This system collapsed in 2008, and has been on government/central bank life support ever since. Mehrling concludes that securitization can work, if the government acts as insurer of last resort. In other words, privatization of profits, socialization of costs.
The present money system is an abomination that has metastasized beyond human understanding or control.
A humorous British skit has a portly middle aged banker arriving home after work. His wife asks what he did that day. "I made 5 million pounds". Oh, how did you do that, she asks. "I haven't a clue", he replies.
Nobody understands the present financial system. It is too complex to regulate, too byzantine to understand. Mathematicians -- many of them physicists who earn 10X more by doing money mechanics on Wall St than by doing quantum mechanics -- design games called "derivatives". Players within the system learn how to manipulate levers that cause money to fall into their own accounts. They learn the black arts of misdirection, in order to induce bad moves by other players and win high stakes bets among each other. It is a Wild West anything goes casino, an unregulatable "free market in credit creation".
Unfortunately, it is that same credit that activates the real economy. If the credit system collapses, the economy goes down with it.
From where we are right now, with the whole teetering mess perched atop US Treasury debt (bonds): "radical" monetary reform that converts bank-issued credit to government-issued money would pull out the foundation and the whole financial structure would most likely collapse in a heap of smoking ruin. Monetary reform seeks to collapse-proof the financial system, not cause it to collapse.
The addition of some government/central bank-issued overt money into the economy, where debtors can use it to pay down their bank debts (deleverage the legacy banks and deleverage the economy), can fortify the base to collapse-proof the legacy system and support the shadow bank house of dominoes that rests upon it. This can stabilize the worst of the instability; fortify the worst of the fragility. But the whole system is not realistically "reformable". So shore up the dance floor and let the music play.
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