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> is a problem for all of us. Not for those of us that don't invest our money in banks/stock markets, and don't take out loans. Private businesses meeting th

> is a problem for all of us. Not for those of us that don't invest our money in banks/stock markets, and don't take out loans. Private businesses meeting the above criteria would have boomed under those conditions, as there competitors were wiped out. The world is addicted to banks, and it really needs to treat the source, not the symptoms.

PaulDavisThe1st 5y ago
If you participate in the economic system at all, the failure of over-sized banking institutions will fuck you up whether you have an account or loan with them or not. Yes, we do indeed to need to deal with the banking system, but until that's done, if large elements within it fail, the pain is going to be felt by a lot of the little people much more than the bankers.
- nix0n 5y ago
  > If you participate in the economic system at all, the failure of over-sized banking institutions will fuck you up whether you have an account or loan with them or not. The stock market crashed despite the bailout. People lost their jobs and houses despite the bailout. What would have been worse if the banks had not been bailed out?
  - PaulDavisThe1st 5y ago
    More people would have lost their jobs and houses, and whatever recovery was experienced would likely have taken longer and not been as "complete" (not that it was complete anyway, and it took far too long because of spending wimps in Congress). More businesses would have failed, and not restarted.
    - treeman79 5y ago
      If I could place wagers and know that someone else would cover my loses… well I might be inclined to make a lot of risky wagers. If I make money, great, if I lose, it’s someone else’s problem. When government provides too cozy a safety net it encourages risky lending. Federal flood insurance is another fun topic related to this.
      - PaulDavisThe1st 5y ago
        I'm not arguing the government support for the banking industry is a good thing or the right thing (though there are some arguments to be made in support of it). I am saying that pulling that support during a banking crisis will generally be a disaster for the rest of us. We need to change the support for the banking industry but in a manner that doesn't screw the rest of us over with side effects.
        treeman79 5y ago
        Maybe so. Not repeating the same mistakes again is more of where I was going.
      - geoduck14 5y ago
        >If I could place wagers and know that someone else would cover my loses… well I might be inclined to make a lot of risky wagers. If I make money, great, if I lose, it’s someone else’s problem. You should know, in the fallout of that Recession, LOTS of banks lost. There were plenty of regulations on lending and capital restrictions. This forced small banks to be sold and consolidate into big banks. There were plenty of big banks who wanted to expand but couldn't because they couldn't meet the regulatory pressures. There were plenty of executives who lost their jobs. Lots of banks lost.
    - SilasX 5y ago
      How do you differentiate between "believing that claim because it is objectively true" vs "believing that statement because you've bought into self-interested propaganda from banks"? What evidence strongly favors one over the other?
  - AnimalMuppet 5y ago
    Compare the "Great Recession" with the Great Depression or the Panic of 1873. That's how much worse it could be. There's a reason the FDIC was set up as part of the reforms triggered by the Great Depression. Bank failures tend to cascade.
    - nix0n 5y ago
      > There's a reason the FDIC was set up as part of the reforms triggered by the Great Depression But we did have the FDIC, so normal people would not have lost their deposits from a bank failure.
      - AnimalMuppet 5y ago
        Right, except that the FDIC is only big enough to handle $N in bank failures, and N is not that large. Also, resolution through the FDIC means that you get your money... eventually. That can still be a problem if you have to pay your bills this week, though. (And then, if you and enough other people can't pay your bills this week, that can be a problem for businesses...)
  - avianlyric 5y ago
