Re: Financial innovation
From: Brian Bartholomew (
Date: Fri, 16 May 2008 13:03:17 -0700 (PDT)
> Were there runs on the bank?

Fractional reserve banking is inherently bankrupt.  A bank run forces
that bankruptcy into the light:

A lender to build cohos might be better arranged as a mutual fund,
which makes no promise that shares can be redeemed in cash.  It has a
set of promised investment goals and methods, but the fund is only
obligated to follow the prospectus, not to attain specific results.
There is no magic; the assets a coho mutual fund would hold are a
bunch of mortgages.  If there is a run of redemptions of fund shares,
investors would receive whatever the mortgages could be sold for.


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