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Jimmy Stewart Is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking Hardcover – March 8, 2010

3.9 out of 5 stars 14 customer reviews

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Editorial Reviews

Amazon.com Review

Discover how the global financial plague is poised to return, and what can be done to stop it

This is not your father's financial system. Jimmy Stewart, the trustworthy, honest banker in the movie, It's a Wonderful Life, is dead. And so is his small-town bank, Bailey Savings & Loan. Instead, we're watching It's a Horrible Mess with Wall Street (aka the Vegas Strip) playing ever larger craps with our economy and our tax dollars.

This book, written by one of the world's most respected economist, describes in lively, humorous, simple, but also deadly serious terms the big con underlying the big game-the web of interconnected financial, political, and regulatory malfeasance that culminated in financial meltdown and brought us to our economic knees. But is also proposes a solution-Limited Purpose Banking, a straightforward and easily implemented plan to make Wall Street safe for Main Street.

  • Outlines the first and only proposal to fundamentally fix our financial disaster for good
  • Written by a leading economist whose insights on this topic are unparalleled
  • Explains the tenets of the plan, such as the regained government control of the money supply and the new role of insurance companies

Jimmy Stewart Is Dead will fundamentally change the way you think about the economy, financial markets, and the government-sand even if you don't agree with Kotlikoff's conclusion, you'll find his analysis of the crisis and his simple solution a true economic eye-opener.

Amazon Exclusive: Q&A with Author Lawrence Kotlikoff

1. What is limited-purpose banking?
First I want to point out that Jimmy Stewart Is Dead is only partly about this proposal. It’s in large part a layman’s tour of the financial collapse conducted by an economist who can talk in plain English and is holds no bars. If you really want to understand what happened in fundamental economic terms, please read the book. And if you really want to know how to fix the problem, please read the book and then send it to your Senator or Congressman.

Limited Purpose Banking puts takes the multifaceted fraud out of our financial system by turning all banks, insurance companies, hedge funds, etc. into fully transparent mutual fund companies. Limited Purpose Banking also abolishes over 115 federal and state regulatory authorities and replaces them with the Federal Financial Authority, which verifies, fully and immediately discloses, and independently rates and appraises all securities held by the mutual funds.

In a nut shell, Limited Purpose Banking makes Wall Street safe for Main Street. Under Limited Purpose Banking we will never again experience financial collapse and contagion. The proposal is receiving significant attention by Mervyn King, Governor of the Bank of England, and other top policymakers throughout the world.

2. Another term that is mentioned a lot these days is narrow banking. What is the difference between narrow banking and LPB and why is LPB a better option?
Narrow Banking says that the monies invested in checking accounts and similar short-term deposits must be invested in very safe securities, like federal government Treasury bills. It lets the rest of the financial system do its own thing and tells that part of the system – “Boys and girls, you’re on your own.” If you borrow money to invest in fraudulent or simply risky securities and lose your shirts, we’re not going to bail you out. Well, this was tried in the case of Lehman’s failure and it blew up in the government’s face.

Limited Purpose Banking includes cash mutual funds, which are held strictly in cash. So one element of LPB is narrow banking. But LPB is much broader. It precludes any financial intermediary of any kind, which is protected by limited liability, from doing anything but marketing mutual funds and the mutual funds are themselves never leveraged. So the entire financial piping system is made safe, not just a few pipes that weren’t at much risk to begin with.

3. What are the advantages of implementing a system like limited-purpose banking and how will it differ from our current banking system?
We’ll never have another financial collapse. We’ll never see a run on banks ever again. We’ll never see insurance companies insuring the uninsurable. We’ll get rid of all the con jobs underlying the current financial system. There will be no more insider rating deals, liar loans, director sweetheart deals, bonuses which amount to corporate theft, bribing of Congress, and the list goes on. The financial plague will be cured, once can for all.

The biggest difference between what we now have and Limited Purpose Banking is we’ll have a financial system that’s honest and that we can trust. This will make all the difference in the world in getting the American economy back on its feet.

4. You’ve recently been referred to as Mervyn King’s (Bank of England) “Guru”. Do you anticipate that the UK might be more amenable to a proposal like LPB than the US? Why?
First, Mervyn King needs no guru, and I’m not his guru. He’s a brilliant economist and an outstanding public servant. I’ve learned a lot more from him over the years than he’s learned from me.

Many of the ideas contained in Limited Purpose Banking were being independently conceived and considered by other economists at the time the book appeared. This includes Mervyn King and other superb economists at the Bank of England.

Governor King, Alisdair Turner, and other top members of the British government are taking this plan very seriously. It’s very simple and if the UK adopts it, the U.S. is likely to follow.

