RESTORING RESPONSIBILITY:

My blueprint has two basic planks:

A return to the partnership model

Almost complete deregulation of the financial system [..]

[W]e need a structure that solves both the agency and scale problems. And the partnership model seems to be it. The partnership model holds that stockholders in a financial institution must also be employees of that institution, and that they have unlimited liability in a bankruptcy. 

It's easy to see how it solves the agency problem: the people providing the equity capital, the people running the ship and the people who are on the hook when the ship sinks are the same people. Will this prevent mistakes from being made? No, humans are foolish and greedy sorcerer's apprentices, and we'll always figure out ways to make stuff blow up in our face. But it gives everyone the incentive to be more careful. Bubbles would still happen, but people would drink less kool-aid. It doesn't guarantee they won't happen, but it's the best incentive structure to limit their destructive effects. 

And it also solves the scale problem: without access to the public or even most of the private markets (I should like partnerships to be able to have up to 20/25% of their capital open to outsiders) to expand their equity capital, banks would necessarily be much smaller. 

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