Obama reaffirms his commitment to sacrifice the real economy to protect banker bonuses

In his speech accepting the Democratic Party's nomination for president, President Obama reaffirmed his commitment to sacrifice the real economy to protect banker bonuses.

Specifically, he said,

"I won't pretend the path I'm offering is quick or easy," .... 

"The truth is, it will take more than a few years for us to solve challenges that have built up over decades."

Actually, if you look at Iceland, by simply adopting the Swedish model for handling a bank solvency led financial crisis, the financial crisis and the challenges that have built up over decades can be put behind us in three years.

What has emerged in Iceland is a country with a stronger social safety net and far less debt at both the individual and national level.

What did Iceland have to do to achieve this?

It required its banks to absorb all the losses on the excess debt in its financial system.

This solution was particularly obvious because a modern banking system is designed to absorb the losses on excess debt in the financial system and protect the real economy and society without requiring any bailouts from the government.

With their access to deposit insurance and central bank funding, a modern bank can continue to operate and support the real economy even if it has negative book capital levels.

While negative book capital levels are bad for banker bonuses, they do not impede a bank's ability to support the real economy.  The bank can continue to support the real economy because through deposit insurance the taxpayers effectively become the bank's silent equity partner.

But President Obama did not champion this simple solution in his speech last night.  Instead, he talked about how the US should deal with a real economy that is struggling with the repayment burdens placed on it by the excess debt in the financial system.