer clients full competitive return, so that no supply would be too large. It would match bank deposits in liquidity and payment services with the low service charges typical of other index funds, while tailoring risk and return to client needs with essentially costless derivatives. The intention would be obsolescence of bank accounts, and devolution of banks in result. Deposit-and-lend banks, inevitably leveraged at 10:1 or more, are the weak link explaining economic collapses about once a generation since the system was founded in the Renaissance. Misdeeds and misguesses and world events were only the proximate cause. Chicanery will be with us forever. Honest bad judgment will be with us forever. Supply shocks, as when OPEC raised oil prices in 1973, will be with us forever. Wars will be with us forever. Setbacks for our trading partners will be with us forever. These bring the high winds. I don’t foresee much payout in trying to dial down the winds by upgrading human nature. The payout is in stabler structures. The big bad wolf huffed and puffed, and the brick house stood. Omnibus funds will carry no leverage. Accounts themselves will be levered to taste, but for short periods only. Futures trade in seconds. The fund as a whole cannot become worthless until each and every security in its portfolio does. High winds and leverage can wipe out the accounts of risk-takers who chose the long leg, but not of those who opted for contractual interest and safety. That’s as it should be. Risk-takers may name their poison. Omnibus means for all, and all-inclusive. Derivatives are central to the omnibus fund idea. Some see them as dangerous. They can be. They are powerful. But they have a good track record of performing as contracted. Cash reserves, called margins, have proved enough to escape default Chapter 8 Banks, Money and Macroeconomics 2/8/16 25 HOUSE_OVERSIGHT_011114