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The only idea that could be worse is having a multitude of private lending entities that collect almost all the profits backed by only one public entity that's

by racketcon2089 3y ago

The only idea that could be worse is having a multitude of private lending entities that collect almost all the profits backed by only one public entity that's stuck with almost all of the risk. A marxist might call it "dictatorship of the capitalist class" but any honest libertarian would call it an obvious moral hazard.

notahacker 3y ago
But then again, people who understood things that actually work better than Marxists and libertarians would realise that the public entity isn't stuck with nearly all the risk, because enough bad loans still wipe out bank shareholders (and the liquidity risk of maturity transformation is eliminated altogether). The moral hazard in banking operates at the level of individual bank employees' incentives, and that isn't exactly reduced by making them all state employees with political masters...
- racketcon2089 3y ago
  You seem to be describing a theoretical model which doesn't fit with an empirical description of the events of the last 15 years of the banking sector in the US. It's an interesting premise for a work of fiction or as a description of the 19th century but seems orthogonal to any discussion of banking in the US as it really exists today. This line of reasoning is no longer persuasive within or outside of the US so it's sort of like reprinting old war propaganda rather than engaging with modern historiography.
  - notahacker 3y ago
    Nope. I'm describing a reality in which Silicon Valley Bank et al shareholders have all been wiped out. Same with Lehman Brothers et al last time round. Their bad loans and securitised loan purchases were very much not in the interests of their shareholders, who very much did bear the downside risk of them. Other bailout recipients repaid their emergency loans (just like profit making companies in every other sector borrowing from a hypothetical State Bank would be expected to in an alternative arrangement where the state decides to handle the consumer side and lend to everyone except money lenders) Certainly the line of reasoning that the bailouts could be skipped altogether in an idealised system is very persuasive as a propaganda line for people proposing terrible policies like "what if it was impossible for people or businesses to borrow money without the approval of the state board for borrowing money" (or "what if ordinary depositors were subject to the same risks as capitalist investors") and arguments like the OP's which conflate the concept of maturity mismatch and insolvency are very persuasive to people that don't know the difference. But personally, I prefer to analyse how things work rather than compare their respective propaganda values

notahacker 3y ago

But then again, people who understood things that actually work better than Marxists and libertarians would realise that the public entity isn't stuck with nearly all the risk, because enough bad loans still wipe out bank shareholders (and the liquidity risk of maturity transformation is eliminated altogether). The moral hazard in banking operates at the level of individual bank employees' incentives, and that isn't exactly reduced by making them all state employees with political masters...

racketcon2089 3y ago
You seem to be describing a theoretical model which doesn't fit with an empirical description of the events of the last 15 years of the banking sector in the US. It's an interesting premise for a work of fiction or as a description of the 19th century but seems orthogonal to any discussion of banking in the US as it really exists today. This line of reasoning is no longer persuasive within or outside of the US so it's sort of like reprinting old war propaganda rather than engaging with modern historiography.
- notahacker 3y ago
  Nope. I'm describing a reality in which Silicon Valley Bank et al shareholders have all been wiped out. Same with Lehman Brothers et al last time round. Their bad loans and securitised loan purchases were very much not in the interests of their shareholders, who very much did bear the downside risk of them. Other bailout recipients repaid their emergency loans (just like profit making companies in every other sector borrowing from a hypothetical State Bank would be expected to in an alternative arrangement where the state decides to handle the consumer side and lend to everyone except money lenders) Certainly the line of reasoning that the bailouts could be skipped altogether in an idealised system is very persuasive as a propaganda line for people proposing terrible policies like "what if it was impossible for people or businesses to borrow money without the approval of the state board for borrowing money" (or "what if ordinary depositors were subject to the same risks as capitalist investors") and arguments like the OP's which conflate the concept of maturity mismatch and insolvency are very persuasive to people that don't know the difference. But personally, I prefer to analyse how things work rather than compare their respective propaganda values