Cycles repeat, because each new series of generations doesn't really learn from history. We cannot design a monetary system that will work properly "for all time" because that system will have to be guarded in practice by our descendants, who will not have gone through the same experiences, and will feel that the protections we put in place don't apply to their new world any longer. Hubris to think we can eliminate this basic human cycle and do their thinking for them. Each new generation must learn lessons on their own. That's why cycles happen.
Our great grandfathers put in place a fine banking system post-1933 where the banks were absolutely not in control of anything. You can tell from the stats that the banking industry post-1933 was boring - bankers weren't particularly well paid, they were a small fraction of the economy (less than 1%), deposits were diffuse and no one bank's failure would endanger the system, they were not crazy traders, and banks clearly were servants rather than masters of the universe. But true to cycle theory we promptly forgot the lessons of our great grandfathers (bunch of old fogies don't understand the modern world, you know), we tore down the protections they put in place, and now we have to deal with the current monstrosity that banking has become.
There are two mind-sets for solutions here at PP. One is to return to commodity money with no fractional reserve lending - more or less a middle ages solution, effectively burning down the entire banking industry and tossing out elastic money because of our own stupidity in gutting the protections our great grandfathers put in place. Its a system comprised entirely of base money. Another is to propose an entirely new money system that will make us all (somehow) into better people. "If we just had better money, we'd all be better behaved." And there is a third motivation, which is the persistent myth: "we have to redesign the system because otherwise we won't have enough money to pay the interest." Thats one myth I used to believe too, until I was shown that this particular myth was just completely wrong. Once you add in base money, and money flows fast enough (i.e. you model the actual world), everything works fine, but you need to have a basic understanding of how systems work to wrap your brain around it - that, and a willingness to admit a long-held belief of yours might be incorrect. Usually its the second bit where people run into the most trouble.
Anyhow, both proposed solutions involve revolutions, radical solutions guaranteed to provide huge numbers of unintended consequences. How would non-elastic commodity money work in an industrialized economy? How would it function on the downslope of peak oil? Or - how would a new socially-engineered money system work when confronted with the usual subset of selfish, greedy, people (i.e. most of us) who dearly love nothing more than to figure out all the ways to game a new system "centrally planned" by fallible mortals with the best of intentions?
Tthere is a tradition in the software industry, where you take a largely functioning system that has problems or limitations, and you become enchanted with the idea of rewriting the thing from scratch so you can "do it right this time." Do you know how well this approach works? It works so poorly, and it happens so frequently, it has a name: it's called the Second System Syndrome. I myself have personally experienced this. The temptation to "do it right this time" is incredibly strong, and it very rarely leads to success.
Communism is a fantastic example of a social experiment "second system syndrome" designed with the best of intentions by an extremely clever fellow, the implementation of which turned out completely differently than the original author had intended. You will be shocked to learn that, instead of following the authors original virtuous intent, people ended up focusing on gaming the system. It turns out, any system not based on individual self interest has a very difficult time in the real world, at least once you try to scale it up.The second-system effect (also known as second-system syndrome) is the tendency of small, elegant, and successful systems to have elephantine, feature-laden monstrosities as their successors due to inflated expectations.
The phrase was first used by Fred Brooks in his book The Mythical Man-Month. It described the jump from a set of simple operating systems on the IBM 700/7000 series to OS/360 on the 360 series.
IMO, we just need something simple. Glass-Stegall was 32 pages long, and it fixed banking for a generation. That's a pretty efficient solution to me. Why not just swipe that code and reuse it? We know it worked! There is a huge virtue in that.
Did it work for all time? Of course not. But it worked well for 40 years. It worked as long as the people wanted it to work. And if you tell me that 40 years isn't long enough - "oh no, I want a system that will be fixed for all time." Sorry, that's just not possible. Each generation has to figure things out for themselves. All we can do is address the issue for our generation, declare victory, and go home. A Dirty Harry quote: "A man's got to know his limitations." We can't do the next generation's learning for them. That's on them.
What would the 40-year solution look like? Ponzi will leave banking, they'll go back to 1% of the economy (i.e. an 80% reduction of the industry), banking will return to a boring utility, no more trading or derivatives written with grandma's deposits, diffusion will mean they won't have enough concentration to control government, and largely, everything will return to the status quo ante. Money won't make us into better people, but then again, I think that's a false promise anyway. If you can show me a case where such a thing actually worked on a large scale, I'd be more inclined to listen. Communism is great on a small scale, after all, its only when you go non-local that things tend to blow apart.
And of course I want my tax-free gold escape hatch. That's my personal tweak to the system that was missing last time around. Its a check and balance I'd personally like to have in place. My descendants might decide to remove it - but I can't really address that, any more than I can dictate fashion or anything else. All I can do is propose a fix for things in the here and now.
That's more than two cents, I know. But I had a lot to say.