But the U.S. may move first. If you look at who endorsed the book – former Treasury Secretary and Secretary of State George Shultz, former Senator Bill Bradley, former Secretary of Labor, Robert Reich, two former CEA chairmen (Michael Boskin and Murrar Weidenbaum), two former chief economists of the IMF (Simon Johnson and Ken Rogoff), a former chief economist of the SEC, a former deputy Comptroller General of the Currency, and … not to mention FIVE Nobel Laureates in Economics, you see that there is extremely widespread support for this plan in U.S. policy circles and academia. The endorsements are coming from all sides and ends of the political aisle.

5. What do you anticipate as the reaction by the banking industry to LPB?
If the banking industry is smart, they will realize this is the best way to go. The American public is extremely angry and is not up for business as usual. 15,000,000 people are unemployed and many other millions are underemployed or have dropped out of the labor force. Wall Street has destroyed the economy and millions of innocent economic lives. Wall Street did this by engaging in fraud – left, right, and center and then turning to the tax payer to pay for the havoc it created. These problems continue to this day. They need to be fixed fundamentally. The status quo seems safe, but as the book shows, it’s extremely risky. And because it is so risky, Wall Street will either need to be baby sat in a manner it won’t like or it can operate honestly under LPB. These are its only two options.

Review

"Kotlikoff has presented a thought-provoking proposal that merits attention in the debate over financial regulation."
—Kenneth Silber, FrumForum.com, March 2010

"Jimmy Stewart Is Dead makes for provocative reading. We certainly have squandered much of America's business and economic strength in the pursuit of personal gain and huge if not obscene bonuses. … It might just be easier to find another Jimmy Stewart. I'd call him Mr. Smith. And I'd ask him to go to Washington."
—Philip Moeller, U.S. News & World Report

"Kotlikoff grabs us by the collar, brilliantly unveiling the truth about our financial system. With scintillating arguments, vivid examples, and terrific wit, he offers a powerful reform that stops banks from gambling and restricts them to their legitimate purpose, 'connecting borrowers to lenders and savers to investors.' This is economics at its very best: deeply insightful and powerfully useful. It will change the global debate."
—JEFFREY SACHS, Director of The Earth Institute, Quetelet Professor of Development and Health Policy, Columbia University

"Financial reform needs something simple, clear, and, most of all, effective. Read this book to get and understand the answer."
—GEORGE SHULTZ, Distinguished Fellow, the Hoover Institution, former U.S. Secretary of the Treasury, and former U.S. Secretary of State

"At last! A real financial page-turner. Kotlikoff calls out the bad actors behind the financial crisis and nails them cold. But he also tells us how to prevent it from happening again. It's called Limited Purpose Banking. Anyone can read this book—and everyone should."
—SCOTT BURNS, Financial Columnist, Universal Press Syndicate

"Jimmy Stewart Is Dead is a page-turner, as fast-paced as The Simpsons, with new insights on every page. As fun as it is, Jimmy Stewart is also deadly serious. It describes our deep financial problems and offers an amazingly simple financial fix to prevent an even worse crash. Everyone should read this book."
—GEORGE AKERLOF, Koshland Professor of Economics, University of California at Berkeley, Nobel laureate in Economics

"Kotlikoff's book makes an impassioned, coherent, and convincing case for Limited Purpose Banking."
—ROBERT E. LUCAS, Jr., John Dewey Distinguished Professor of Economics, University of Chicago, Nobel laureate in Economics

"This book is 'must' reading for everyone who cares about the future of the American economy."?
—ROBERT W. FOGEL, Walgreen Distinguished Service Professor, University of Chicago, Nobel laureate in Economics

"Kotlikoff is right. Unless we institute fundamental reforms, there will be an even greater crisis. This well-written book is a must-read for those concerned with reforming the financial system."
—EDWARD C. PRESCOTT, W. P. Carey Chair in Economics, Arizona State University, Nobel laureate in Economics

"Certainly we need to abandon today's hazardous financial system. Kotlikoff's Limited Purpose Banking plan is one of the best visions to surface so far."
—EDMUND PHELPS, McVickar Professor of Political Economy, Columbia University, Nobel laureate in Economics

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Product Details

  • Hardcover: 241 pages
  • Publisher: Wiley; 1 edition (March 8, 2010)
  • Language: English
  • ISBN-10: 0470581557
  • ISBN-13: 978-0470581551
  • Product Dimensions: 6.3 x 1 x 9.3 inches
  • Shipping Weight: 15.2 ounces (View shipping rates and policies)
  • Average Customer Review: 3.9 out of 5 stars  See all reviews (14 customer reviews)
  • Amazon Best Sellers Rank: #1,106,556 in Books (See Top 100 in Books)

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Customer Reviews

Top Customer Reviews

Format: Hardcover
Larry Kotlikoff is a worried man on an urgent mission. He knows that the financial crisis that hit us in 2008 can come back with a vengeance, because our government so far is treating the symptoms, but not the underlying disease. By the time you finish this book you will be worried too. With brilliance, wit, clarity, and bravery, Kotlikoff explains how our financial system is "virtually designed for hucksters." Yet even more importantly, he shows us how to fix it.

