5 ms·

Sort of reminds me of the claim made by FDIC that they can back up all accounts in SVB. Maybe they can, but it's mainly the illusion that maintains the economy.

lettergram 4y ago
Better question on that front is how it’s legal. It’s not what congress passed or the FDICs charter / mission statement. So it’s kinda just “we’re doing it, even if it’s illegal” Kinda like how they gave everyone a year or more where they could live in a place without paying rent via some BS CDC power that didn’t exist.
- dvt 4y ago
  The legal loophole is that it's essentially a levy on the (other) banks, not the taxpayer. The comedy, of course, is that "bank customer" and "taxpayer" are more or less the same set of people.
  - rafram 4y ago
    Kind of, but I don’t pay any fees for my bank account(s) and I don’t expect to in the future, even with the small insurance rate increase levied by the FDIC to cover making SVB depositors whole. Making loans with my money is profitable enough for my bank that they don’t need to charge fees.
    - adastra22 4y ago
      You pay fees, even if they are hidden (e.g. lower interest rates in savings).
      - swores 4y ago
        That's not paying fees.
        adastra22 4y ago
        Call it what you will, I care not. It is an opportunity cost you pay in the end.
        swores 4y ago
        By that logic a law requiring banks to hire security experts who can keep their systems safe from hackers is also a tax, do you object to that too?
        dvt 4y ago
        I'm not sure why you're being so disingenuous here. It's painfully obvious there's a difference between costs invoked by best-practices and regular business operations and costs invoked by another bank making bad decisions, going bust, and then the other banks' customers having to pay that difference. Making an argument that we should all eat this cost to avoid contagion, etc. might hold some water (and the Fed was stuck between a rock and a hard place), but let's not pretend it's not a cost we're all eating, on top of it being an inflationary move.
      - mortehu 4y ago
        Many banks these days have zero commission brokerage accounts, in which you can hold T-bills or money market funds. Not a lot of reasons to use a "savings" account.
- RC_ITR 4y ago
  FDIC has broad authority to issue advance dividends on uninsured deposits, based on their estimate of what they will be able to recover from asset sales. FDIC determined that a 100% advance dividend was appropriate, but merchandised it in a way that allows the receivership bank to continue operating as normal.
- dragonwriter 4y ago
  > Better question on that front is how it’s legal. Because, when, after allowing FDIC broader discretion to decide how to resolve bank failures so long as at least insured balances were covered from the creation of the FDIC, Congress narrowed that discretion in 1991 by adopting the least-cost rule which normally prohibits FDIC from committing more from the Deposit Insurance Fund than necessary to cover insured accounts, they also permitted the FDIC to choose a higher-cost resolution when the required set of officials certified the existence of a systemic risk. (The system risk provision itself precedes the least-cost rule, but when the least-cost rule was adopted, the procedure for systemic risk waa changed and the system risk privision was made an exception to the least cost rule.)
- dehrmann 4y ago
  The explanation I heard was congress gave FDIC some vague exceptions to its charter because congress knew these sort of actions are politically toxic, but economically necessary(ish).
chasing 4y ago
I mean, it's also an illusion that you have a name. Just something everyone has kind of agreed to. Doesn't mean it's not steadfast and "real."
- HervalFreire 4y ago
  There's a difference between an illusion that is a name and the illusion that I have all your money in a safe place that you can always access. A name is a imaginary representation, this is different from a factual claim about reality.
  - HPsquared 4y ago
    The money itself is also imaginary. It's just numbers on a ledger that people have agreed on.
    - HervalFreire 4y ago
      No, money is suppose to exist as solid green paper. The value is imaginary but its existence is physical. The bank and government claim that if I want my money they can give me my money in green physical paper bills because it exists in the bank. Problem is that it's a lie. That's why bank runs are possible. And the current bank runs ends with another institution taking over and articulating the same lie.
      - HPsquared 4y ago
        There are a lot more bank deposits than green paper. It's similar to how banknotes originally were 1:1 correlated with physical gold (or whatever) in the vault, then banks realized they could lend out more notes than they have gold in the vault. Very similar situation with electronic vs paper dollars. Most bank deposits are created out of thin air by commercial banks when they make loans. There isn't enough paper money to cover all those deposits. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

lettergram 4y ago

Better question on that front is how it’s legal. It’s not what congress passed or the FDICs charter / mission statement. So it’s kinda just “we’re doing it, even if it’s illegal” Kinda like how they gave everyone a year or more where they could live in a place without paying rent via some BS CDC power that didn’t exist.

