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That's if you ignore the secondary effects: "moral hazard," knowing that if you become big enough to create political waves in the event that you fail you can c
by Aaronontheweb 4y ago
That's if you ignore the secondary effects: "moral hazard," knowing that if you become big enough to create political waves in the event that you fail you can continue to gamble with depositor money, make your annual bonus, and safely be rescued by Federal depositor backstop / bailout in the event that you eventually go tits up. I wonder if that'll ever happen again after 2008...
- KptMarchewa 4y agoWhat they did with SVB prevents this thinking. Make the depositors whole, wipe out shareholders, prosecute the executives.
- Aaronontheweb 4y agoNot really - rewriting the rules (FDIC insurance limits) midway through because SVB's own depositors yelled "bank run!" loud enough is still moral hazard. Do I need to make sure I bank with an institution that Jason Calcanis, Mark Cuban, et al use so I can insure my deposits with their political / popular leverage?
- criley2 4y agoIt's hardly a rewrite, everyone knows that your deposits with the big 5 are already 100% "too big too fail" anyway. The only change is that some smaller organizations might also get the same unspoken benefit that the big 5 already enjoy. This keeps them competitive, and as the US Gov and many folks noted, if they did not do this, everyone would flee to the Big 5 and regional/community banking would be wiped out.
- bumby 4y agoThe irony is that "moral hazard" was the excuse used for not bailing out the homeowners directly who were defaulting on mortgages 15 years ago.