5 ms·

> 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 the

by 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.

by nix0n 5y ago

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.