From my point of view . . .

Using Social Security's 521 form, millions of elderly who opted to take Social Security prior to age 70 can raise their sustainable living standards by repaying all the benefits they've received in the past and reapplying for higher benefits. The required repayment is gross of the Medicare Part B premiums paid in the past.* Bummer. On the other hand, no interest is charged on the repayment. And, get this, the repayment is tax deductible.

For people close to 70 who took their benefits early (e.g., at age 62), this can be a very big deal.

But if you are in this boat, you best move quickly. Social Security is considering closing down this option. Changes could come either through regulation or legislation. But it's certainly on the Social Security Administration's agenda to eliminate this provision, which the agency considers a loophole.

What actions, if any, should countries with persistent current account deficits take to boost net exports? Is the use of any form of industrial policy ever justified?

The current account deficit is not something, per se, that countries should be worried about. Indeed, the word "deficit" is a misnomer. What a country's current account measures is the net amount of resources foreigners are investing in the country.

The term "Current account deficit" should be forever banned and replaced with "net domestic investment by foreigners."

The financial system will continue to be a drag on economic growth because no one trusts it, and, for good reason.

Whether or not capital requirements are doubled or tripled, financial firms can, at any time, use the cover of proprietary information to manufacture and sell fraudulent securities. This means that there can be runs on banks, insurance companies, hedge funds, etc. at any time based on rumours, whether true or not, of fraud.

This fact that we can't see in real time and on the web what these companies are doing with our money makes the system incredibly fragile.

Dick Fuld, CEO of Lehman before it collapsed, said what happened to Lehman could happen to any bank. He's right. But his statement also means that Lehman wasn't to be trusted and that no surviving financial intermediary should be trusted.

To Lord Adair Turner
Chairman of the Financial Services Authority

Dear Adair,

Your chapter in the just released Future of Finance (http://www.futureoffinance.org.uk/) is masterful. But the very strong concerns you express about Limited Purpose Banking (LPB) are, I believe, misleading, misdirected, and rather surprising since LPB delivers precisely the reforms you advocate.

Let me respond in italics to the specifics of what you wrote (the bold text) and then indicate why LPB does what you say you want.

Abolishing banks: 100% equity support for loans. Professor Kotlikoff‘s proposal, in contrast, suggests a truly radical reform of the institutional structure for credit extension.

Frannie and Freddie are here to connect lenders and borrowers. They aren't here to borrow money, promise to repay, and then make mortgages that are highly risky and require taxpayers to cover potential losses. Such casino banking just brought the global economy to its knees.

Like all incorporated financial intermediaries, Fannie and Freddie need to be limited to their legitimate purpose -- financial intermediation.

Fixing Fannie and Freddie is simple. They should be reconstituted as Limited Purpose Banks, i.e., as mutual fund companies. The job of mutual fund companies is to market mutual funds. Hence, Fannie and Freddie would set up large numbers of mutual funds, in this case closed-end mortgage mutual funds, that would invest in mortgages in different regions of the country. Since the individual mutual funds will end up holding pools of mortgages, Fannie and Freddie will continue to securitize mortgages.

James S. Henry and Laurence Kotlikoff

THE MAIN STREET JOURNAL

Forbes Magazine

July 15, 2010

So long Glass-Steagall. Hello Dodd-Frank -- the most comprehensive rewrite of financial rules since 1933. This 2,319-page colossus -- ten times the length of Glass-Steagall –- took 1.5 years to produce and will cost $30 billion and many more years to implement. Will all this time and treasure make Wall Street safe for Main Street?

No.

Dodd-Frank is a full-employment act for regulators that addresses everything but the root causes of the financial collapse. It serves up a dog’s breakfast covering proprietary trading, consumer financial protection, derivatives trading, executive pay, credit card fees, whistleblowers, minority inclusion, and Congolese minerals. Dodd-Frank also mandates 68 new studies of carbon markets, Chinese drywalls, and person-to-person lending, and many other irrelevancies.

ROOT CAUSES

I've always been dismayed by the incredibly nasty fights people have about money when they get divorced. Clearly, there are all kinds of factors that are involved -- hurt feelings, betrayal, custody of the kids, and the list goes on. But the loss of trust -- the sense that your partner is no longer a part of you, but has become a third party -- must be playing a major part in the suspicion that instantly arises about who is getting and giving what financially.

Fueling the divorce fires is the enormous complexity associated with our financial lives. The tax and social security systems have made understanding our finances impossible without highly sophisticated software. So two X spouses can easily reach opposite conclusions about whether a proposed settlement is fair just because they can't sort out all the complexities.

Economics to the Rescue!