dvt 4y ago
The legal loophole is that it's essentially a levy on the (other) banks, not the taxpayer. The comedy, of course, is that "bank customer" and "taxpayer" are more or less the same set of people.
- rafram 4y ago
  Kind of, but I don’t pay any fees for my bank account(s) and I don’t expect to in the future, even with the small insurance rate increase levied by the FDIC to cover making SVB depositors whole. Making loans with my money is profitable enough for my bank that they don’t need to charge fees.
  - adastra22 4y ago
    You pay fees, even if they are hidden (e.g. lower interest rates in savings).
    - swores 4y ago
      That's not paying fees.
      - adastra22 4y ago
        Call it what you will, I care not. It is an opportunity cost you pay in the end.
        swores 4y ago
        By that logic a law requiring banks to hire security experts who can keep their systems safe from hackers is also a tax, do you object to that too?
        dvt 4y ago
        I'm not sure why you're being so disingenuous here. It's painfully obvious there's a difference between costs invoked by best-practices and regular business operations and costs invoked by another bank making bad decisions, going bust, and then the other banks' customers having to pay that difference. Making an argument that we should all eat this cost to avoid contagion, etc. might hold some water (and the Fed was stuck between a rock and a hard place), but let's not pretend it's not a cost we're all eating, on top of it being an inflationary move.
    - mortehu 4y ago
      Many banks these days have zero commission brokerage accounts, in which you can hold T-bills or money market funds. Not a lot of reasons to use a "savings" account.
RC_ITR 4y ago
FDIC has broad authority to issue advance dividends on uninsured deposits, based on their estimate of what they will be able to recover from asset sales. FDIC determined that a 100% advance dividend was appropriate, but merchandised it in a way that allows the receivership bank to continue operating as normal.
dragonwriter 4y ago
> Better question on that front is how it’s legal. Because, when, after allowing FDIC broader discretion to decide how to resolve bank failures so long as at least insured balances were covered from the creation of the FDIC, Congress narrowed that discretion in 1991 by adopting the least-cost rule which normally prohibits FDIC from committing more from the Deposit Insurance Fund than necessary to cover insured accounts, they also permitted the FDIC to choose a higher-cost resolution when the required set of officials certified the existence of a systemic risk. (The system risk provision itself precedes the least-cost rule, but when the least-cost rule was adopted, the procedure for systemic risk waa changed and the system risk privision was made an exception to the least cost rule.)
dehrmann 4y ago
The explanation I heard was congress gave FDIC some vague exceptions to its charter because congress knew these sort of actions are politically toxic, but economically necessary(ish).

chasing 4y ago

I mean, it's also an illusion that you have a name. Just something everyone has kind of agreed to. Doesn't mean it's not steadfast and "real."

HervalFreire 4y ago
There's a difference between an illusion that is a name and the illusion that I have all your money in a safe place that you can always access. A name is a imaginary representation, this is different from a factual claim about reality.
- HPsquared 4y ago
  The money itself is also imaginary. It's just numbers on a ledger that people have agreed on.
  - HervalFreire 4y ago
    No, money is suppose to exist as solid green paper. The value is imaginary but its existence is physical. The bank and government claim that if I want my money they can give me my money in green physical paper bills because it exists in the bank. Problem is that it's a lie. That's why bank runs are possible. And the current bank runs ends with another institution taking over and articulating the same lie.
    - HPsquared 4y ago
      There are a lot more bank deposits than green paper. It's similar to how banknotes originally were 1:1 correlated with physical gold (or whatever) in the vault, then banks realized they could lend out more notes than they have gold in the vault. Very similar situation with electronic vs paper dollars. Most bank deposits are created out of thin air by commercial banks when they make loans. There isn't enough paper money to cover all those deposits. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...