Guarantee of Return from MMF and other Fin. Insitutions

Random thought after seeing a commercial.

What if, threw regulation or the general improvement of the competitive environment, MMFs tended/always to guarantee a certain return (say 100% of invested income or 100+1-3% annual return) for people that invested in them?

This, of course, would lead to a new Insurance industry (which I believe, by law, should be compelled to be an indepedent company not subsidiary, subject to or having a vested interest of another major financial institution) that would insure these MMFs' guarantees. The MMFs would pay premiums into the new Insurance industry (Guarantor Insurance or GI*) and in order to acquire lower premium requirements from the GI would be forced to make less risky, more structural returns. This would decrease market volatility while increasing their safety.

Anyone can find a glaring whole?

I see more jobs in a new GI industry and safer investments for low-mid-even high (though IMO they would likely invest in non-required/forced, riskier, higher return financial institutions) income class groups' savings.

What do you guys think? It seems like a good idea. But then again, I also like a Worker's Productivity Insurance (as you can see I'm an Orthodox Marxist with a hard-on for the insurance industry, it's like banking but more manifold. Anyways this has NOTHING to do with ideology, if you're Capitalist consider it an invention of the market that forced others to follow suit, otherwise consider regulation being the cause.

However, I leave open whether the GI Industry should be completely insulated from the influences of the Greater Financial Markets or should it be open to them? I am for the former.)

*Bump*

I believe this to be a serious area of Reform for the current, disgusting, US government/economy.

Buddha C said:

*Bump*

I believe this to be a serious area of Reform for the current, disgusting, US government/economy.

Click to expand...

I'd start the discussion, but I have no clue what it's about. Pretty detailed stuff.

JohnfrmClevelan said:

I'd start the discussion, but I have no clue what it's about. Pretty detailed stuff.

Click to expand...

Basically this: (ignoring capitalistic comp./govt regulation)

Your Grandma has her life savings in a 401k or such equal fin. instrument with Goldman Sachs.

Goldman Sachs loses, on your Grannies portfolio, 50%.

Your Grandma's savings goes from 100k (ignoring home equity, obviously) to 50k overnight.

Because G-Sachs has an GI (Guarantee Insurance) coverage (ignoring the deductions and all their little tricks, because then things get unnecesarily complex, although this may need to be fleshed out prior to any legislature regardless) they are re-imbursed for the 50k at the end of the year (assuming they are unable to re-coup the losses) which means your Grannie is the one re-imbursed in actuality. (plus, possibly a stipend on 1-3%, which would make it 101-103k)

This is, where now (I didn't before), I see a problem. Since an MMF can use these loss imbursements to decrease risk but still leverage the recuperation there would probably need to be some sort of holding account or legal restriction on the type of "bets"/risk/investments they can take. I would say AAA only risks, but thats already a legal mandate in place for MMFs iirc (in the US).

A holding account would likely be preferential, so as to add an additional discouragement to loss in general (holding/escrow same thing) possibly in the GI company's own coffers (they themselves could leverage this holding account to increase profits and thus capability to pay out on additional insurance/guarantee claims).

Though that in and of itself may require some legal restrictions in so far as degree of leverage is concerned (perhaps 20-10% on reserves?)

Thus, we pit the great giants of Finance each other in competive interest: Insurance and the Bastards of Finance (of which I wish to become , though I prefer Insurance since they in reality do both jobs).

Insurance would force the Financiers to take less risks to decrease competively/govt mandated premiums on them and since their losses would be held out of escrow (read: not able to be leveraged and thus add to their own profits, Financiers that is) they would have no urge to lose. As their premiums decrease, this is only brought on by less Speculative but more actual Investment items and decreases volatily which is generally an indicator of speculation or poorly-thought out investment/higher risk (of loss/gain).

There would be still be room for Investment Banks, but since these usually only deal with the Wealth of the Rich such losses are not to be considered (since the Rich, in my opinion for the Rational segmentation of the market, while the low-mid or high-mid income classes, in my opinion, form the Ir or Semi-Rational segments), to make their great leaps and bounds toward greater risk/growth/investments.

Got a tad hangover, so if I'm not being clear please let me know xP

Bump-giggity.