I take your point. I suspect that in order for a zero-MT environment to be conceivable in theory, it would have to be prohibited by government in the defined local environment (e.g. all private financial institutions). Otherwise, MT is too natural a banking risk to be relinquished voluntarily by any normally dancing CEO.

If MT is such a problem, then why don’t banks simply pass on the problem to their customers by saying to each “the bank reserves the right to limit withdrawals to x per day during times of excessive demand”? Assuming that MT has some efficiency advantages, it seems a shame to throw the whole thing out because of a risk that materialises once every few decades.

I don’t think that it is really. There are so many ways of doing maturity transformation that if banks don’t do it, someone else will.

a: Salaries in banking are already high. “Very lean” is, I guess, a reflection of someone who works on Wall Street, who thinks getting 50% of last year’s record bonuses is equivalent to – like – poverty.

Last year was not a record year. 2005/2006 were record years. Most people in a investment bank don’t make enough money to be affected by Obama’s tax increases. It’s not poverty, but the reality of the situation is that most people in an IB aren’t making the type of money that “Joe the Plumber” supposedly makes (but doesn’t). The salaries in an investment bank are *extremely* skewed, with a few people making huge amounts of money, and most people making not huge money, which is one reason that you have more sympathy for social redistributionist policies among people in Wall Street than you otherwise would expect.

Investment bankers aren’t going to be facing poverty, but some of the people who depend on the 48% marginal tax rates that you see in New York City are going to get hit. For people working in IB’s, 48% of the bonus goes to public schools, parks, public transit, free clinics, social workers etc. etc. etc. so the people who do deal with poverty in NYC are quite worried since their funding is about to disappear. You go back to the 1970’s and look at the pictures of drug-infested, crime-infested, graffiti-filled slums. They don’t exist anymore. In NYC, trickle done does work because of the high tax rates.

The real frightening thing is for someone with a physics or engineering Ph.D., banking the *ONLY* industry in the United States that can give you *ANY* hope of getting into the upper class. If you work in another other industry, you end up hitting the glass ceiling and you end up working for MBA’s and finance people that are generally clueless. You can start your own startup company in Silicon Valley, but most CEO’s in Silicon Valley end up working for the VC’s and bankers that run the company, who are sometimes clueless.

That stinks, but that’s the way that it is. If you hate the system and it disgusts you, that’s great. I’m trying to give you the information you need to change it. Poverty doesn’t really bother me that much. I wouldn’t mind teaching community college for one fourth the salary that I’m making. However, what does make me angry is the lack of power. If you don’t have money, you don’t have power, and if you don’t have power, then other people are going to be making decisions about your life, and that is unacceptable to me.

I’m not defending the system, I’m just describing it. However for a lot of scientists and engineers, Wall Street has given career options and opportunities that don’t exist anywhere else in the United States.

The “giving up on banking” notion related to the necessity of withdrawing from all risk taking (not just MT risk) in order to hedge black swan risk. I realize from your posts and comments that a zero-MT environment is quite conceivable, at least in theory, while still permitting other risk taking.

The Keynes quote is excellent, as is normal with Keynes, although Chuck Prince continued to dance and didn’t exactly escape blame for being conventionally reckless.

The other Keynes quote that captures perfectly the pandemic risk management disease goes something like:

“Better to be approximately right than precisely wrong.”