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No everything would NOT have been fine. There was a real fear in the market. By 100% backing any bank that failed, the FEDs allowed the flow of money to contin

by vlod 17y ago

No everything would NOT have been fine. There was a real fear in the market. By 100% backing any bank that failed, the FEDs allowed the flow of money to continue through the economy and it said a very clear message that everyones money is safe. Imagine if everyone thought their money was not safe in their bank accounts. That everyone started taking out all their money. The system would have collapsed.

Daniel_Newby 17y ago
"No everything would NOT have been fine. There was a real fear in the market." For good reason: many large financial institutions were based on fraud. People were worried that there was nothing backing up their deposits because there really was nothing backing up their deposits. "By 100% backing any bank that failed, the FEDs allowed the flow of money to continue through the economy ..." No, to prevent a panic you back up depositors. "Worried that your checking account might evaporate, that you might not be able to make payroll because they stole your money? Don't worry, our printing press has you covered. And the crooks? They be goin' to jail." The inflationary costs would have been eye popping, but they would be over rapidly, and a foundation of trust would have been laid for future growth. Instead they bailed out the con artists with taxpayer money. This will either have to be covered by punitive taxes for decades (destroying business recovery through low profits), or by massive inflation at some unknown time in the near future (choking off business recovery through fear). Meanwhile the institutionalization of fraud creates direct fear that prevents reasonable speculation.
- vlod 17y ago
  "For good reason: many large financial institutions were based on fraud." Where's the fraud in these investment banks? Maybe your referring to the brokers (in the high street) who actually sold the subprimes to people buying houses? Maybe.. but that's certainly not investment banks. The article says: "and instead dealt only with hedge funds, insurance companies, and large financial institutions, so-called qualified buyers that, under SEC rules, are expected to understand the risks." They sold it to people who can understand these financial instruments. "because there really was nothing backing up their deposits." FDIC was backing up their deposits, well to 100K at least. "This will either have to be covered by punitive taxes for decades" The Treasury just didn't give them free money, they sold them warrants (AFAIK). The money is starting to come back in. The US Treasury just made $8B in profits from Citibank: http://goo.gl/rM9E http://goo.gl/rM9E

by vlod 17y ago

Daniel_Newby 17y ago

"No everything would NOT have been fine. There was a real fear in the market." For good reason: many large financial institutions were based on fraud. People were worried that there was nothing backing up their deposits because there really was nothing backing up their deposits. "By 100% backing any bank that failed, the FEDs allowed the flow of money to continue through the economy ..." No, to prevent a panic you back up depositors. "Worried that your checking account might evaporate, that you might not be able to make payroll because they stole your money? Don't worry, our printing press has you covered. And the crooks? They be goin' to jail." The inflationary costs would have been eye popping, but they would be over rapidly, and a foundation of trust would have been laid for future growth. Instead they bailed out the con artists with taxpayer money. This will either have to be covered by punitive taxes for decades (destroying business recovery through low profits), or by massive inflation at some unknown time in the near future (choking off business recovery through fear). Meanwhile the institutionalization of fraud creates direct fear that prevents reasonable speculation.

vlod 17y ago
"For good reason: many large financial institutions were based on fraud." Where's the fraud in these investment banks? Maybe your referring to the brokers (in the high street) who actually sold the subprimes to people buying houses? Maybe.. but that's certainly not investment banks. The article says: "and instead dealt only with hedge funds, insurance companies, and large financial institutions, so-called qualified buyers that, under SEC rules, are expected to understand the risks." They sold it to people who can understand these financial instruments. "because there really was nothing backing up their deposits." FDIC was backing up their deposits, well to 100K at least. "This will either have to be covered by punitive taxes for decades" The Treasury just didn't give them free money, they sold them warrants (AFAIK). The money is starting to come back in. The US Treasury just made $8B in profits from Citibank: http://goo.gl/rM9E http://goo.gl/rM9E