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You are wildly confused about the purpose of deposit insurance and how bank runs happens. Banks are in the business of maturity transformation, ie accepting dep
by esoterica 7y ago
You are wildly confused about the purpose of deposit insurance and how bank runs happens. Banks are in the business of maturity transformation, ie accepting deposits from people who can withdraw them at any time and lending them out to people who will only repay it in a fixed schedule. It doesn’t matter how high quality and safe your loans are, if too many people start pulling money out of your bank you have a bank run on your hands because you have mostly illiquid loans on your books, not hard cash with which to pay out your depositors.
PS: Banning companies from raising cash by selling off assets makes them LESS safe and robust to failure, not more. Do I really need to spell out why?
- stretchwithme 7y agoWho is suggesting companies should be prevented from selling assets to raise cash?
- JamesBarney 7y agoIlliquid means the assets are to hard to sell. And if there is a bank run who is buying billions of dollars of mortgages except for at a steep discount?
- esoterica 7y agoYou did. > if it ONLY wrote mortgages > Don't allow reselling mortgages If a bank only write mortgages and can't sell them what else do you expect them to sell? The office chairs?
- stretchwithme 7y agoI see what you're saying. My purpose there was to keep government or off budget government entity or corporation from buying any mortgages. I have no problem with selling an asset, as long as government is not subsidizing bad practices by assigning an unrealistic value to something that is fraught with risk. Selling a mortgage to private investors is not a problem.