Kotlikoff: Why Did We Have a Great Recession?

Laurence Kotlikoff says the fundamental cause is a banking system that is inherently vulnerable to runs and panics. When banks borrow short and lend long, they can’t cover a run on their deposits quickly enough to meet customer desires. The solution: 100% reserves for all credit market institutions. Under this reform, all banks would become intermediaries and all risks would be undertaken by non-bank entities. This is a reform he proposed with JohnGoodman in The New Republic in 2009.

You can now read the full paper at NBER.