You raise some interesting points. Let me see if I can address them. > An exploding mortgage wrapped in mortgage insurance has exactly the same shape as a con

You raise some interesting points. Let me see if I can address them. > An exploding mortgage wrapped in mortgage insurance has exactly the same shape as a conventional mortgage from a fractional reserve bank. The insurer would be doing something like “fractional reserve insurance”, i.e. only holding some fraction of the total insurance payout it’s liable for, and you’d have the same problems. They are similar in that in both cases we have an institution that may not be able to pay its obligations. Those kinds of risks will always be present in society. However, I do think that the shape of these risks are different in important ways. First, in the full-reserve scenario, no money is being invented out of thin air. Insurance is a risk pooling scheme, that is it. Second In a fractional-reserve system, bank runs are self-fulfilling prophesies, because the game-theoretic optimal move in the event of a bank run (or a reported bank run) is to run on the bank! Because no other conditions are necessary for a bank run (other than a widespread belief that one is happening) a bank run can literally be memed into existence. I believe that, to a certain extent, the functioning of a fractional reserve system relies on the general public being ignorant of how it actually works. I don't think insurance acts like that. You can't make an insurance claim just because other people are doing it: you have to actually have a qualifying event. It also doesn't seem reasonable to assume that calling of the mortgage loans would start spreading just because of a rumor - there would have to be some other cause. > You often see people demand to know why banks are allowed to do fractional reserve banking. And this is the reason: it lets banks offer mortgages and credit cards to most of the public. Most people don’t have much money, but do have a lot of future earnings. Giving people access today to large chunks of their future earnings is a big social good but it fundamentally requires money to be invented from thin air, and that invented money is then gradually filled in with real money over time as the earnings come in. I think lending is an essential economic service, but I don't think the easy credit enabled by inventing money is a good thing. At a macro level, there are arguably all sorts of market distortions caused by too much money chasing too little "stuff" to invest in. At a micro-level, easy credit plus inflation incentivizes bad habits of spending money for instant gratification and discourages prudent saving and financial preparedness for most people.a instant gratification of spending more money noa instant gratification of spending more money no