Feedback on Economic Theory on Constitutional Governance

Professor Sankarshan Acharya

November 7, 2010

University of Illinois at Chicago (USA) & Research Center in Finance and Governance (India)

The thrust of this research on economic theory of constitutional governance is a discovery of a normative government financial
institution called Safe Bank that offers equal protection for everybody's safe asset (one form of property). The "equality" provision is common to most constitutional democracies. The existing central bank of an economy would become the normative Safe Bank if the former were mandated to offer an equal protection for everybody's safe assets.

The following feedback shows that people are concerned about the current unconstitutional system of money and finance due to the Federal Reserve Act of 1913 and the Federal Deposit Insurance Corporation created within the Glass-Steagall Act of 1933. Most want to repeal the FRA and FDIC.

Most agree with the urgency of a constitutionally efficient system of money and finance in which the FDIC is eliminated and a central bank is established with the attributes of the Safe Bank, obtained within the general equilibrium of the model, to grant equal financial access to all firms including households. But they raise four important issues addressed below.

1. Resolving Moral Hazard in Currency Manipulation Via a Global Currency

The constitution guarantees (i) equal protection of everybody's earned wealth and (ii) economic stability. Economic stability can be ensured only through policies which maintain economic equilibrium. The economic theory of constitutional governance presents such policies obtained within a model of general equilibrium. The policies that obtain in equilibrium should be the basis of economic stability enshrined in the constitution, unless one identifies problems with the model or errors in obtaining the general equilibrium results. The only way to prove unconstitutionality and inefficiency of these policies is to construct a more general model of the economy (than that presented here) to show the existence of different equilibrium policies from those derived here.

The general equilibrium presented in this research shows that some firms and households may choose to hold a part of their earnings in the form of the safest asset in the economy, while deploying the rest of their savings in risky enterprises. Only the government can offer the safest asset in the form of a fiat currency with integrity not compromised by surreptitiously creating or printing it.

The paper on economic theory of constitutional governance does not delve in to the mechanics of creating a fiat currency and of maintaining its integrity. It presumes that the government is constitutionally mandated by the citizens to maintain a fiat currency with integrity for exchange of labor and all kinds of produce (goods, service, ideas, etc.) and for storage of net savings in the economy.

Maintaining the integrity of paper currencies like the dollar, euro and yen has been impossible, of late, as the current global turmoil indicates. The paper currencies are being printed (manipulated) whimsically by the central banks to meet inefficient government expenses around the world. The Federal Reserve of the U.S. created $2.5 trillion in 2008 and $0.6 trillion in 2010. This is in addition to tacit continual creation of new money by the Federal Reserve through its lending to a few privileged financial firms at a significantly lower rate than the rate paid by the government to borrow the same money.

Manipulation of paper currency has caused the most serious moral hazard problem around the world. The principals of the fiat currency are the producers of globally competitive goods, services, merchandize and ideas. The agents are the governments. The principals have entrusted their agents with the responsibility to maintain the integrity of fiat currency. By printing paper fiat currency, the agents have not only vitiated this trust. They have also inefficiently and unconstitutionally manipulated the value of individual labor and produce. As a result, those who produce little have amassed vast quantities of credits laden as net debt on those who labor and produce the most to prop the fiat currency.

The current system of money and finance has manipulated the integrity of fiat currency in almost every country. Such manipulation is inefficient and unconstitutional, as proved in the paper on constitutional economy. It causes unconstitutional usurpation of produce and labor by the manipulators. Persistent manipulation of fiat currency will eventually lead to calls by people to abolish the central bank. Congressman Ron Paul of the United States has called for elimination of the Federal Reserve. A feedback presented below calls for elimination of the Federal Reserve as well as the FDIC. Here is a recent interview on Bloomberg for abolishing the Federal Reserve.

The research on economic theory of constitutional governance proves that the central bank (Safe Bank) that obtains within general equilibrium of an economy is constitutionally efficient. But it does not show how to resolve the problem of moral hazard about the paper fiat currency.

Using a specific commodity like gold as fiat currency (after the paper currencies are eliminated) can cause problems due to manipulation by the current holders and miners of gold.

Manipulation of country-specific fiat currency around the world can be avoided via a single global fiat currency, based on units of raw output of widely used produce like oil, food, electricity, basic building materials and metals, and basic clothing materials like cotton and polyester yarn. A central institution like the International Monetary Fund can maintain an authentic record of the number of units of raw produce in various countries and issue prorated units of the single global fiat currency paper, while maintaining a reserve for each nation.

Before a global currency is floated and accepted, the central bank in each country can follow transparent norms to issue currency based on the quantity of raw output of the basket of basic commodities. This may not be a perfectly agreeable solution, but it will go a long way in resolving (a) the current currency manipulation by central banks around the world, (b) the moral hazard of creation of money across countries, and (c) the bottlenecks in production of the basic produce everywhere.

2. Safe Bank policy will Promote Capitalism

The essence of capitalism is to work and earn freely and to preserve the earned wealth. Even the communist countries have granted freedom to people to work, earn and preserve wealth.

The constitution of the U.S. mandates a free capitalistic economy, which is modeled in the paper. The central bank (Safe Bank) obtained within equilibrium of the model offers the same freedom to everybody to any part of wealth in safe custody. This is proved to be constitutionally efficient.

What is the intuition that the 'Safe Bank' would foster capitalism when every body enjoys the same privilege?

The Safe Bank, serving as the central bank in an economy, only provides an equal protection, as per constitution, of everybody's earned wealth. The "Safe Bank" proposal does not seek equality of individual earnings or wealth. Neither does it seek to foster redistribution of earnings or wealth.

The prevailing system of money and finance causes an unconstitutional transfer of the hard-earned wealth of individuals, non-financial firms and non-privileged financial firms to a few privileged financial firms. The growing size and wealth of the large financial firms proves this point. The "Safe Bank" will stop such unconstitutional transfer of wealth to a few privileged large financial firms.

3. Safe Banking Policy will result in Stable Private Banks

Will private banking be destroyed if the central bank (the Federal Reserve of the U.S.) is reformed to become the proposed Safe Bank to grant equal access to all firms and households with respect to the interest rate on their safe deposits and lending directly to the government?

Private banks, before the 1907 panics, were doing very well. Neither the FDIC not the Federal Reserve was existing then. The banking panics and runs destroyed most banking firms and hard earned savings of most households in USA. Nonbanking firms and households thereafter invested their savings in commodities like gold and silver and kept their remaining cash under their pillows. The surviving banking firms must have been unnerved to script the Federal Reserve Act in 1913 for the Congress to sign on to establish a central bank to create money to be extended as credit to the nerve centers of the economy, the nonbanking business firms, government departments and households, but only through the larger financial firms.

