notes-politics-noBailoutRule

the following rules should be in the Constitution:

(a) The government nor the central bank nor any agency controlled or financed by the government or the central bank shall ever have the power to bailout or give money to or to take over or to purchase the assets of or to assume the liabilities of a subjectively determined set of entities as a response to or in order to prevent their failure or the failure of related entities, except as stated in (b);

(b) The government or the central bank or other agencies may give money to an objectively determined set of entities in response to or to prevent their failure, provided that the government does not have the leeway to decided whether or not money shall be given or whom it shall be given to, except as occording to a mechanical rule without discretion; and provided that the conditions under which money shall be given are legislated into law at least 2 years before the money is given out; and provided that the rule for determining aid does not give preference, directly or indirectly, to larger or more important entities; and provided that each citizen is practically able to form an entity eligible for full support if they so choose.

(c) in times of crisis, the government or the central bank may and is encouraged to give an equal amount of money to each adult citizen

(d) the government may and is encouraged to pass laws banning the formation or growth or continued existence of legal entities which are so large so as to constitute a notable a systemic threat to the financial or economic system, provided that the determination of the application of the ban is completely objective and mechanical and leaves no room for discretion

commentary: (a) would prevent post-hoc or discretionary bank bailouts and bailouts of GSEs; (b) would allow the government to provide pre-arranged, fair backstops in cases like FDIC insurance; (c) allows the government to bail out the people rather than the banks in a simple and fair manner; (d) allows the government to ban TBTF banks and other huge institutions in a fair manner (personally i would also like to ban large, mature monopolies and monosonies and oligopolies (but not, on account of largeness, non-profits, by which i mean organizations whose purposes are ethical goals or the advancement of mankind rather than profit; we don't want the government to be able to ban all threats to its power) but that's outside the scope of the present proposal)

perhaps analogs of these rules should be in the Constitution of private organizations also.