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A Financial Divide to Fix the System

Everyone seems to have an opinion, foolish or otherwise, about the financial markets these days. Your writer is no exception.

There are many ideas about what to do to “fix the system” at the detail level. Mine is bolder: split the system. My suggestion is something akin to the old Glass-Steagall Act, but with a different twist. I would split the financial system right down the middle.

On one side would be retail services for individual consumers. These could include traditional banking services (savings, checking, and so forth) and also other services such as insurance, home mortgages, brokerage, and beyond. The point is, this side of the system would only deal with consumers. In the United States, the customers of this side of the system would be only those with individual Social Security numbers.

The other side would be institutional, industrial, and commercial. This side of the system would only deal with artificial entities such as corporations, non-profits, and so on. And, again, a financial services company here could handle a wide range of services, from checking to deposits to insurance and so forth. In the United States, the customers of this side of the system would only be those entities possessing a Federal Tax ID number.

The narrow bridge between the two systems is that the institutions that would have only Social Security number bearers as their customers will have Federal Tax ID numbers themselves. This keeps the two worlds separated and provides a tremendous amount of clarity to the entire financial community. And, it protects our businesses from the follies of the retail financial services business, the source of the current contagion.


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