Do We Need Central Banks? (2017)

Bankers do not intend to increase risk without safety backups. In the financial crisis banks were incompetent just as much as unethical -- they had risk models that told them they had a safety net, but their models were wrong

They also generally don't operate like a casino. They have customers, and sell products. The securitized RMBS products at least in theory offered social benefit: decreasing cost of housing without increasing risk. The idea was that by pooling mortgages you could reduce risk through diversification. Risk reduction through diversification is a very well established phenomenon. So buying mortgages, bundling them to reduce risk and selling them in theory (and in practice, til the bust) enabled more people to get mortgages and own homes

The bad stuff happened 1) when realty diverged from their models and 2) the market evolved into a complex beast with a massive snowball of people doing unethical stuff (inside and outside of banks).

So in theory and in reality before the bust, rmbs provided a benefit to investors who got products that provided them a good financial return and lowered the cost of owning a home. Greed played a role in popping the bubble but so did incompetence

Not sure what your investing situation is but your second to last paragraph isn't true. The rise of ETFs has enabled average investors to invest with very low fees and many banks offer commission free trades. If you're the "best investor today" you probably have a lot of money and thus get decent deals from banks. If you are losing money it's bc too much competition from other investors due to easy money rather than banks squeezing you

You are right - this will be a strong incentive to keep as little as possible in a checking account, and either lend or invest the rest. There are two main differences from the current system:

1. Depositors will have to explicitly give up/lock their funds for a set period of time if the funds are to be lent out and they are to earn interest. Early withdrawals come with a significant fee. This makes bank runs very unlikely, eliminating the need for a central bank. The longer you want to lend the money for, the higher the interest. But you can also lend money overnight.

2. No money creation, leading to proper alignment of time preferences of investors/consumers and businesses. Interest rates correctly reflect this time preference. If money represents a claim on real resources, then a business can only use as many of these resources for investment as consumers are willing to forego consuming. Interest rates reflect the actual supply and demand of resources/consumption at different time horizons and do not get artificially "set" or otherwise manipulated.

Because of these two properties, the boom-bust leverage cycle is greatly dampened, if not completely eliminated.

Historically a big purpose of central banks or at least a rich institution was to be a buyer of last resort and prop up the economy in times of panic. Doesn't always have to be a central bank, but needs to be an institution big enough and independent enough to save markets. A decentralized system would almost by definition not have this, and probably result in disaster if there was a panic.

Don't have an exhaustive list of financial panics offhand, but for ex:

Panic of 1837 was thought to be as bad as it was in part bc central banks weren't strong enough to step in

American economy recovered from Great Depression in part due to increased govt spending in ww2

Panic of 1907: Rockefeller and J.P. Morgan acted as financial backstop

2008 financial crisis response led largely by central banks

China's stock market is managed very tightly by central bank

Yes, but accepting a foreign currency as your defacto currency is IMO insane. US sets monetary policy for the US and the US only. So if US raises interest rates to combat inflation that is occurring in the US. Georgia by default accepts this position regardless of what is actually happening in Georgia. If Georgia has deflation occurring, then this is bad for Georgia.

If you want to be a "Big Boy" country, you have to have your own monetary policy and currency. The problem is, managing your monetary policy and currency is really difficult. Countries that experience hyper-inflation are usually ones where monetary policy isn't done right. The other side of it is, when you do have the right monetary policy and currency controls, it allows to survive and possibly thrive in the financial world.

> creating currency out of thin air

But this is one of the main things central banks do. They have a monopoly to counterfeit money. And in conjunction with their affiliated government people are forced to use it to pay taxes.