Some sentences I'll be thinking about over spring break (from Gary Gorton's "Subprime Panic"):
"How do banking panic's come to an end? Some history is instructive. During the 19th century, in the USA, the solution to banking panics was the institution of the private bank clearinghouse, which evolved over the century to the point where banks' response to panics was fairly effective... This system was abandoned with the founding of the Fed and the subsequent adoption of deposit insurance. These were institutions aimed [at] preventing a panic from happening. But they are not equipped to solve the information problem that arises if a panic does happen. Clearinghouse loan certificates attacked the problem directly."
I think there are some valuable lessons to be learned from the episodes of "free-banking", especially relating to this crisis. The clearinghouse idea is one- not that it will get us out of this mess (but neither might the FDIC- who spent $36 million on another Georgia bank failure today) , but it's something that might be useful the next time such a panic happens.
One of the reasons I came to UGA, was to be around George Selgin who is a leading scholar in the theory and history of competitive banking systems. George certainly knows a great deal, but much of his work isn't written in the language of mainstream economics (i.e. he doesn't use formal mathematical models). While he doesn't see much point, I see a good deal of value in such models and hoped to "translate" and extend some of George's work. But alas, he left UGA during the summer I arrived- what timing I have!
I'll just have to make due re-listening to this Econtalk episode where George further explains the role and functions of private bank clearinghouses.
One of the reasons I came to UGA, was to be around George Selgin who is a leading scholar in the theory and history of competitive banking systems. George certainly knows a great deal, but much of his work isn't written in the language of mainstream economics (i.e. he doesn't use formal mathematical models). While he doesn't see much point, I see a good deal of value in such models and hoped to "translate" and extend some of George's work. But alas, he left UGA during the summer I arrived- what timing I have!
I'll just have to make due re-listening to this Econtalk episode where George further explains the role and functions of private bank clearinghouses.
