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There is a legitimate issue beyond “but Capitalism” here. Banks that may be otherwise solvent may become insolvent because of a domino risk of bank runs. Prob
by anonuser123456 4y ago
There is a legitimate issue beyond “but Capitalism” here.
Banks that may be otherwise solvent may become insolvent because of a domino risk of bank runs.
Probably the right thing to do is forced equity dilution of a bank experiencing a run. That is, the Fed buys senior equity in the bank and the injection pays for short term losses.
The equity injection guarantee alone would likely be enough to stop the contagion and calm markets.
- dragontamer 4y agoSo 15 years after 2008 and TARP, our solution is to reach for the most extreme tools available to us yet again? I thought "TARP" / equity injections into banks was a "never again" kinda deal. With Dodd-Frank regulations being passed back then to try to stop these things from being regular. We can't just buyout every bank that collapses. --------- At a minimum, I want to see major banks (similar to AIG) teetering on the brink before we reach for those tools again. This absolutely should not, and cannot, be our main way forward whenever a banking issue arises.
- sidewndr46 4y agoIt was in fact a "one time" thing done to save the banks. I have not even reached 40 years of age but have lived through somehow 4 "once in a lifetime" economic events. Perhaps economists believe that the human lifespan is only a few years?
- Nifty3929 4y agoI like this idea, but how would the correct share price be established? It must be conservatively low to avoid taxpayer burden. I’d also insist that the govt/fdic must sell their shares on the open market with 30 days, even at a loss.
- louloulou 4y ago> Banks that may be otherwise solvent may become insolvent because of a domino risk of bank runs. That to me implies the bank was never solvent in the first place. You could have easily created a bank that is always solvent, see the case of The Narrow Bank, but the Fed wouldn't allow it.
- anonuser123456 4y agoI don’t disagree with narrow banking. But the situation we are in is all based on the banking system we have today. And that banking system does have real systemic risk today.
- louloulou 4y agoSure, the monetary&banking system today is a corrupt clusterfuck that will inevitably collapse under the weight of all the unproductive debt that's built up. That's why I'm a bitcoiner.