The FRA-1913 preserved the power of the largest financial firms by controlling the Federal Reserve money machine to decree their agenda for America. A decree-ridden central bank controlled the supply of credit. The credit control by the largest financial firms stifled growth in innovation, creativity and real business enterprise. This led to the Great Depression in the early 1930's. Households lost trust in banks and financial trusts.

The Glass-Steagall Act was conceived in 1933 to separate commercial banking from trading (investment banking) and to introduce the federal guarantee of bank deposits through a newly created entity, the Federal Deposit Insurance Corporation.

So, private banking has flourished in USA without the FRA and without the FDIC. Private banks had even become the most powerful entities to control the USA before the Federal Reserve was created in 1913 and long before the FDIC was created in 1933.

It is the unequal privilege granted through the FRA-1913 and the FDIC that have made the largest financial firms bigger and more powerful to expand their chokehold on free enterprise, innovation, and employment.

The FDIC and the FRA could not detect the onset of the 2008 financial catastrophe and could not prevent the downhill trajectory of the U.S. economy thereafter.

Eliminating the FDIC and repealing the unequal privilege to the largest financial firms by making the central bank the equilibrium Safe Bank will remove the inefficient and unconstitutional chokehold of the largest financial firms to foster freedom in innovation, creativity and ingenuity to enhance business activity and employment.

History shows that private banks can thrive without the federal deposit insurance or without the privilege granted by the FRA. The issue now is not whether private banking will flourish without the FDIC and without the privilege granted by the FRA.

The grave urgent concern is how to remove the chokehold of the largest privileged financial firms in the economy and how to create jobs and avert another Great Depression. The urgency is to provide equal security to the safe deposits of business firms and households that form the nerve center of the U.S. economy and to encourage them to enhance their risky business enterprises.

This can be done by making the central bank (the Federal Reserve) the equilibrium Safe Bank that offers equal security to everybody's chosen safe assets under the constitution. The safety of chosen parts of their savings at the central bank (Safe Bank) can free the firms of their current anxiety of investing their surplus savings in risky real business enterprises that create employment and economic growth. The Safe Banking policy will give all firms and individuals a choice to split their savings: secure a part with the central bank (Safe Bank) and invest the remainder in risky business enterprises directly or through uninsured financial firms. The Safe Banking policy will foster financial firms to revert to their traditional roles of choosing the best risk-return enterprises for their investors. Once Safe Banking policy is enacted and followed, the partially insured banks operating now will have to be highly capitalized to attract deposits. With highly capitalized and stable banks, the economy will become healthy, as the Safe Bank offers government security to the parts of the savings deposits it holds for all firms.

4. All Political Parties will eventually prefer Safe Bank Policy

On the issue of which party will favor the proposed Safe Banking policy, here is my analysis (that I have already sent to the President and Congressional leaders on November 5, 2010):

Published post 2010 poll facts:

  1. "The poll asked voters whether they blamed Wall Street, George W. Bush or Barack Obama. Those who blamed one president or the other, not surprisingly, voted overwhelmingly for the opposite party, but those who blamed Wall Street (a plurality of respondents) gave 56 percent of their vote to Republican candidates and 42 percent to the Democrats." Washington Post
  2. "In the national exit poll on House voting, the Republicans lost the 18-to-29-year-olds by 17 points, and did better the older the voters got." Washington Post
  3. "Only 14 percent, moreover, said their own family's financial situation has improved in the last two years -- the fewest in exit polls back to 1984. Forty-one percent, by contrast, said they're worse off -- and favored Republicans by nearly 30 points." ABC News

Now let's take the salient post-poll facts together:

  • People aged 29+ favored Republications by 17 points.
  • People blaming Wall Street favored Republicans by 14 points.
  • The 41 percent of worse off families favored Republications by 30 points

The only pertinent rational inference conveyed by the above facts is: Wall Street made more families worse off and that the older people, who tend to accumulate more savings, lost more than the younger people, with relatively less savings, despite the Wall Street reform bill.

The established finance-economics punditry has crafted all Wall Street shenanigans and conforming rules. People who are directly affected by such shenanigans and conforming rules have now declared that this punditry has utterly failed.

Will there be a movement by the people, if the Tea Party is not already one? A famous professor of history offers some insight about the anti-establishment wave erupting across the USA.

Justin Bohm
University of Illinois

While your critiques of our current system are spot on and undeniable, I beg to disagree that you are offering a constitutional

Almost all fingers point to the federal reserve for our current economic problems, and the only constitutional solution would be to
abolish this unconstitutional institution. The constitution gives only the Congress the authority to print money, and the unconstitutional Federal Reserve Act transferred that authority to a privately owned corporation called the Federal Reserve.

The constitution also states that only gold and silver are legal tender, not unconstitutional federal reserve notes. If we were on some sort of a commodity standard of money, the people's savings would not be able to be diluted, as gold and silver are not able to be printed at the click of a button and distributed to an elite group of banksters. So a gold standard would alleviate that issue of the people being usurped of their savings.

As for a "Safe Bank," this would be unnecessary with a commodity standard of money, it would also be unconstitutional since the
government should not be in the business of running a bank.

The FDIC could be eliminated and bank deposits could be seen as risky assets which would raise the interest rates on deposits. Not only this, but if the people did not have to worry about the value of their dollars being diluted through monetary inflation and if we had stable prices, people could hide dollars under their mattresses and they would have the same value in 10, 20, or 30 years.

With a stable dollar and zero or near zero inflation, if a gallon of gasoline costs 3 dollars today, it will cost 3 dollars twenty years
from now. On the flip side some may argue this would lead to stagnant economic growth, but this is nonsense.

As long as interest rates on deposits were high enough to justify the risk, people would deposit money in banks. This would allow the natural money market to clear since you wouldn't have the Federal Reserve keeping interest rates artificially low, or the FDIC making people feel their money is safe in banks thus keeping more demand for deposits than would normally be achieved at such low rates.

The only thing a Safe Bank would do is to help the federal government fund it's enormous debt, which would be a significant issue if the federal reserve is eliminated.

If America really wants to create constitutional government, it should remove unconstitutional entitlement programs, which will help eliminate deficits, and focus on paying down the national debt.

