An essay on banking seemed necessary, since you said that banks "give away money" when lending. It's important to understand that banks create money when they l

An essay on banking seemed necessary, since you said that banks "give away money" when lending. It's important to understand that banks create money when they lend, but that's too esoteric to say on its own. As for the questions that were set aside, one role of the Fed is to ensure that enough ("high-powered") money is available to ensure that transactions clear, which is part of monetary policy (including, as you sort of mentioned, the discount window). Asymmetries between banks are resolved through interbank lending. Because all these mechanisms are available to cover their reserve needs, banks will issue loans (creating deposits) based on the creditworthiness of their applicants, not on their own reserve positions. But these are secondary matters, which is why I didn't talk about them earlier. >Someone like you would blame everything on the last sentence, whereas I am more interested in the root cause. On the one hand, interest rate risk is precisely why we allow lenders to charge interest; otherwise it would be money for nothing. On the other, I suspect you just want to blame the federal government, because that's ideologically convenient. For my part, I'm skeptical of the Fed's belief (and general economic orthodoxy) that interest rate increases are the correct response to inflation, but that's even more secondary. More importantly, we have the issue that normal people need to be secure in their bank deposits, and since the government is us, it's perfectly reasonable to make that happen. In particular, once you start insuring deposits, you really need to be ready to regulate. As for S&Ls, deregulation was the response to their interest rate troubles (they went for deregulation rather than closure because of free market orthodoxy), but then that turned out to be a disaster. The "control fraud" I talked about, where executives pillage the bank, was rife in the latter days of the S&L boom. Past that, y'know, it was a situation of making extremely risky loans with capital from insured deposits, because there was nothing holding them back. This is about as far from "won't somebody think of the bankers" as it gets. The FDIC has a fair write-up of it: https://www.fdic.gov/bank/historical/history/167_188.pdf https://www.fdic.gov/bank/historical/history/167_188.pdf Indeed, if you keep a vaguely open mind and know anything about the global financial crisis, you ought to spot one or two similarities, that have nothing whatsoever to do with the federal government strong-arming put-upon banks to make unreasonable loans to poor people---and, if anything, a failure of the federal government to lay down the hammer on private-sector fuckery.