For every dollar of short-term debt, pay the government (say) 10 cents. I don’t know the exact number either, but a wrong tax rate does a lot less damage than a wrong quanti[t]ative restriction.
Instead of telling banks what their ratio of debt to equity should be, let them choose that ratio, based on a tax that offsets the implicit subsidy to debt that comes from bailouts. Makes sense.
Getting closer to contract enforcement insurance.
There are people who say equity was sufficient to cover the losses. Why won’t the bailouts with this just be even bigger followed by ever more too big to fail oligopoly? When the debt is repaid, remit some of the insurance for incentive to keep making good loans.
We already have deposit insurance. This is a proposal for loan (to banks) insurance. The banks would pay a tax specifically for the expectation of govt bailing out their creditors. A practice supported by politicial power and connections would become a standard, expected practice.
Economists should be explaining the costs and benefits of crony capitalism, not proposing more efficient ways of enabling the all powerful, political state. “It isn’t a bailout, it’s insurance.” “Of course we tell the banks what to do and who to lend to, we insure them.”
The presence of deposit insurance is already giving the government effective control of banks and lending, especially lending to the government (buying govt bonds).
Government makes a lousy insurance agent, especially since it owns the fiat banker.