Government would not have been able to grow so large without the Federal Reserve, and if the country is really serious about shrinking government, it should take a hard look at eliminating the federal reserve. The country will never sober up and get back to a constitutional system of governance unless the punch bowl (the Federal Reserve) is taken away.

The dollar was once a stable currency until America created the Federal Reserve in 1913 and then slowly moved away from a gold standard until completely moving away from it in 1971 which has created wild swings in the value of the dollar and price level. Ever since the creation of the Fed the dollar has been in a long term bear market. The only logical way out would be a move back to a stable form of currency backed by something "real." The logical choice would be gold but could realistically be any commodity.

It is extremely naive for anyone to actually think paper money "fiat paper" could promote long term stable growth. Your system does nothing to address the instability of the dollar which is a major flaw in my opinion. I mean just look today. The dollar is down against almost every currency in the world because of some poor choices by the federal reserve. The only solution is to eliminate this institution and return to sound money.


David John Dobersztyn
University of Illinois at Chicago

I can see how the FRA-FDICA are the root of the systematic weakness of this economy. It almost seems too unfair and unconstitutional for this to even be in existence in this country. In fact, one of the more powerful statements regarding "The Constitutional Model" are as follows, "The economy comprises a group of leveraged firms (including households) who choose their assets to maximize their net-worth, with an efficient not-for-profit government enacting and administering constitutional rules for free trading of goods, services and assets" (Acharya). After reading this statement and further gathering my opinions about this article, a few ideas started to click.

For one, the ceiling the FDIC imposes on deposits only hurts the average person/non-financial firms. By having such a ceiling, these large financial institutions pay an insurance to the government to cover loses of deposits past the ceiling. In order for these large financial institutions to get the most for their money, they spread the cost of this to the depositors. In such, the rates of interest in which the depositors then get on their investments are much, much lower than what it should be (lending directly to the government). This seems too obvious and unconstitutional. How does this method correspond to non-profit for government and maximizing net worth of firms? It seems the little guy is always at the hands of top, privileged firms enjoy making great amounts of money from artificially created money.

Only these top, privileged banks are allowed to participate in Treasury auctions. This is clearly unconstitutional. Equal opportunity is not at play in this case. While most the non-financial and small financial firms provide many products and services for this country, which some argue more than large financial firms, it is those large financial firms that still bask in the pleasure of enjoying such Treasury auctions. While they enjoy free money from the working backs of all people, the little guy can not do so. Instead, the larger institutions get larger, while the small firms struggle and take the value of their money almost for nothing.

To be very honest, I was not aware of such dealings in our economy. I may be naive, but this article has given me much insight on today's events in our financial world. Moreover, not only did this piece alert me to how our current system is unconstitutional, but it allowed me to see just how much power large financial firms have grown to acquire. However, I have one question to leave with. Capitalism is what the United States also has running through its veins. How then, if enacting a 'safe bank' would still encourage this concept of capitalism when in my opinion, the little guy will be just as equal as the big guy?


Yi Jiang
University of Illinois at Chicago

First of all, I really like this article. It is very profound and practical. It well presents the government economic situation with effective solutions to help balance the market. One of the amazing concept that I have never heard of before is a "Safe Bank" charter for the central bank. The Safe Bank doesn't interrupt the market. It simply provides the same level of protection of risk-less deposits for all firms including households. I think this is very important for all the firms. I believe that the government should have a policy to offer every firm equal protection of earned wealth. For example, all firms (not some privilege financial firms) should receive the same rate of interest and government security for their risk-less deposits.

The privileged largest financial firms, however, won't prefer to make the central bank (Federal Reserve) a Safe Sank. They still want to get funds at the lower interest rate from the Federal Reserve so they could generate guaranteed profits by lending the same funds at higher rate to the government without taking any risk or rendering service. For the non-financial firms and unprivileged financial firms, the Safe Bank would sound fair to them because they could avail of better opportunities in competition.

In conclusion, he restates the importance making the central bank the Safe Bank to grant equal privilege to all firms. One the important function of the Safe Bank is to avert panic in equilibrium. I believe this is the central idea of this research paper. Moreover, I have learnt that what happens in equilibrium. First, asset risk premium and volatility of asset of a firm have negative relationship. Secondly, both assets volatility and risk premium will increase based on asset-to-debt ration. Overall, I really like Dr. Sankarshan Acharya's article. It well illustrates the concept of safe bank and well explained how it is related to government security. I think it could gain my knowledge and help me in further career.


Parth Patel
University of Illinois at Chicago

I thought the reading was very interesting. From what I understood, your theory of the Safe Bank would eliminate the need for the FDIC. The FDIC is the culprit of the moral hazard in the financial market. Our current financial system is highly inefficient and unconstitutional. Households and non-financial firms are forced to keep their safe deposits in these highly leveraged, risky financial firms. At the same time, these risky financial firms transfer the higher deposit insurance premiums to their depositors by lowering their rate of return of interest. You're proposing that every individual/firm should have the right to hold safe deposits at the Safe Bank. The problem with these financial firms is that they are highly leveraged and cannot come up with adequate capital when needed. They do this by creating bank holding companies, where the parent company's assets are used as equity for their subsidiary firm, at the same time the parent company and the subsidiary are protected by the FDIC. The FDIC creates moral hazard because these highly leverage firms invest in risky assets and they know the FDIC is going to protect its deposits; therefore, transferring the cost to taxpayers. The Federal Reserve Act enables these large firms by artificially creating money. The Fed lowers interest rates, which leads to lower rates of interest to depositors. Then the Treasury borrows these funds at a higher rate. What you are proposing is a market free of government intervention by eliminating the FDIC and amending the FRA. That way, only highly capitalized banks will attract deposits. Securities will be priced by the market and not better risk ascertained.

While I was reading this, I also thought of the political implications of this. Do you think this proposal would be favored more by Republican or Democrats? On one hand, you have the Republicans who favor less government but tend to be conservative. And then you have the Democrats who are more governmentally involved but advocate change. Also, how does the recent election change the likelihood of this proposal being implemented? I'm very curious to see how this will unfold in our current political spectrum.


Carolyn Gyann
University of Illinois at Chicago

After reviewing "Inefficiency and Unconstitutionality of the Federal Reserve Act &The Federal Deposit Insurance Corporation Act", I was left with a deeper interest in the concept of a systemic weakness, but also left with some questions. It is obvious in fact that the current economic system is favorable to large private financial firms. Even to someone with no knowledge of modern economics, the wealthiest Americans are bankers who have found a way to profit from all of the nation's goods and services. The idea that the core fault in this unfair system lies in the heart of our lending system is very interesting to say the least.

