Two Wrongs Make a Right, Right?

Given that the federal government guarantees bank deposits, the feds now want to force banks to stop trading with their own money in financial markets, to prevent taxpayers from paying the tab when the banks lose.  

This would pile one use of force on top of another. The government wants to force banks to stop proprietary trading, to prevent people from being forced to make good on the government guarantees.

Here’s a better idea: Forget both policies. Repeal the government guarantees and treat bank proprietary trading as none of the government’s business.

The guarantee of bank deposits requires the government to regulate banks and conduct audits (whose ongoing costs add to the federal deficit). But dear old Uncle Sam does a miserable job of it. The 2008-2009 financial disasters developed right under the government’s nose.   

Bank audits should instead be paid for by prosperous people who would be concerned about their large deposits being safe.  

With the government guarantees repealed, banks would strive to reduce their investment risks as quickly as possible, for fear the privately-paid audits would induce their depositors to flee. The clean-ups would also benefit poor people, since they use the same banks as the wealthy but wouldn’t have to pay for the audits.

Two wrongs don’t make a right. Repeal the government guarantee of deposits and let the banks invest their own money in the manner their customers consider profitable but safe.