As Kotlikoff makes clear, the litany of faulty incentives and opportunities for fraud in America's banking system is distressingly long: "limited liability, fractional reserves, off-balance-sheet bookkeeping, insider-rating, kickback accounting, sales-driven bonuses, non-disclosure, director sweetheart deals, pension benefit guarantees, and government bailouts." It's a system, in a word, in which bankers make promises they can't keep in order to collect outsized earnings unrelated to real productivity.

What a cast of characters we meet along the way! Kotlikoff is right to note that most bankers are "fine people doing their best by their clients," but he is also right on the mark to note that the top ranks of bankers "include a remarkably large number of fast-talking con artists, riverboat gamblers, and highway men." And why not? With regulatory loopholes a mile wide, the con artists found ways to abscond with tens, even hundreds of billions of dollars, before the entire economy went over the cliff.

I've taken my own special interest in the bankers' bonuses over the years, as I've witnessed up close how rather pedestrian Wall Street work on restructuring developing country debt could pull in millions of dollars in fees for the bankers.
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Format: Hardcover Verified Purchase
First, I sincerely appreciate Professor Kotlikoff's honesty w/ respect to the incompetent and illusory efforts of the US Govt. For example, on pg 83 he writes:

"Hopefully, the FDIC won't end up w/ a [1980s] S&L-type crisis on top of its current debacle. W/ its new insurance obligations, it's now staring at $6.4 trillion in potential liabilities, yet it holds only $19 billion in reserves. Talk about financial malfeasance! Madoff was short $65 for each dollar he insured. The FDIC is short $337 for each dollar it's insured.

Were the public to digest this fact and withdraw its deposits en masse, Uncle Sam would likely have to print upwards of 24 trillion more dollars. Public knowledge of this action would surely trigger hyperinflation and extract a major loss in purchasing power for anyone who failed to withdraw and spend his or her money immediately.

So right here, right now, we have the basis for a national bank run. The run would not be to secure our money (dollar bills), but to secure our real spending power - the amount of goods and services our dollars can buy.

This concern is not new. We've had the basis for a national bank run ever since FDR introduced FDIC insurance in March 1933. Fortunately, Americans didn't call FDR's bluff by continuing their run on the banks (one-third had already failed). Had they done so, they would have demonstrated that, w/ respect to their real money balances, FDR was insuring the uninsurable."

Rest assured Keynes-inspired snake oil economists such as Paul Krugman & Brad DeLong - stars of the elite mainstream print & broadcast media - will never admit their Govt interventionist panacea is a delusion.
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Format: Paperback
The point of Kotlikoff's title ('Jimmy Stewart is Dead') is to emphasize that the honest, trustworthy banker (George Bailey) played by Jimmy Stewart in the movie "It's A Wonderful Life" is no more. Instead, he's been replaced by an economic horrow show led by a large number of con artists at the top taking advantage of regulatory loopholes, whose orders are implemented by low-level staff inputting data into computers. The result has devastated millions of lives; further, without changing government's approach to regulation, this will be repeated. Kotlifoff's recommendation - 'Limited Purpose Banking' (LPB) holding banks to their basic purpose and replacing the numerous regulatory agencies with but one.

Per the Bank of International Settlements, the size of the global derivatives market is $600 trillion, and the CDS market is about $45 trillion. The banking industry spent $350 million in lobbying and donations in the runup for the Glass-Steagull repeal.

Robert Rubin was former chairman of Goldman Sachs; Citigroup sold $25 billion in CDO insurance. Joseph Cassano was CFO at AIG's Financial Products unit that sold $1.6 trillion in nominal CDO insurance; Cassano was paid $300+ million. There are over 115 financial regulatory agencies - 15-some at the federal level, and state banking regulators + state insurance commissioners in each state.

Seventy-three U.S. CEOs earned over $10 million in 2008 despite 67 of them generating negative income, most of the time substantially negative. Larry Summers was paid $5 million at a hedge fund for working one day/week - he later helped bail out hedge funds. (Harvard lost over $1 billion in interest rate swaps Summers pushed while president.
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