I was unclear on the section regarding the FDIC's flaws. Although there were ceilings for insurance rates, how were there not measures in place to ensure risky institutions could not be affected by such liquidity shocks? It is also amazing that the FRA permits unlimited replenishment of depleted capital at some firms.

After reviewing the section of your email regarding the FDIC and uninsured banks, I understand how your proposed system would operate. The idea of a safe bank, versus insuring private banks, seems much more stable. The need to endlessly "produce money" in order to replenish capital at large financial firms would cease to exist.

In regards to rectifying this situation, or at least bringing it to public light, how in fact will a "Referee report" be produced? This
document is clearly outlined as one of the most important, or at least primary steps in the resolution of this issue. Will you face the same opposition in obtaining a "Referee report"?


Ali Hasnie
University of Illinois at Chicago

I agree with Professor Acharya's argument on how to make the U.S. economy more stable by amending the current Federal Reserve Act of 1913 and abolishing the FDIC. The Federal Reserve Act is supposed to financially protect the American public and yet Professor Acharya has proved that it is unconstitutional and inefficient. Why is it that top financial firms avoid the heat when making a mistake and smaller financial firms, nonfinancial firms and households have to pay the price? The FDIC was created to keep deposits of the account holders safe in case of banking disaster. It is clearly not doing the job it was created to
do and Professor Acharya proves this through his economic model. Our financial system needs reform. The problems our banking system creates not only affect the United States of America, it affects the worldwide economy since America is a world power.

I believe it is important to protect the assets of the people who take the risk and put their money in the financial institutions that are
deemed safe. However, FDIC is not doing a good job and Professor Acharya makes the point that the FDIC had to increase the deposit insurance ceiling from $100,000 to $250,000 to help the investing people feel at ease of depositing their money. He argues that the raise in the insurance cap makes the risky financial firms pay a higher insurance premium in order to cover the deposits up to $250,000. However, these financial firms use this as a reason to lower the rate of interest on deposits of nonfinancial firms and households. The nonfinancial firms and households support the financial firms and the economy; therefore, the government has to make sure they are cared for even in the toughest economy.

Professor Acharya makes an effective argument about making the central bank of a country (the Federal Reserve in the U.S.) the Safe Bank of his paper to grant equal privilege to safe assets (deposits) of all firms including households. Since non-financial firms and most small financial firms cannot participate in the auctions of Treasury securities, like some popular large financial firms can, the Federal Reserve Act and FDICA can be considered unconstitutional and inefficient. Professor Acharya discusses that the Safe Bank prevents the inequality of the FRA and FDICA and allows all firms to access the central bank equally and to lend their money to the government directly at the same rate. Depending on a persons level of risk aversion, the amount of risk chosen by firms and households can still be taken even the central bank operates like the Safe Bank. It is just that the Safe Bank will let everybody earn the same riskless rate on their safe deposits and the same security of the government as the privileged financial firms currently enjoy. Why shouldn't the people, small financial firms and nonfinancial firms participate the same way as the large privilehed financial firms do?

The large financial firms that compensate their executives, irrespective of performance, is unconstitutional as well as unethical. Ethics is a huge part of life now, yet as people rise to the top by taking the ethical standards to the rock bottom. Professor Acharya explains that the FRA was designed for the privileged financial firms to benefit from. While the real working firms are busy conducting day-to-day business, large financial firms take advantage of the former causing bankruptcies with households losing their jobs and homes. Why has the government allowed this to happen for so long, until it's too late?

Professor Acharya points out that the Great Recession of 2008 may be connected to another Great Depression. We have a highly intelligent president who can make the necessary changes needed. This article provides the insight needed to realize the solution the U.S. government must employ. Why hasn't this article been published yet, when it could have prevented many problems the economy is facing? So many people distraught because of someone else's mistakes and popular journals do not take advice from someone who accurately predicted the economic situation we face today. Professor Acharya deserves recognition for this economic model and his selfless research. It is possible for the current administration to utilize the tools offered to them, like Professor Acharya's expertise, and pulling the economy out of the recession. We the people deserve equality.


Stefan Ciocan
University of Illinois at Chicago

The paper "An Economic Theory of Constitutional Governance" has many good points that can be used to help some of the problems that are occurring in our economy today. There are many points that I agree with within this paper. One of the points made in the paper was how some privileged banks were receiving lower interest rate from the Federal Reserve and then lending it out to the government, smaller firms and households at a higher rate. This also made the point the only these privileged firms are the only ones getting the lower interest rates.

The paper shows the system which allows a few privileged financial firms borrowing money, created by the government created central bank (the Federal Reserve), to lend the same back to the government at a significantly higher rate is inefficient and unconstitutional. This system is unconstitutional because it does not grant equality for everyone including small firms and ouseholds. Along with this, I can see how this impacts our economy in a negative way even more. By allowing this to happen the government is not only allowing inequality but it is also hurting our economy even more because the firms and households are the backbone of this economy and by hurting them it allows for everyone to suffer. Because of this unfairness I think that the Federal Reserve should become the "Safe Bank" of the paper to resolve this unfairness and also help our economy improve from its current state.

Another good point made was how the government provides subsidies or funding to certain institutions to keep them afloat in these times while many other institutions have gone bankrupt. This is unconstitutional as well because it gives those certain institutions a greater competitive edge over all the others. How are the other institutions, not given equal privilege, supposed to compete with such injustice? The unequal access hurts all the small institutions that are trying to compete in this already tough economy. Also, this just makes the privileged institutions larger and a greater threat to the economy if they do fail because they are the ones that have the most power. By allowing this to happen there is greater risk that if they do fail the entire economy fails with them and ends up hurting many more households and businesses.

The paper's arguments are very good. The paper proposes some good solutions to constitutionally releal the inequality that is in this country. I think that with the ideas presented in this paper it can not only help our economy but also do what this country stands for and that is equality for all.


Liu, Qiyuan Tony
University of Illinois at Chicago

Firstly, I totally agree with the points Professor Acharya has presented in his research and I really like this article that is very useful and practical. The article clearly presents and explains the current government economic situation with effective and efficient solutions to help the government balance the market, and proves unconstitutionality and inefficiency of the Federal Reserve Act and the FDIC.

In the article, there is a term called Safe Bank. I think that Safe Bank should be the central bank. The article suggests that the Safe
Bank should offer equal security for the safe assets (deposits) of all firms, rather than only for the privileged financial firms.

