If your goal is to stabilize the U.S. economy, you’re better off with strict regulation of finance over financial regulation of industry.
This is the opposite of wise. If an industry is flagging and cannot survive market rates, this is a signal that investments in the industry are not advisable. To suppress interest rates in this industry would further divert resources away from more profitable industries.
The best solution is market rates. Allow liquidation to proceed so that resources are freed up for more profitable ventures.
No bank should be “too big to fail”. The solution is to just let the fucking bank fail. If the failure of that one bank would lead to unacceptable economic disruption, then it should be dismembered and the parts sold off before that happens.
That’s what happens when any enterprise fails under a laissez-faire capitalist system.
The only thing special about banks and financial service firms is that they are the most coddled by governments.
I don’t think you have a good grasp of how intertwined and cross-industry supply chains are. If you set interest rates differently for real estate and aerospace, and I make steel brackets that are used in both real estate and aerospace, what is the cost of borrowing for me?
I also think this would open the door to massive corruption and massive arbitrage schemes. I also only think that ‘bubbles’ and ‘overheated’ economies are obvious in hindsight. I remember people saying that Google stock was clearly in bubble territory a decade ago when it was a fraction of its current price. It is still an ongoing bubble? Should we raise interest rates on internet companies to ‘slow them down’?
In the real world, eventually monied interests in those industries will be the ones deciding what interest rates should be. Just like how bankers are heavily involved in what banking regulations there should be. Regulatory capture is a thing, and a system where the government was responsible for setting the price of capital for every industry would be a nightmare of corruption before you could blink.
This is just a really, really bad idea.
Sam Stone has it - regulatory capture and the amount of resources financial institutions can throw at anything to do with corporate structures, business classifications, and accounting will relegate any scheme like this to yet another arbitrage opportunity / regulatory convolution to exploit within a year or less.
Although I like where your head is at at the high level - thinking about whether it’s possible to make fail-safe bulkheads in our economy - I think implementation (of this or any other ideas) may well be impossible in the current political system and climate we have.
In terms of solutions I think would have closer to the desired effect, I’m with Bryan Ekers and Lemur886 that greater regulation with actual teeth (unlike the wrist-slappingly puissant regulation instituted after the crash, that itself is currently being backpedaled), and forced break-ups of the big 3 into smaller constituent companies. Targeted stimulus is already a thing - remember infrastructure stimulus spending? We can do that, and more, and I think it’s definitely a big piece of mitigating downturns, it’s just down to making the choice to target well.
But on the downside, everything is so interconnected in our economies, the answer may well be it ISN’T possible to construct isolation points that contain downturns to largely one industry.
Manufacturing.
The Fed already does this.
That is a point. I’ll have to investigate how the Fed is currently able to avoid most corruption.
And I run an import/export business for flat steel products and am Sam’s distribution agent for steel brackets along the US East Coast.
I don’t have his manufacturing plant and investment, so do I get better rates?
And does Sam’s prefabrication business get different interest rates to heavy steel industry who provide him his raw materials?
I’m trying to think of an economic crisis in modern times that was caused by industry and not by financial mismanagement, be it in securities and/or banking.
Certainly unregulated industry can cause and has caused environmental crises, but that’s another matter.