    How do you think banks fund loans? They use customer deposits and operate as a fractional reserve. If the large banks have liquidity problems, it means they’re no longer able to give people their deposits back as cash. They simply don’t have the money to give to depositors. In this scenario government steps to cover the shortfall, but there’s a limit to how much the government can cover, so many people, in particular business, will simply take involuntary haircuts to their bank balances. In this situation people start taking their money of banks, because trust has been destroyed, causing a bank run. Which makes the situation even worse, because then any bank that lends will have a liquidity crisis, because they operate as a fractional reserve. In the end the government ends up effectively bailing out the banks anyway, by covering peoples deposits. Except now most banks have collapsed completely, taking huge amounts of financial infrastructure with them, plus the people needed to administrate and operate financial aspect of the economy, and nobody trusts the banks that managed to survive (assuming any did). So worst case is bad, really bad. A cascading failure of banks means you wake up one morning and money that isn’t under your mattress has disappeared. You cash accounts, your savings accounts, your investment accounts. In addition you’ll have a line of people demanding you repay any loans you have, your car lease, your mortgage, your credit cards etc. Banks considered “to-big-to-fail” have that label because their collapse has a significant risk of causing a cascading failure of banks across the entire economy. So bailing them out is much cheaper and safer to do, but allowing them to continue existing is just negligent.
    - lowkey 5y ago
      > They use customer deposits and operate as a fractional reserve. Close, but not quite. The banks are barred from using customer deposits to fund loans. They also have a 0% reserve ratio currently so it is 100% fractional reserve. In short the banking system is a scam, always has been. It is the greatest scam ever perpetuated on humanity. If any other industry operated on the level of fraud involved in running a fractional reserve, they would be jailed by midnight.
      - avianlyric 5y ago
        Nah, it’s just an efficient way to free up capital and do something useful with it. Not sure if the details, but banks should be using customer deposit for loans. They can’t fund loses etc out of them, but they can (and should) use the capital for lending. If banks didn’t lend the money, how would you expect them to pay internet on your savings or fund the costs associated with just storing your money for you? It costs quite a lot of money to run a bank, even a bank that only handles customer deposits and has no lending activity. Most consumers aren’t in paying the full cost of administrating their budgets, but cost has to be covered somehow. Additionally if banks didn’t operate as a factional reserve, we would have a permanent credit crisis, because there would be no capital to fund any form of credit, from credit cards to mortgages. Either that or you would have to engage entirely in P2P lending, which removes the ability to aggregate and distribute risk, lowering each individual exposure. Or you would have a P2P system with someone aggregating and selling that risk, but that’s just banks in another name.
cyanydeez 5y ago
Unless you can eat those assets, build cars, computers or houses, all you have is just an alt economy that's indistinguishable from the dollar, except it has a different name.
TomSwirly 5y ago
> Not for those of us that don't invest our money in banks/stock markets, and don't take out loans. So you are paid in cash, by a company that also does all its business in cash?
PeterisP 5y ago
A systemic bank collapsing means that the companies who use them for paying their employees and suppliers, well, don't. This causes a chain reaction as the companies with a solid business model aren't able to execute it because they can't pay for their inputs (or their B2B customer can't pay for their deliveries) as their liquid cash is frozen until insolvency may return part of it, and they have to suspend operations, which is yet another hit on people (not) receiving salaries and on all the other related companies. Protection of systemic banks is not about investors and loans, it's about the liquidity/working capital of companies and the people's salaries.
solveit 5y ago
> Not for those of us that don't invest our money in banks/stock markets, and don't take out loans. Private businesses meeting the above criteria would have boomed under those conditions, as there competitors were wiped out. These two sentences contradict each other. You see, the competitors that get wiped out have employees who would lose their jobs regardless of how their money was stored.
jjk166 5y ago
Let's say I'm a small mom and pop grocery store selling produce. I've been very cautious with my money and haven't taken out any loans, so I'm safe. But all the farmers whose produce I'm selling did because that's the only way to effectively run a farm. Now I have no inventory to sell. Am I still going to thrive? The world is addicted to banks, and more specifically lending because that's how you convert future, uncertain payouts into steady, predictable capital that can be used to buy inventory, pay employees, make repairs, etc. To kick our bank addiction would be ruinous.