In the introduction part of this article, professor Acharya talks about the firms including individual households operating for their profits. Today, every firm wants to make more and more profits, and tries to maximize the profits. However some firms will bankrupt due to some reasons such as inability. I agree with professor Acharya's points, which is: there should be some fair protections for the stakeholders while facing huge liabilities. Moreover, government should be trying to minimize the operating cost. Since there is nothing one can do to avert the past failures, we can prepare to safeguard against the future failures. The government should reform the U.S. economic system as quickly as possible to avoid the structural weaknesses in our current system and also offer plausible solutions for recovery.

In conclusion, Professor Achaya emphasizes the importance of the Safe Bank (central bank) offering equal protection for safe assets (deposits) chosen by all firms under the constitution. I do agree with the whole point, but I think that implementing this would pose a little difficulty. In addition, people may be scared of changes; however, right now change is necessarily needed under this economic situation.


Piotr Suwala
University of Illinois at Chicago

Dr. Acharya's research has led to a development of very interesting model which is both constitutional and would help to preserve wealth of citizens. His article "An Economic Theory of Constitutional Governance", not only points out the problems with the current U.S. financial and banking system, but also proposes solutions to these problems. There are definitely flaws in the existing system which was proved by the recent financial crisis. I agree that the system needs to be reformed because, as we have seen, problems in the financial markets affect the broader economy and can cause a severe recession.

I definitely agree with Dr. Acharya's summary about the problems with the FDIC. This institution is supposed to bring stability to the banking system by not having people "run on the banks". However, instead it may lead to a moral hazard among bankers. Without insurance on deposits, people would be more cautious about security of their savings. Banks would have to compete against each other by not taking excessive risks and proving to be safe. Even bigger flaw of the FDIC is the fact that in case of bank's failure, usually it does not pay out deposits. Instead, it uses Purchase and Assumption method in which an open bank assumes deposits of a failed bank and purchases some of its assets. The idea is again to provide stability to the banking system. Unfortunately, through such process, banks increase in size, and eventually become "too big to fail".

Similarly, Federal Reserve Act contributes to unconstitutionality of the current banking system. As Dr. Acharya points out, all individuals and firms should be able to lend to the government to secure their savings. In the current system, only banks and financial institution have such privilege. This is because of their importance in the functioning of the broad economy. However, banks have not served their role well. In their drive to increasing profits, bankers have engaged in excessive risk taking. This led to a collapse of the whole system and caused a severe recession. Instead of preserving wealth, banks contributed to the loss of hard earned savings by many people.

What is important about Dr. Acharya's model is that it does not prevent people from investing in risky assets. Professor Acharya underlined many times during his lectures at the University of Illinois at Chicago that people in his model have choice to invest their money in different assets depending on their risk aversion level. However, the model argues that people should have an option to securely lend to the government. This option should be equal to all citizens, not only to financial institutions, based on the equal rights guaranteed by the constitution.

I have very positive evaluation of Dr. Acharya's work. System proposed in his model is supposed to help preserving wealth which
is indispensable to proper functioning of a capitalistic economic system. Current system proved to be flawed since it raises banks' interest above the interests of hard working people. Such system is unconstitutional and can cause future disruptions in the U.S. economy.


Richard Maltz
University of Illinois at Chicago


I whole heartedly agree with the points Professor Acharya has presented in his research and I am very surprised that his valuable insights and information are not being utilized by the current government, perhaps from pressure from these privileged financial firms and various publishers and journalists who are in league with these firms.

The idea of a Safe Bank to eliminate the FDIC is fundamentally sound. It makes sense to allow households to enjoy the same economic capability as these privileged firms in terms of securing deposits and interest rates. Under the constitution, the current system favors those with power rather than by equality guaranteed by the constitution of these United States. Without eliminating the FDIC, what is to stop these financial institutions from making unnecessarily risky actions and getting bailed out again when they fall? The current system rewards this type of behavior in the form of bailouts. This is akin to having a teenager crash the family car and then handing him the keys again when a new car is purchased. By eliminating the FDIC, these financial firms are forced to be more careful in their actions, be more intelligent in the risk they decide to take, and regain the trust of this nation's depositors.

I also agree that this administration is the most scholarly and responsible in recent history. However, there are great challenges that need to be overcome. In his two years as president thus far, progress has been slow but steady. The bipartisan system makes change and reform difficult, especially recently as more Republicans have gained seats in Congress. As the joke says, "If Pro is the opposite of Con, what is the opposite of Progress?" This administration has huge hurdles to overcome by the next election. If progress and reform continue to be slow or stagnant, the people of this nation will not re-elect President Obama. Unfortunately there is no "magic pill" that will make the woes of this nation better but we have to be patient. It is with selfless research, such as Professor Acharya's, and the desire to facilitate change and reform will this country see its brightest future.


Jamie A. Moffett
University of Illinois at Chicago

There are many problems facing the United States today and the Federal Reserve Act of 1913 and the FDIC created within the Glass-Steagall Act of 1933 are some of the biggest problems. Professor Acharya has proposed a solution to the problem: To make the central bank a "Safe Bank" to create efficiency in the system by allowing all firms including households (not just financial firms) the opportunity to hold their safe deposits without any upper limit.

The current system of money and finance is unconstitutional, as argued by Professor Acharya. The issuance of money by private financial firms result in the control of our nation because these firms ultimately control the flow of money. The nation was founded on a principle in a example, which I will refer to it as "Principle A". This principle says the government will issue money to for circulation to develop commerce.

Today however, Principle A no longer exists. The prevailing system uses "Principle B" where the unconstitutionality steps in: the Federal Reserve creates money to give to privileged financial firms at a much lower interest rate than the rate the government pays for borrowing the same money from the financial firms. The financial firms, thus, mint money due to the interest rate spread as profits to pay their executives and stakeholders lavishly.

The Federal Reserve allows only a few privileged financial firms to to participate in primary Treasury auctions which allows them to buy government Treasury securities cheaply to sell the same to at higher prices to the nonprivileged firms (financial and nonfinancial) and households. The proposed Safe Bank will collect safe deposits of all firms to lend the same to the government, which will reduce the cost of borrowing to the government and increase the earning on ideposits for all firms, as compared to the current system. The current system is unconstitutional as it does not (a) grant equal opportunity to small financial firms and non-financial firms to earn the highest interest rate feasible in equilibrium and (b) let the government borrow at the lowest rate feasible in equilibrium.

The above unconstitutionality and inefficiency make we the people more indebted than they would be if constitutionality is restored through the Safe Bank. Furthermore, "the safe banking policy will circumvent systemic risks due to banking panics and runs and eliminate the current system of federal deposit insurance to allow markets to effect efficiency in banking and financial markets with little regulation," as argued by Professor Acharya.

