4 ms·

There are all kinds of differences between 2008 and now, but setting those aside - I think the genie was out of the bottle well before 2008 - it's just in 2008

by emn13 3y ago

There are all kinds of differences between 2008 and now, but setting those aside - I think the genie was out of the bottle well before 2008 - it's just in 2008 everyone noticed. After all, it doesn't sound like many experts find it plausible that non intervention in 2008 was a realistic option assuming you want to avoid much worse consequences. At best, earlier intervention might have reduced the visibility and impact of symptoms. The underlying issue is that even uninsured risks in banks must de-facto be largely covered by some central authority (whether FDIC or otherwise) otherwise the whole system is at serious risk of pretty catastrophic failure. The interaction of the lack of (formal) insurance for large deposits and the fluidity of those deposits make bank runs at the first sign of serious risk inevitable. How important that problem is - I'm not informed enough to have an opinion on. But that problem didn't start in 2008, that's for sure. I am curious as to what actual subject matter experts think ideal solutions would be, and what haphazard lobbyist inspired patch-job we'll actually get.

JumpCrisscross 3y ago
> are all kinds of differences between 2008 and now One huge, positive difference between 2008 and now: owners aren’t being bailed out. Stock and bondholders in 2008 got rescued. Not this time. In February, First Republic had a $40bn enterprise value [1]. That is largely, if not entirely, gone. (JPMorgan acquired “substantially all of the assets of First Republic Bank,” so there will still be scraps to fight over.) [1] https://ycharts.com/companies/FRC/enterprise_value https://ycharts.com/companies/FRC/enterprise_value
- AnimalMuppet 3y ago
  IIRC, in 2008 shareholders got wiped out at least at some institutions. It's 15 years later, and I don't recall the details, but I'm pretty sure that at least one of the big players went down in a way that the stockholders got zero.
  - JumpCrisscross 3y ago
    > IIRC, in 2008 shareholders got wiped out at least at some institutions Yes, the banks that outright failed. But e.g. Bear Stearns got a bit of a sweetheart deal.
- _heimdall 3y ago
  That's mostly just a consequence of those banks being "too big to fail". In 2008, allowing the largest banks to fail and shareholders lose everything could have seriously crippled our currency itself. Shares of those banks play a much larger role in index funds, retirement accounts, etc than First Republic or SVB. The major banks are so tightly coupled that if one fell most of the others would have, and the very debt that created our currency in the first place would have disappeared. Whether bailing out the banks in 2008 was a net positive won't be known for a while. We're still dealing with the blowback from 2008 and we can't know whether the bailouts saved us from further pain or pushed it under the rug and made the pain worse later.
goodluckchuck 3y ago
The risk of contagion is a systemic flaw that can and should should be fixed with a change to the system. Depositors do not have any real visibility, notice, consent, etc. to what happens with their money. Rational consumers would not put their money in a back that was A) lending it out, and B) Lending it out in a risky manner. Just like cookies on a website, banks should be required to give depositors a clear and easy way to choose whether their money will be lent out. Will that mean less lending overall? Yes. Will that be good for the economy? Yes, because it’ll couple inputs and outputs more closely. Moreover, depositors who do use banks to lend should be given a prospectus and information comparable to stocks. Deposit insurance is a moral hazard. It encourages people to be reckless with where they put their money.
- lumb63 3y ago
  Backing up a little, the primary role of banks in a fractional reserve system is to increase the amount of money in circulation by lending. The “opt-out” is “just hold your own money”. Signing up for a bank account while being in opposition to them lending your money is like getting a job and being upset that they expect you to work; it’s not just part of the deal, it’s the primary part of the deal. I like the idea of banks giving consumers a prospectus, but I should point out that publicly traded banks do, every three months, in the form of a quarterly earnings statement. How many people use it as such, I’m not sure.
  - unethical_ban 3y ago
    The primary role of a bank for me is to make my money available via a debit card virtually vs. carrying physical bills which can be more easily lost or stolen. I understand what you're saying. It's worth noting that the needs of the depositor are below the needs of the system itself.
    - lumb63 3y ago
      This is one of the selling points for crypto. As a consumer, digitization of the money is about the only service most consumers care about (or accruing interest). Banking seems to me a very outdated and nearly obsoleted technology.

by emn13 3y ago

JumpCrisscross 3y ago

> are all kinds of differences between 2008 and now One huge, positive difference between 2008 and now: owners aren’t being bailed out. Stock and bondholders in 2008 got rescued. Not this time. In February, First Republic had a $40bn enterprise value [1]. That is largely, if not entirely, gone. (JPMorgan acquired “substantially all of the assets of First Republic Bank,” so there will still be scraps to fight over.) [1] https://ycharts.com/companies/FRC/enterprise_value https://ycharts.com/companies/FRC/enterprise_value

AnimalMuppet 3y ago
IIRC, in 2008 shareholders got wiped out at least at some institutions. It's 15 years later, and I don't recall the details, but I'm pretty sure that at least one of the big players went down in a way that the stockholders got zero.
- JumpCrisscross 3y ago
  > IIRC, in 2008 shareholders got wiped out at least at some institutions Yes, the banks that outright failed. But e.g. Bear Stearns got a bit of a sweetheart deal.
_heimdall 3y ago
That's mostly just a consequence of those banks being "too big to fail". In 2008, allowing the largest banks to fail and shareholders lose everything could have seriously crippled our currency itself. Shares of those banks play a much larger role in index funds, retirement accounts, etc than First Republic or SVB. The major banks are so tightly coupled that if one fell most of the others would have, and the very debt that created our currency in the first place would have disappeared. Whether bailing out the banks in 2008 was a net positive won't be known for a while. We're still dealing with the blowback from 2008 and we can't know whether the bailouts saved us from further pain or pushed it under the rug and made the pain worse later.

goodluckchuck 3y ago

The risk of contagion is a systemic flaw that can and should should be fixed with a change to the system. Depositors do not have any real visibility, notice, consent, etc. to what happens with their money. Rational consumers would not put their money in a back that was A) lending it out, and B) Lending it out in a risky manner. Just like cookies on a website, banks should be required to give depositors a clear and easy way to choose whether their money will be lent out. Will that mean less lending overall? Yes. Will that be good for the economy? Yes, because it’ll couple inputs and outputs more closely. Moreover, depositors who do use banks to lend should be given a prospectus and information comparable to stocks. Deposit insurance is a moral hazard. It encourages people to be reckless with where they put their money.

lumb63 3y ago
Backing up a little, the primary role of banks in a fractional reserve system is to increase the amount of money in circulation by lending. The “opt-out” is “just hold your own money”. Signing up for a bank account while being in opposition to them lending your money is like getting a job and being upset that they expect you to work; it’s not just part of the deal, it’s the primary part of the deal. I like the idea of banks giving consumers a prospectus, but I should point out that publicly traded banks do, every three months, in the form of a quarterly earnings statement. How many people use it as such, I’m not sure.
- unethical_ban 3y ago
  The primary role of a bank for me is to make my money available via a debit card virtually vs. carrying physical bills which can be more easily lost or stolen. I understand what you're saying. It's worth noting that the needs of the depositor are below the needs of the system itself.
  - lumb63 3y ago
    This is one of the selling points for crypto. As a consumer, digitization of the money is about the only service most consumers care about (or accruing interest). Banking seems to me a very outdated and nearly obsoleted technology.