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I tend to be libertarian, but there are reasonable roles for government, and regulating banks and life insurers by forcing them to contribute to something like

I tend to be libertarian, but there are reasonable roles for government, and regulating banks and life insurers by forcing them to contribute to something like the FDIC and the state insurance commission (or whatever that life insurance thing is called) is legitimate even to most conservatives. Stepping in to smooth out systemic problems is another valid function— like Reagan did with the air traffic controllers, like the FDIC does with bank failures, etc. Anyway, I don’t think folks are asking for a handout. They’re just asking the FDIC to do their jobs more quickly than usual because so many businesses are tied up here. This is the reason there is an FDIC in the first place. I don’t think it’s unreasonable to ask them to smooth the process out to help meet payroll. None of this requires handouts— just proper management and metering out of the assets under consideration.

pfannkuchen 4y ago
One important aspect is that we may be embedded in a vicious circle of discontinuity events and smoothing. A broad expectation that smoothing will be applied after a discontinuity event will tend to make people more willing to accept the future risk of discontinuity events in their decision making. Less risk-avoiding behavior regarding discontinuity events makes discontinuity events more likely. Then, when the next discontinuity event happens, if smoothing is again applied, it reinforces this expectation, which reinforces the probability of future discontinuities, etc. For this reason, swearing off active smoothing could actually result in a smoother system, eventually (after the pain of transition, of course).
nemothekid 4y ago
>Stepping in to smooth out systemic problems is another valid function Whether you consider this problem "systemic" is political. Note that the FDIC insurance is not the point of contention here - it's whether depositors should be made hold especially if SVB's HTM securities are insolvent. I could easily make an argument why student loan debt is a systemic issue in the united states - the government's guarantee of the loans as well as making them impossible to clear via bankruptcy has created both infinite demand (leading to higher tuition prices) and reckless loaning (due to the government essentially guaranteeing the loans). Why is this "systemic" issue unreasonable, while SVB is?
- christophilus 4y ago
  I don’t think depositors should be made whole if it can’t be done by a combination of managing the bank’s assets, and sale of depositors to other banks. So, if you’re saying neither the Fed nor the treasury nor the tax payers should bail out depositors, then I agree with you.

pfannkuchen 4y ago

One important aspect is that we may be embedded in a vicious circle of discontinuity events and smoothing. A broad expectation that smoothing will be applied after a discontinuity event will tend to make people more willing to accept the future risk of discontinuity events in their decision making. Less risk-avoiding behavior regarding discontinuity events makes discontinuity events more likely. Then, when the next discontinuity event happens, if smoothing is again applied, it reinforces this expectation, which reinforces the probability of future discontinuities, etc. For this reason, swearing off active smoothing could actually result in a smoother system, eventually (after the pain of transition, of course).

nemothekid 4y ago

>Stepping in to smooth out systemic problems is another valid function Whether you consider this problem "systemic" is political. Note that the FDIC insurance is not the point of contention here - it's whether depositors should be made hold especially if SVB's HTM securities are insolvent. I could easily make an argument why student loan debt is a systemic issue in the united states - the government's guarantee of the loans as well as making them impossible to clear via bankruptcy has created both infinite demand (leading to higher tuition prices) and reckless loaning (due to the government essentially guaranteeing the loans). Why is this "systemic" issue unreasonable, while SVB is?

christophilus 4y ago
I don’t think depositors should be made whole if it can’t be done by a combination of managing the bank’s assets, and sale of depositors to other banks. So, if you’re saying neither the Fed nor the treasury nor the tax payers should bail out depositors, then I agree with you.