The Safe Bank proposal would reform the unconstitutional Federal Reserve Act and eliminate the FDIC so that the Federal Reserve becomes a constitutionally efficient central bank, or in other words, a "Safe Bank". I support the professor's proposition.


Mario Zavala
University of Illinois at Chicago

Dr. Sankarshan Acharya's "An Economic Theory of Constitutional Government" poses many positive and strong points outlining the underlined problem in the downturn of our almost financial systemic crash. The focus of trying to render moral hazard or at least create a process that will not work to the advantage of the big financial institutions, firms that have destroyed the hard earned wealth of the people, resonates through the propositions presented in this article.

I appreciate the directness of the proposal stating that, "Moral hazard in banking stem from the explicit government guarantee of bank deposits and implicit protection of too-big-to-fail banks." this illustrates how blatantly one-sided the benefits of this bail-out have been and how it has slowly pulled back the veil on the true security holder, which are the hard working households.

As posed in proposition 2 "trading in debt will generate no arbitrage opportunities" this accompanied with proposition 4 "Asset return vs. volatility" creates a model that ties the asset-to-debt ratio into the actual amount of leverage that a financial firm can utilize. The firms with the higher volatility risk will also have a higher asset-to-debt ratio which translates into lower leverage. This seems to be common sense, the more debt that a firm has the less leverage they should have. It would be something different to gamble with money that is actually in hand as opposed to gambling with money that is financed with debt. What seems almost cruel is that this allowance was offered to these massive financial firms and to make matters worse they had no regulatory process imposed on them and were unfortunately able to run freely. To our dismay it was the investments of the true security holders, the working woman/man that suffered the punishment. These big financial firms short sold these investments while making money hand-over-fist for themselves all the while these people were losing their life savings, retirement funds, and worse their homes and jobs.

As stated in the article by Dr. Sankarshan Acharya, "The standard principal-agent theory has relied on non-market, contractual
arrangements to motivate agents for acting in the interest of less informed principals." Is there any profession where an agent receives rewards, benefits, or bonuses before showing actual results of their work or success for creating more value for their company or clients? We have all learned that rewards are based on merit and also that there are consequences for bad decisions and mistakes. I feel that the approach the Dr. Sankarshan Acharya has taken in this article is much needed for Congress to adopt; leveling the playing field and making opportunities uniformly for all financial firms is vital, this helps create a much more competitive and free market- were the markets will stabilize the prices based on first-best choice as opposed to preferences that are offered to the massive financial firms.

In proposition 5 "The Federal Reserve Act of 1913 offers unequal privilege only to financial firms and the most privilege to the largest of the financial firms." It is imperative that this be amended to restore balance and power to the firms that are deserving of these benefits, those firms that provide value to their clients, to those firms that create and sustain wealth for their clients, and for those firms that have their client's best interest in mind. This creates a market that is more competitive and ultimately better for society in the long-run. Also in proposition 5, the creation of a Safe Bank would eliminate the need for The Federal Deposit Insurance Corporation. If the government were to hold the safe assets or the safe deposits it would alleviate any undue fear by society that their assets were anything but safe.


Ieva Aleliunaite
University of Illinois at Chicago

We can't undo the past failures, but we can prepare to safeguard against future failures. I agree with the findings of this research that an immediate reform of the U.S. economic system is necessary to avoid a painful recurrence of the Great Depression which won't help anyone of us today or our children in the future. The consequences of the Great Depression in the early 19th century were sad, leaving the nation fearful and the economic system destructed. The Federal Reserve Act of 1913 and the FDIC, created by the Glass-Steagall Act of 1933, were intended to revive the trust of the nation in banking. But the FRA and FDIC proved to be ineffective and inefficient, a century later, as was evident during the catastrophic market meltdown in 2008.

The paper clearly and assuredly proves unconstitutionality and inefficiency of the FRA and FDICA. It identifies real systemic weaknesses in the U.S. economy and offers an excellent, simple solution that should be heard and not rejected by the top journals of this country. The paper identifies a "Safe Bank," as a rational or fair central bank, to offer equal protection of hard earned savings of all firms including households, under the constitution, as sought by people over centuries.

It's wrong that so many families are suffering from unemployment and loosing their houses just because the power is concentrated in the hands of a few gigantic financial companies feeding their executives exorbitant salaries and perquisites, and leading the rest of the smaller non-financial companies and households to bankruptcy. These smaller companies are more important for our economy, they produce goods and services to prop our economy and currency. The savings and investments of these smaller companies, as well as households, should be protected and supported without the intervention of FDIC limits.



Nicholas Joseph Kowieski
University of Illinois at Chicago

Dr. Sankarshan Acharya's research "An Economic Theory of Constitutional Governance," identifies systemic weaknesses in our
current system and offers plausible solutions to recovery. The issues raised are those that are not inherent to the untrained
financier. They stem from the banking panic of 1907 which led to the creation of the Financial Reserve Act (FRA) of 1913 and the
Federal Deposit Insurance Corporation Act (FDICA) included in the Glass-Steagall Act of 1933. The proposal would create a Safe Bank, a reformed Federal Reserve that would take deposits from all firms, including households, and offer complete security to their assets.

Proposed reforms include amending the FRA and abolishing the FDICA. Through a reform of the FRA, all firms including
households will be able to lend to the government and participate in the lucrative rates seen only by privileged financial firms
with large capital reserves and foreign national banks. It is unfair and unconstitutional that the government, a not-for-profit
entity that is supposed to protect and represent the people, has intervened in the market and taken away the opportunities for
those who produce the vast majority of goods and services that allow these financial firms to exist.

Reforms will also improve security and decrease the likelihood of a 'run on the banks' such as the $3 trillion fiasco in 2008. The
FDICA insures depositors' assets in risky financial firms up to $250,000. Consequently, as a result of this risk, they collect a
premium for the insurance which is then transferred by the banks to the borrowers in the form of a lower rate on their deposits.
When firms, including households, exceed the limit during times of instability such as now, there is a possibility they will
begin to withdraw their funds and source a liquidity shock within the banks. If, and when, a liquidity shock happens, banks will
then borrow artificial money at no cost printed by the Fed and lend it out at a higher rate. The spread helps them achieve
reserve requirements while leaving households and nonfinancial firms bankrupt. This vicious cycle has happened before and is
bound to happen again.

