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clientele in place. They can spin off their lending operations as separate ventures to find funds from investors rather than depositors. If there were no FDIC, there would be no deposits and no commercial banks. People can read the newspapers. Anyone old enough has lived through periodic bailouts. I’m a free market fan who dislikes FDIC. But we would be rash to yank the rug from under banks by repealing it. We shouldn’t even hint that we might. The world we know is build around banks, and banks are built on FDIC. Let it stand. How can anyone know for sure that omnibus funds and independent lending banks will do better? I think omnibus funds figure to win despite that advantage for banks. Lending Banks This is the area least clear to me. Banks as we know them begin with expertise, systems and clientele in the loans business as well as the deposit and payment processing business. That could position them to take the lead in both if spun off separately. Lending can stand alone. There are many lending firms other than banks. They raise funds from investors seeking returns, rather than depositors seeking liquidity, and somehow mange to compete with banks today. Lending banks divorced from depositors could do whatever they do. If interest rates must rise because investors demand competitive returns, some traditional borrowers will be motivated to attract equity investment instead. Corporations and other firms could phase out structural (long-term) debt, and float new stock issues in its place. The effect would be to lower leverage, risk and return together. Investors could then tailor risk and return more flexibly by hedging or leveraging their individual holdings through professional services. If the same rise in interest rates makes it impractical for newlyweds to buy homes, they can rent until their means improve. In ten or fifteen years their incomes will double. They will know if they are still married, how much house they need if so, and where their careers have taken them. Meanwhile they might rent the same Chapter 8 Banks, Money and Macroeconomics 2/8/16 11 HOUSE_OVERSIGHT_011100