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I don’t get the logic behind this line of thinking. What am I missing? Without govt intervention. - Shareholders suffer. - Execs suffer. - Depositors suffer
by rhaway84773 4y ago
I don’t get the logic behind this line of thinking. What am I missing?
Without govt intervention.
- Shareholders suffer.
- Execs suffer.
- Depositors suffer.
With govt intervention.
- Shareholders suffer the exact same amount.
- Execs suffer the exact same amount.
- Depositors don’t suffer
So what exactly has changed in the personal fortunes of either execs or shareholders after the govt intervention to change their incentives even a little bit?
The only “moral hazard” being created here is that depositors are being told that it’s ok to deposit your money in a single bank account in smaller non systemically important banks.
If you think encouraging depositing money in banks outside the big banks is a moral hazard, then yes, this action has furthered that.
Otherwise I’m struggling to see what other moral hazard has been created relative to the govt not intervening.
- whateveracct 4y agoIt's slippery slope fallacy.
- salawat 4y agoThe depositors in SVB were not only not normal depositors, but should have know about the insurance cap and behaved accordingly. Instead, we've emptied the FDIC insurance fund on a bunch of people who should have known better, so if shit goes south, normal depositors are unlikely to get the same consideration. So once again, different treatment for different people, stratified by social class.
- whydoyoucare 4y agoIt is about legality, not morality. Rescuing depositors by ignoring FDIC limits is violating the law. From the FDIC page: "Depositors should note that federal law expressly limits the amount of insurance the FDIC can pay to depositors when an insured bank fails, and no representation made by any person or organization can either increase or modify that amount." [1] [1] https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/ https://www.fdic.gov/resources/deposit-insurance/brochures/i...
- dragonwriter 4y ago> Rescuing depositors by ignoring FDIC limits is violating the law. No, invoking the systemic risk exception in the law is not violating the law. Because the exception is part of the law.
- whydoyoucare 4y agoThanks for the pointer, and I confess I overlooked that part. That said, I hope my faith in the people making this call is not misplaced, though at some level I feel tormented because this does not seem fair. Only time will tell.