Dr. Acharya's proposed reform to the FRA along with the elimination of the FDICA will allow all firms to participate in
direct lending to the government. The Federal Reserve, our central bank, will become the Safe Bank. The sale of treasury
securities in primary auctions, now being done by a few privileged financial firms, will be eliminated because the government will borrow all deposits from the Safe Bank directly. Accordingly, the banks' risk to a liquidity shock during times of unease will decrease because firms and households alike will be allowed to lend their hard earned assets to the reformed Federal
Reserve (the Safe Bank) with complete ease. These proposed reforms will release the bind of non privileged firms from a
maximum of only $250,000 in insured deposits and return our system to one of complete constitutionality.


Colette LaKoma
University of Illinois at Chicago

After reading Dr. Sankarshan Acharya's article, "An Economic Theory of Constitutional Governance," I have found a great liking to his Safe Bank proposal. This proposal would not only offer security of safe assets and deposits for all firms including households, but also prevent financial panics and preserve the hard earned wealth of the people.

The current system of governance is taking advantage of its citizens by granting enormous privilege to the largest financial
firms. Certain banks are loaning money from the Federal Reserve at a low rate and taking advantage of other banks and government agencies by loaning them money at a much higher rate. This is a large part of their money making scheme and it is
unconstitutional since our country has been rooted in encouraging equal opportunity for all. Reform is needed for constitutional
economic governance with equal privilege throughout all firms.

The proposal to constitutionally mandate the Federal Reserve to be the normative Safe Bank, developed through research by
Dr. Acharya, must be considered by the Congress before a few unconstitutionally privileged qfirms control the national economy, as happened during the Great Depression. I support his theory to modify the Federal Reserve Act because it will allow the government to borrow straight from firms that have invested their deposits within the Federal Reserve.

Firms and individual households seeking to operate for maximum profit have been damaged by the current system. The creation of
funds to bail out privileged firms is unnecessary and has only been an advantage to the top executives of large financial
firms. While higher executives receive bonuses for cutting jobs, the common citizen has been laid off adding to the percentage of
unemployment. The government has given financial firms too much power, which is resulting in unconstitutional practices.

The current privileged system prevents the government from adopting any rule to not deprive people of their hard-earned
property within an equal protection under the constitution. Only those laws that grant equality to all, as per the constitution,
should be passed. The existing laws that grant special privilege to a few large financial firms should be repealed. This will lead
to elimination of special privilege granted by the Federal Reserve to a few large financial firms. The Federal Reserve Act
of 1913 allows the privileged financial firms to induce the Congress to enact policies to benefit them hugely, but at
enormous cost to the people. It erodes freedom of people guaranteed by the constitution. Freedom must be preserved in
order for firms and markets to continue competitiveness and innovation.

The Safe Bank proposition would efficiently reform the FRA of 1913 and terminate the FDIC allowing the creation of an efficient
system of finance and a free market economy monitored by a not-for-profit government. Obviously with the current dire
economic situation, reform must occur. Making the Federal Reserve the Safe Bank would mean granting the same privilege to all firms and to secure their saving deposits without any cut off limit.

Let's use the current foreclosure scandal going on with Bank of America as an example. Bank of America is a huge financial
services company that has recently participated in the forgery of staff signatures saying they had the legal right to foreclose on
properties they serviced, while truthfully these documents did not even exist! The legality of the affidavits are currently under close examination. Investors which include BlackRock, Pimco, and the New York Federal Reserve have even threatened the bank that they will sue unless Bank of America buys billions of dollars worth of loans back. I feel that if the Federal Reserve Bank of New York has to threaten a company to buy back loans, there must be an obvious flaw in the system. The government wasted its time by bailing out firms and allowing households to fail without considering the principle of free markets and trading.

The FDIC maximum limit was raised in 2008 from $100,000 to $250,000, but they collect a deposit insurance premium from risky
financial firms to recover losses due to such insurance. I find it ironic that Credit Unions do not participate in FDIC insurance. Credit Unions insure each account up to $250,000, which means a customer could have over $1,000,000 insured in the
same institution separated into different accounts. They are insured by the NCUA which is still a government agency; however,
they promote a better opportunity for equality and interest bearing profits. Dr. Acharya's Safe Bank proposition is the most
efficient and constitutional way for firms and the people to have an equal opportunity in lending their funds at the same rate
directly to the government.

I completely and utterly agree with Dr. Acharya's Safe Bank proposition. I feel Dr. Acharya's ideas presented in his article
are rational and coherent enough to be enacted. There needs to be a safe place for riskless assets and savings where firms and
households receive equal treatment and earn consistent rates of return. It may sound difficult to convince current government
officials of; however, the construction and developments made in this research bring forth many issues that should be addressed by
the Congress. I do recall President Obama's campaign that focused on change. Change is needed now. This research provides truth in its explanations in relation to the current trends in the market and in its practical implications.


Aidan Russell

Advanced Undergraduate of Finance
University of Illinois at Chicago

The article identifies that structural weaknesses in the current system impede employment growth. The structural weaknesses have
prevented the government from reviving the economy, despite excessive spending and Federal Reserve easing.

The paper suggests that the central bank (called Safe Bank in the paper) should offer equal security for safe assets (deposits) of all
firms, not just for the privileged financial firms, and that the government guarantee of safe deposits in risky financial firms is inefficient.

I support the idea to amend the Federal Reserve Act to let the Federal Reserve become the Safe Bank to grant equal privilege of
its secured custody to the safe deposits of all firms including households without a limit. This amendment will also let the
government borrow directly from all firms and households holding their deposits in the Federal Reserve.

The current system is flawed, because it makes no sense for the Federal Reserve to create money, lend it to banks at low interest
rates and then let the banks lend the same to the government at higher rates of interest. The risky banks (financial firms)
under the current system also lower the rate of interest on deposits, even though depositors could get a higher rate of
interest on deposits by lending directly to the government.

I think the government has given these financial firms too much freedom to make loop holes and make a mockery of the country's
financial model.

I believe that new government policy is necessary and for us the people to follow the example of Dr. Acharya, to point out
the flaws, and to come up with solutions.

This financial crisis has affected almost everyone, non-financial firms have become bankrupt, and the unemployment has increased in households but to me it seems like the large financial firms are the ones who came out on top. The bank executives and government facilitators get exorbitant pays at the cost of our system being unconstitutional and flawed.

The solution is for us to identity the systemic weakness and enunciate constitutional policies for efficient rectification of the weakness, which is all identified in this paper.


