Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, March 11, 1993 TAG: 9303110075
SECTION: BUSINESS PAGE: A11 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
BANKING GURU'S BOOK NOT A RIB-TICKLER
Bert Ely, banking guru and former Roanoker, is writing a book on his favorite subject - reform of deposit insurance.Like generals still fighting World War II, regulators are focusing on outdated measurements of banks, Ely said Wednesday from his Alexandria office.
Regulators have already wrung the risk out of banks, he said, and the economic threat is coming from elsewhere.
Ely, who lived in Roanoke from 1971 to 1981, won national fame for correctly predicting the recent crisis dimensions of the savings-and-loan industry. Now he plans a book to explain his theories about why the regulatory system is flawed.
He has written a synopsis and done the research, and he is about to retain a Washington lawyer as a literary agent. But he has neither a title nor a publisher as yet.
Ely hopes to finish writing by fall and hit the book stores by the spring of 1994.
"Obviously, I want a big seven-figure advance and I want to be on Oprah," he joked.
The book, however, is no laughing matter. It will concern what he calls "asset deflation."
It starts with a bubble of speculation, such as farmland in the rural Midwest, oil in Texas and commercial real estate in Washington or New England.
When bubbles inevitably burst, Ely said, a result is deflation and pain - or worse, the Great Depression that led to Hitler and World War II. And the problem is worldwide, with deflation under way in the United Kingdom, Scandinavia and Japan.
People can learn to cope with inflation, he said, but asset deflation makes people "feel caught and helpless." An example is a farmer losing the family homestead.
The obvious solution is to prevent the bubbles, which Ely thinks are blown up by the availability of cheap credit to finance speculation.
A major part of the answer, Ely thinks, is privatization of deposit insurance. Such a bill is pending in Congress, although it made little headway last year. This would allow the marketplace - not politicians and regulators - to assess the risk and price the product.
The book will also delve into what Ely calls "regulatory arbitrage," which results in a flight of assets out of banks and into money market mutual funds, bond funds and commercial paper debt. This, too, causes an inefficient marketplace.
Ely is ready to expound his theories at length, but most people will have to wait for the book.
Who are his potential readers?
"I think the audience has to be anybody who is concerned about the performance of the American economy," Ely said.