Second, hope against hope that someone has had the wisdom to print a lot of £100 and £1,000 notes that can be time limited in circulation. This is the big innovation I suggest to deal with panic. What do I mean by it? Simply that if anyone really fancies staging a run on a bank I suggest that notes be made available so that they can be paid in cash without having to offer the type of bank guarantees that crippled Ireland. And time delimited notes mean that they have to be deposited again within, say, a month when order has been re-established. And if they are not they are cancelled so that they cannot be used for crime. Their deposit in a bank outside the UK should also be barred: no bank should be able to claim settlement on them if they are. I am not sure such a technique has been tried before, but so what? What is required is short term liquidity. But the demand for short term liquidity should not create a long term difficulty as it did in 2008. Time delimited bank notes meet that need: the government will promise to pay, but only for a limited period after which redepositing has to occur. Confidence in being able to extract money from an institution is established. The demand for cash is then likely to fall. And the crisis has to pass in a short period.
What is the point of this? The central bank already promises to provide unlimited liquidity to solvent institutions.
And this is hilarious:
Fifth, legislation to stop capital flight must be passed: tax withholding at an emergency rate would be appropriate. This might be variable to match demand: the rate would rise if demand increased. This would not apply to settlement of trade liabilities.
If things get bad we’ll steal your money. Thus things get bad right now as everyone takes their money away before it is stolen.
Seventh, certain types of stock trading should be suspended. Stock lending should be barred. Short selling would also need to be barred. And if in consequence derivative positions are incapable of settlement emergency clearance should be arranged so that compensation in terms of margins made or lost could be settled instead of principal sums, where possible (although I stress, this idea needs development and is not my area of greatest expertise, and I admit it). The risks inherent in seeking to resolve such situations are noted to be high: any institution requiring emergency funding as a result would be subject to automatic nationalisation without compensation. Directors of such institutions would face unlimited liability with regard to losses.
You ban certain financial activities, then make directors personally liable for the losses from your ban on those activities?
Is this Mussolini or Alice in Wonderland here?
Eighth, emergency legislation with substantial criminal and asset confiscation penalties must be passed to prevent anyone seeking to profit from trades with a regulated financial institution of any sort requiring emergency funding. This would also apply to non-financial institutions applying for emergency credit to survive.
We’ll jail you if you buy shares in a bank that gets liquidity assistance?
Or how about this: bank needs liquidity, I do a repo maybe, possibly actually buy gilts from them, a purchase on which I make a (entirely normal) profit turn of 10 basis points and I go to jail?
What the fuck’s he been smoking?