Pro Commerce: Link of finance to real world

The economist I read regularly, Greg Mankiw, writes the leading college economics textbook. ?He has updated his textbook to reflect the 2008 financial collapse that brought down the commercial sector.

Here is the location of a preprint of the chapter on the connection between finance and commerce. My summary is simple. Mankiw does not understand how to separate the financial crisis from a commercial effect, much as I respect him.

I have said and written here many times the only way to allow the highly volatile financial world to work most efficiently is to disconnect it from the commercial world.

The connection occurs via banks that make loans to business. When banks are hit hard in the financial domain they respond by calling in healthy commercial loans which in turn significantly restrains the world of commerce.

Solution: FLIC, Federal Loan Insurance Corporation. ?The FLIC will guarantee that a bank will not call or reduce a business loan except where the underlying assets have declined. That will guarantee that financial crises will not be communicated to the commercial world.

I hope Dr. Mankiw gets the word. I hope Congress and related SEC staff get the word even sooner.

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