3 ms·

Maybe in the medium run. In the long run, you just establish that it's okay to make higher risk bets than you can afford to recover from because the government

Maybe in the medium run. In the long run, you just establish that it's okay to make higher risk bets than you can afford to recover from because the government is too skittish to let any domino fall. That's the road to increasingly wild volatility, not a reliable economy.

DennisP 4y ago
Bailing out depositors is not the same as bailing out the bank. The bank should go out of business, but that doesn't mean depositors have to lose their funds.
- fairity 4y ago
  But bailing out depositors here is essentially also a bail out of the next risk-taking bank that will go under sans a bailout. So, to some extent it does encourage long term risk taking by bank execs.
  - DennisP 4y ago
    No, because bailing out the depositors will not keep the bank from going under. The bank will still go out of business and its investors will still lose all their money. Same for the next bank that goes under, even if its depositors are also bailed out.
    - hairofadog 4y ago
      I feel like investors are taking a calculated risk, though, whereas depositors (not unreasonably, in my opinion) thought their money in the bank was “money in the bank”.
      - luckylion 4y ago
        And it was, with the caveat of "up to $250k per entity per bank". I don't think we'll remove all caveats from everything, we're just asked to removed them from something that only affects rich people.
      - mixdup 4y ago
        I feel like if you have millions of dollars you should be sophisticated enough to understand FDIC insurance limits. Piling literal billions of dollars into one small bank is a calculated risk, too
    - fairity 4y ago
      I’m saying that bailing out SVB depositors will prevent First Republic Bank (for example) from experiencing a similar bank run and going out of business. So, a bail out of SVB depositors is also, in effect, a bail out of FRB. And, that dynamic creates a long term incentive for risk taking.
      - DennisP 4y ago
        But preventing bank runs is the main point of deposit insurance in the first place.
- swatcoder 4y ago
  What does it mean for the bank to go out of business if everybody gets their money back? That suggests that the bankers themselves did a great job turning high-risk bets with depositor money into no-risk bets. They may as well just reincorporate as another entity and do it again. (And if the have to personally retire because of regulatory "penalty", other bankers can still step in and repeat the same play until they're asked to retire as well.)
  - DennisP 4y ago
    Let's say you have an account at Wells Fargo, I've invested in Wells Fargo stock, and Wells Fargo goes out of business. The idea here is that I lose all my money because I made a stupid investment, and you keep all your money because you just deposited your money in a bank. Maybe the Wells Fargo executives could start another bank, but making you lose all your money doesn't do anything to prevent that.
    - luckylion 4y ago
      Why aren't they asking to add another FDIC level with the maximum insured amount at e.g. $5m and increase insurance premiums for banks accordingly? That'd take care of it, if you have $5m in cash and want to put it into a bank account, you just pay more fees, the bank pays a significantly larger insurance premium and everyone lives happily ever after. This feels like an Ethereum thing. Code is law, but not if it's inconvenient.
      - WkndTriathlete 4y ago
        There's nothing stopping _you personally_ from purchasing insurance on your $5m at the bank from an insurer (or reinsurer) instead of socializing the cost of insuring higher-valued accounts on everyone else.
        mixdup 4y ago
        The one thing that mandatory FDIC insurance gives you over purchasing private insurance is a) the US Government is guaranteed to not go bust (and if it does, we're all living off canned goods anyway) and b) you avoid the situation where people don't do the responsible thing and then you have to bail them out anyway (this is also part of the argument behind government provided healthcare insurance, but that's another topic for another day) Buying private insurance leaves you open to the risk of the insurance company going bust, and, it not being mandatory means people can take the risk and then come crying to the US Treasury to solve this unknowable systemic risk that everyone actually does know about--which we're already seeing heavy pressure from people to bail out these depositors who are above the insurance limits

DennisP 4y ago

Bailing out depositors is not the same as bailing out the bank. The bank should go out of business, but that doesn't mean depositors have to lose their funds.

fairity 4y ago
But bailing out depositors here is essentially also a bail out of the next risk-taking bank that will go under sans a bailout. So, to some extent it does encourage long term risk taking by bank execs.
- DennisP 4y ago
  No, because bailing out the depositors will not keep the bank from going under. The bank will still go out of business and its investors will still lose all their money. Same for the next bank that goes under, even if its depositors are also bailed out.
  - hairofadog 4y ago
    I feel like investors are taking a calculated risk, though, whereas depositors (not unreasonably, in my opinion) thought their money in the bank was “money in the bank”.
    - luckylion 4y ago
      And it was, with the caveat of "up to $250k per entity per bank". I don't think we'll remove all caveats from everything, we're just asked to removed them from something that only affects rich people.
    - mixdup 4y ago
      I feel like if you have millions of dollars you should be sophisticated enough to understand FDIC insurance limits. Piling literal billions of dollars into one small bank is a calculated risk, too
  - fairity 4y ago
    I’m saying that bailing out SVB depositors will prevent First Republic Bank (for example) from experiencing a similar bank run and going out of business. So, a bail out of SVB depositors is also, in effect, a bail out of FRB. And, that dynamic creates a long term incentive for risk taking.
    - DennisP 4y ago
      But preventing bank runs is the main point of deposit insurance in the first place.
swatcoder 4y ago
What does it mean for the bank to go out of business if everybody gets their money back? That suggests that the bankers themselves did a great job turning high-risk bets with depositor money into no-risk bets. They may as well just reincorporate as another entity and do it again. (And if the have to personally retire because of regulatory "penalty", other bankers can still step in and repeat the same play until they're asked to retire as well.)
- DennisP 4y ago
  Let's say you have an account at Wells Fargo, I've invested in Wells Fargo stock, and Wells Fargo goes out of business. The idea here is that I lose all my money because I made a stupid investment, and you keep all your money because you just deposited your money in a bank. Maybe the Wells Fargo executives could start another bank, but making you lose all your money doesn't do anything to prevent that.
  - luckylion 4y ago
    Why aren't they asking to add another FDIC level with the maximum insured amount at e.g. $5m and increase insurance premiums for banks accordingly? That'd take care of it, if you have $5m in cash and want to put it into a bank account, you just pay more fees, the bank pays a significantly larger insurance premium and everyone lives happily ever after. This feels like an Ethereum thing. Code is law, but not if it's inconvenient.
    - WkndTriathlete 4y ago
      There's nothing stopping _you personally_ from purchasing insurance on your $5m at the bank from an insurer (or reinsurer) instead of socializing the cost of insuring higher-valued accounts on everyone else.
      - mixdup 4y ago
        The one thing that mandatory FDIC insurance gives you over purchasing private insurance is a) the US Government is guaranteed to not go bust (and if it does, we're all living off canned goods anyway) and b) you avoid the situation where people don't do the responsible thing and then you have to bail them out anyway (this is also part of the argument behind government provided healthcare insurance, but that's another topic for another day) Buying private insurance leaves you open to the risk of the insurance company going bust, and, it not being mandatory means people can take the risk and then come crying to the US Treasury to solve this unknowable systemic risk that everyone actually does know about--which we're already seeing heavy pressure from people to bail out these depositors who are above the insurance limits