PaulDavisThe1st 5y ago

If you participate in the economic system at all, the failure of over-sized banking institutions will fuck you up whether you have an account or loan with them or not. Yes, we do indeed to need to deal with the banking system, but until that's done, if large elements within it fail, the pain is going to be felt by a lot of the little people much more than the bankers.

nix0n 5y ago
> If you participate in the economic system at all, the failure of over-sized banking institutions will fuck you up whether you have an account or loan with them or not. The stock market crashed despite the bailout. People lost their jobs and houses despite the bailout. What would have been worse if the banks had not been bailed out?
- PaulDavisThe1st 5y ago
  More people would have lost their jobs and houses, and whatever recovery was experienced would likely have taken longer and not been as "complete" (not that it was complete anyway, and it took far too long because of spending wimps in Congress). More businesses would have failed, and not restarted.
  - treeman79 5y ago
    If I could place wagers and know that someone else would cover my loses… well I might be inclined to make a lot of risky wagers. If I make money, great, if I lose, it’s someone else’s problem. When government provides too cozy a safety net it encourages risky lending. Federal flood insurance is another fun topic related to this.
    - PaulDavisThe1st 5y ago
      I'm not arguing the government support for the banking industry is a good thing or the right thing (though there are some arguments to be made in support of it). I am saying that pulling that support during a banking crisis will generally be a disaster for the rest of us. We need to change the support for the banking industry but in a manner that doesn't screw the rest of us over with side effects.
      - treeman79 5y ago
        Maybe so. Not repeating the same mistakes again is more of where I was going.
    - geoduck14 5y ago
      >If I could place wagers and know that someone else would cover my loses… well I might be inclined to make a lot of risky wagers. If I make money, great, if I lose, it’s someone else’s problem. You should know, in the fallout of that Recession, LOTS of banks lost. There were plenty of regulations on lending and capital restrictions. This forced small banks to be sold and consolidate into big banks. There were plenty of big banks who wanted to expand but couldn't because they couldn't meet the regulatory pressures. There were plenty of executives who lost their jobs. Lots of banks lost.
  - SilasX 5y ago
    How do you differentiate between "believing that claim because it is objectively true" vs "believing that statement because you've bought into self-interested propaganda from banks"? What evidence strongly favors one over the other?
- AnimalMuppet 5y ago
  Compare the "Great Recession" with the Great Depression or the Panic of 1873. That's how much worse it could be. There's a reason the FDIC was set up as part of the reforms triggered by the Great Depression. Bank failures tend to cascade.
  - nix0n 5y ago
    > There's a reason the FDIC was set up as part of the reforms triggered by the Great Depression But we did have the FDIC, so normal people would not have lost their deposits from a bank failure.
    - AnimalMuppet 5y ago
      Right, except that the FDIC is only big enough to handle $N in bank failures, and N is not that large. Also, resolution through the FDIC means that you get your money... eventually. That can still be a problem if you have to pay your bills this week, though. (And then, if you and enough other people can't pay your bills this week, that can be a problem for businesses...)
- avianlyric 5y ago
  How do you think banks fund loans? They use customer deposits and operate as a fractional reserve. If the large banks have liquidity problems, it means they’re no longer able to give people their deposits back as cash. They simply don’t have the money to give to depositors. In this scenario government steps to cover the shortfall, but there’s a limit to how much the government can cover, so many people, in particular business, will simply take involuntary haircuts to their bank balances. In this situation people start taking their money of banks, because trust has been destroyed, causing a bank run. Which makes the situation even worse, because then any bank that lends will have a liquidity crisis, because they operate as a fractional reserve. In the end the government ends up effectively bailing out the banks anyway, by covering peoples deposits. Except now most banks have collapsed completely, taking huge amounts of financial infrastructure with them, plus the people needed to administrate and operate financial aspect of the economy, and nobody trusts the banks that managed to survive (assuming any did). So worst case is bad, really bad. A cascading failure of banks means you wake up one morning and money that isn’t under your mattress has disappeared. You cash accounts, your savings accounts, your investment accounts. In addition you’ll have a line of people demanding you repay any loans you have, your car lease, your mortgage, your credit cards etc. Banks considered “to-big-to-fail” have that label because their collapse has a significant risk of causing a cascading failure of banks across the entire economy. So bailing them out is much cheaper and safer to do, but allowing them to continue existing is just negligent.
  - lowkey 5y ago
    > They use customer deposits and operate as a fractional reserve. Close, but not quite. The banks are barred from using customer deposits to fund loans. They also have a 0% reserve ratio currently so it is 100% fractional reserve. In short the banking system is a scam, always has been. It is the greatest scam ever perpetuated on humanity. If any other industry operated on the level of fraud involved in running a fractional reserve, they would be jailed by midnight.
    - avianlyric 5y ago
      Nah, it’s just an efficient way to free up capital and do something useful with it. Not sure if the details, but banks should be using customer deposit for loans. They can’t fund loses etc out of them, but they can (and should) use the capital for lending. If banks didn’t lend the money, how would you expect them to pay internet on your savings or fund the costs associated with just storing your money for you? It costs quite a lot of money to run a bank, even a bank that only handles customer deposits and has no lending activity. Most consumers aren’t in paying the full cost of administrating their budgets, but cost has to be covered somehow. Additionally if banks didn’t operate as a factional reserve, we would have a permanent credit crisis, because there would be no capital to fund any form of credit, from credit cards to mortgages. Either that or you would have to engage entirely in P2P lending, which removes the ability to aggregate and distribute risk, lowering each individual exposure. Or you would have a P2P system with someone aggregating and selling that risk, but that’s just banks in another name.

cyanydeez 5y ago

Unless you can eat those assets, build cars, computers or houses, all you have is just an alt economy that's indistinguishable from the dollar, except it has a different name.

TomSwirly 5y ago

> Not for those of us that don't invest our money in banks/stock markets, and don't take out loans. So you are paid in cash, by a company that also does all its business in cash?

PeterisP 5y ago

A systemic bank collapsing means that the companies who use them for paying their employees and suppliers, well, don't. This causes a chain reaction as the companies with a solid business model aren't able to execute it because they can't pay for their inputs (or their B2B customer can't pay for their deliveries) as their liquid cash is frozen until insolvency may return part of it, and they have to suspend operations, which is yet another hit on people (not) receiving salaries and on all the other related companies. Protection of systemic banks is not about investors and loans, it's about the liquidity/working capital of companies and the people's salaries.

solveit 5y ago

> Not for those of us that don't invest our money in banks/stock markets, and don't take out loans. Private businesses meeting the above criteria would have boomed under those conditions, as there competitors were wiped out. These two sentences contradict each other. You see, the competitors that get wiped out have employees who would lose their jobs regardless of how their money was stored.

jjk166 5y ago

Let's say I'm a small mom and pop grocery store selling produce. I've been very cautious with my money and haven't taken out any loans, so I'm safe. But all the farmers whose produce I'm selling did because that's the only way to effectively run a farm. Now I have no inventory to sell. Am I still going to thrive? The world is addicted to banks, and more specifically lending because that's how you convert future, uncertain payouts into steady, predictable capital that can be used to buy inventory, pay employees, make repairs, etc. To kick our bank addiction would be ruinous.