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From a Libertarian perspective why would we not: 1) have Congress+FDIC create a new form of deposit insurance that goes up to 10-25 million dollars[1] that is
by gregw2 4y ago
From a Libertarian perspective why would we not:
1) have Congress+FDIC create a new form of deposit insurance that goes up to 10-25 million dollars[1] that is to be used for a new form of account legally dedicated to payroll; funded by a new set of fees since the private market clearly is not handling this issue well (Everybody knows about FDIC limits, and people who spend more than a fraction of time thinking about the risks can easily find out about third-party insurance and (newer) banking services that bundle your capital to multiple banks. )
2) impose interest rate stress tests against banks with much smaller amounts of capital (not the current $250 billion threshold which must mean only the top 10 banks are subject to it?) (Something that SVB lobbied to keep itself exempt from having to do, and avoided the expense of keeping its interest rate hedges up to date the last ~18 months, leading to their collapse.)
If you don't like one of those, then why not address a bit more of the root cause why businesses only do business with one bank:
3) require banks legally to not impose exclusive deposit conditions or benefits as a condition of granting loans (ie banks pressuring in any way their lendees to use their deposit services)
The recently revealed sort of moral-hazard/grey-area "backstop-all-deposits-but-only-for-critical-situations" is really anti-competitive if we don't address it. It ensures that startup/SMB business owners, unclear of whether their >250/500k deposits are fully protected or not, will want to move cash to the very biggest "too-big-to-fail" banks just so they don't have to financially architect around the cash flow risks. (Cash flow risks are the #1 cause of failure of small businesses.)
I would much rather have 1000+ banks in our ecosystem than 10; surely that is a more robust system.
To me, guaranteeing all deposits (not just 250/500k or even 10 million) is another form of moral hazard where banks "privatize the gains, socialize the losses"; But I think the payroll risk is a systemic societal risk that makes sense for us to develop a societal framework to protect.
[1] 250 employees at 250k each is a monthly payroll of $5 million. 6 months payroll is 30 million. If you're bigger than that, you have enough time/resources to put your eggs in more baskets and manage the complexity. I think I am being very generous here.
- JohnFen 4y ago> have Congress+FDIC create a new form of deposit insurance Such insurance exists on the private market already and is commonly used by businesses who have large sums of cash on deposits. Presumably, the depositors at SVB didn't do that because they didn't want to pay for it. Wouldn't a libertarian prefer that over having the government do it?
- seanw444 4y agoWhy does everyone conflate libertarians with ancaps? It's not the same thing. Libertarians accept that there is a degree of government that is necessary.
- JohnFen 4y agoIs it not a libertarian position that it is preferable that things be done in the private sector than in the public sector? In the narrow statement that I replied to, a proposal was made to have the federal government enact a kind of insurance that has long been available in the private sector. My understanding of libertarian perspectives (based purely on hearing what libertarians say) is that doing it in the private sector would be preferable. Particularly considering that the problem for the depositors was that they weren't availing themselves of private-sector solutions, not that those solutions failed. I may be complete wrong on this, though, as I am not a libertarian.
- sangnoir 4y agoThere is no conflation: parent very clearly pits private deposit insurance (which exists today) vs. a hypothetical government insurance for amounts >$250,0000 (which doesn't exist, proposed by gp). Perhaps I misunderstand the different strands of libertarianism, but what kind of libertarian prefers mandatory government insurance over voluntary private insurance?
- johnbellone 4y agoThe government needs new regulations to force depositors and banks to purchase this insurance. Otherwise, we're looking at one grift after another.
- beezle 4y agoNo, the answer is let the SVB depositors take a hair cut and then you will see far better management of free cash.
- 4y ago
- convolvatron 4y agoI'll give you (3), but isn't the regulation you're proposing in (1) and (2) counter to a libertarian position?
- worksonmine 4y agoInstead of all these complicated hoops, wouldn't a true libertarian expect his money in the deposits to be no-go for gambling. And a separate account for stocks. If the bank want's to gamble they would need the customers approval for that, IE lock your money with us for 10 years and get this interest. Insurance is socialist, even if it packaged as capitalism. The bank has to cover it, but not today. And it's an agreement and not a surprise when it happens. No, lets create a complicated mess, fractional reserves, excess liquidity and having money costs money, growth and more growth and ... and .. and. You're all falling for it because you're greedy and don't want to be left behind. When is anyone going to realize the actual problem? How many times does it have to happen? I'll see you guys again in 10-15 years as we have the exact same discussion.
- wins32767 4y agoYou think there is complaining now, what do you think would happen if you lost 1-3% of your principal each year forever. And what do you think would happen to society of all that capital was sitting around doing literally nothing instead of being available for others to borrow and use on productive activities?
- worksonmine 4y agoI think interest rates would increase and I would be incentivized to put it up for lending and create a healthy economy with our savings being safe while still being able to gamble. Money would get value again. If the banks themselves won't act as the middle-man the gig economy will fill that space in no time. Would the execs get million dollar bonuses and fly jets? No, and I'm fine with that, I don't have to count on a financial crash once every decade or two. What do you think would happen?
- gtop3 4y ago> Insurance is socialist, even if it packaged as capitalism. What? Insurance companies (in general) are some of the most capitalistic. They teams of actuaries calculating risk to leverage a large capital pool to generate more capital.
- tyrrvk 4y agoFrom a Libertarian perspective why would we not: 1) have Congress+FDIC... This made me chuckle. I thought Libertarians want gov _out_ of their lives. :)
- smackeyacky 4y agoLibertarians, like Trotskyites before them suffer from the logical dead end of purity tests. https://en.wikipedia.org/wiki/No_true_Scotsman#:~:text=The%20following%20is%20a%20simplified,puts%20sugar%20on%20his%20porridge.%22 https://en.wikipedia.org/wiki/No_true_Scotsman#:~:text=The%2...