Daniel M. Henek

Advanced Undergraduate in Finance
University of Illinois at Chicago

I like your paper and agree with a lot of the points. I do believe that it is unfair for certain banks to receive a lower rate of interest then the rest of the firms, especially when these banks have not proven to be credit worthy through huge losses on risky investments. I have always believed in free market capitalism and the way the government has been interfering is unconstitutional. Throughout all my finance courses that involve banking I always thought owning a bank would be a great job since you get money at a lower rate from the fed and then loan it out at a higher rate. My teachers have always told me that this borrowing is frowned upon and that the government doesn't like to give out that much money. During this credit crisis it doesn't seem to apply anymore. Now the government is providing these banks with a business model that cannot fail and is unfair to the rest of the firms.

Due to this unfairness I do agree that there should be a safe bank that allows everyone to receive the same rate. The way that large banks pass on the cost of FDIC is unfair and unconstitutional. However I believe it would be hard to implement this system and feel that large financial institutions would lobby against it because they wouldn't have their money machine anymore.

I thought you made a good point with the way that the government bought distressed assets without allowing the market to price the assets fairly. This demonstrates how inefficient the government really is, and how they help out certain companies. If the government would like to buy toxic assets for more than they are worth, then they are welcome to come over to my house and I will pull junk out of my basement and sell it to them. They way the government provides funding to certain institutions or forces
another institution to be acquired is also unconstitutional. If an institution is going to fail it should fail on its own. Firms should not
be provided capital to stay afloat or be forced to be acquired by larger institutions. The government is not allowing the invisible hand (god) to work but they are rather playing god. How are firms supposed to compete when one firm is backed by the government? It is not fair.

I do agree with all your points however I do believe that it would be hard to implement. Large financial institutions have too much power and say in Washington. I also feel like these ideas would be too much of a change to implement. People are scared of change and I think they would be afraid of this system. I do agree with your paper though and will continue to circulate it so others can be aware of the injustices to our country.


Joseph E. McCluskey - Seattle

Thank you for this and your leadership on many levels.


Safe Banking Central

Safe Banking - an excellent early thought-leader's view.



A "Safe Bank" Proposal By Prof. Acharya, Univ. of Illinois

Dr. Sankarshan Acharya, in a 2003 article here, describes a "Safe Bank" proposal that makes a lot of sense considering the recent failure of the banking system.

In simple terms Prof. Acharya argues that setting strict capital requirements with other sanctions essentially prohibiting leverage, can produce "safe banks" that will be immune from bank panics without the need for expensive FDIC deposit insurance.

"Define "safe banks" as those whose assets comprise only government securities and cash, who accept no more deposits than liquidation value of assets at any point in time and who issue no liability (like debt and notes) other than preferred stock and common stock. It is optimal for taxpayers to have enough number of safe banks to serve panic-prone depositors and to let other banks operate as universal banks without government supervision. The extent of government regulation taxpayers need is that safe banks do not deviate from their charters," Acharya proposes.

In short such a bank could only make loans equal to deposits plus equity capital. It would be bullet proof because it's liabilities would, by definition, never exceed it's true equity. Such a bank would obviously not pay the same interest on deposits compared to a "universal bank" which would not operate under such strict restraints. But a deep number of "safe banks" throughout the country would, in effect, give savers a safe bank without the need of government insurance. Part of Acharya's argument is that deposit insurance is part of the problem. Banks figure they can game the system and not worry about having to bear the risks because the
deposit insurance forces the government to come to the rescue.

With sufficient number of safe banks, says Acharya, "potential shifting of massive risks to taxpayers by bank managements will cease to occur."

Universal banks would only be lightly regulated, and their depositors would be taking some risk in the event the bank isn't well managed and conservative.

It's an interesting proposal, but FDIC insurance is still probably needed. The FDIC rates would be less for "safe banks" simply because their chance of default is so small. And we doen't share Acharya's faith that unregulated, universal banks still couldn't crater the world's financial systems, "safe" banks or no. Acharya's article does provide a decent explanation of the current problems the government faces because of bank mismanagement.

"The global banking industry has now accumulated a total $217 trillion in face values (sic) of credit derivatives and other financial instruments. The true economic worth of these financial instruments is less, maybe about one tenth of face amount, but still very significant. Such instruments allow banks to raise massive sums through special purpose vehicles called conduits and master trusts against incomes from consumer and credit card loans in their portfolios. Banks effectively sell off the icings of their cakes while holding enormous residual risks for taxpayers. This allows banks to generate massive short-term profits, while effectively passing on the risk to taxpayers."

The safe bank restrictions are important to understand all by themselves. These types of restrictions on leverage reflect safety and the "utility" function of basic commercial banking. If someone wants to get an extra 2% on their savings account, or on a CD, go for it at a universal bank. Just don't expect FDIC insurance.


David Miles

Advanced Undergraduate of Finance
University of Illinois at Chicago

I enjoyed your paper and most of your ideas, since most of the ideas seem logical.  First, off since our country prides itself off the fairness that we offer and that everyone and everything should be equal.  How can some banks receive lower rates of interest?  This is extremely unfair due to the fact that some of these banks do not even show that they are more credit worthy then the other banks.  These banks have been taking huge losses due to wrong risky investments.  A bank has the possibility to take money out for a loan at a low rate and then take this money and then loan it to another part of the government like us for a higher rate.  This in general seems to be unfair to me since the other parts of the government do not have the right to take a loan from the government at this low rate that the banks do.  Also the government does not want to keep giving loans to banks, but now with the economy being the way it is they have been giving them even more money to keep these big institutions from failing.  On the other hand the government it not letting other firms take money out at these rates.

Due to the unfair practices by the fed I do agree that your idea of a safe bank is a good concept.  This concept would allow every government sector to loan money at the same low rate.  In turn this will cause big institutions to lose their biggest moneymaker, since they are able to make money on the money that they borrow because the make the customer pay their expense and more.  This is one reason that these big institutions would try and fight against this concept, which will make it very hard to have this concept placed into law.

The government is not following its own laws and the constitution by picking and choosing which company to help and which ones should fail.  If these organizations have placed themselves in these positions then they deserve to fail.  How can the government be the overall decision maker if a company is to big to fail, if the company is in that position.  The company is in that position due to the overall action of the firm, in which the government did not have an affect on in the first place, but now they want to step in.  We live in a country where the government is supposed to leave businesses alone, but now they believe that they have the right to step in.  I do not believe that the government should be able to just change what we have been doing for such a long time.  

Overall I do agree with the changes that you have made clear and believe that the government needs to stop the action that it has caught themselves up with.