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The problem is if large banks fail they take everyone else with them. We should have dealt with this in 2009, but for some reason it didn't happen. But money

The problem is if large banks fail they take everyone else with them. We should have dealt with this in 2009, but for some reason it didn't happen. But money talks, I guess.

fancyfredbot 3mo ago
Things have changed since 2009. It would be private credit which fails this time, not the banks. Private credit is not supposed to be systemically important and it's not supposed to need bailing out. Maybe we'll find out how true that is in practice.
- darth_avocado 3mo ago
  Private credit is just some guy skimming 3% while risking your pensions.
- spwa4 3mo ago
  Why would you think that? You think pension funds and governments didn't invest this time? Because that's the problem, governments either investing everyone's money directly (to fund their own loans and expenditures, or should I say fund their own expenses using pension money without admitting that's what they're doing to pensioners) or indirectly force investments (you'll find pension funds worldwide are legally only allowed to invest in loans to the government and specific things the government allows (like politicians' charities). "For safety", of course, no other motivations there) We can check if governments went back to their own tricks or not after 2008. What were the interest rates after 2008? Quick check ... yep, they went back to the old tricks. When "shit hits the fan". Either governments really cut spending, leave pensioners without income and see their new loan interest spike to 10%+ (if they're lucky) ... OR they do a massive cash injection saving the banks, and increase spending. Which would you chose? It doesn't even matter. If you were the government and chose the first option, you would quickly find suddenly everyone across the political spectrum uniting to depose you. A decent chunk of people would literally not have any other choice but to do that. (of course, as per usual governments aren't behaving "correctly" according to economic theory. If you take the old "government as spender of last resort" governments should have radically cut spending in the last 10 years, because there was no need for extra spending. If you take the new "government invests pensions", then of course government spending needs to be investment. In other words, governments only allowed to spend like a normal investor, expecting and demanding a return. Ie. no social spending increases. In practice governments increased spending at any cost, and so we're in trouble again) Oh and should I mention that for any other entity investing pension money in loans to yourself is a very unique thing in law. It is THE ONLY financial crime where corporate structures do not protect management. You're the worldwide president of ExxonMobil? Doesn't matter. You do with employee pension money what government does with it? (ie. loan it to yourself, in this case ExxonMobil). You go to jail. Directly and long-term. In America. In Spain. In Japan. In fucking Vatican city.
  - fancyfredbot 3mo ago
    Pensions will have exposure, probably through private credit, and probably in the range of 5% to 10% of assets. It's a lot, and it'll hurt people. But I'm not at all sure it is enough to require a bailout. US government direct investment exposure is not likely to motivate a bailout in my view. The government might be motivated to bail people out for other reasons but not because they've lent too much.
londons_explore 3mo ago
Iceland let it's banks default, and is now doing rather well. In fact, bank failure and then having the government only guarantee ~$50k of funds per person is a good way to hand wealth to the people and take it from corporations and the super wealthy.
- embedding-shape 3mo ago
  > good way to hand wealth to the people and take it from corporations and the super wealthy Hence the power that be try to prevent it best they can. In some cases, unsuccessfully (Iceland) and in others, a bit more successful (the US). But seemingly, they're only able to delay the inevitable, not completely prevent it.
- petesergeant 3mo ago
  > and is now doing rather well I was going to write a shitty reply to this, but the more research I did, the more it seems actually this went pretty well for them. UK and NL governments that lost deposits in the Icelandic banks mostly got their cash back (eventually), there was recession and unemployment but not that much worse than other countries, and the country is in good standing again with the markets. I would note that this is much much easier to do if your investors are foreign, rather than domestic pension funds, so it doesn’t bring down the government, though.
- short_sells_poo 3mo ago
  The issue is that major US banks are systematically important to the US and also everyone else. Practically nobody cares about Icelandic banks - not even their depositors if their deposits were protected by the state (which they were). If a bank like JP Morgan were to fail, the event would be without exaggeration cataclysmic to everyone, even small local banks and credit unions. Even if ultimately the clients of JPM could be made whole, the weeks of uncertainty and frozen funds would single handedly obliterate the financial systems across the globe. It's the age old adage: "if you get margin called and get wiped out, it doesn't matter that you'd have recovered just 2 weeks later". The world as a whole is deeply leveraged. It's that leverage that affords us the ability to supercharge all the growth, from AI to drugs research, insurance, EV... everything. But that leverage comes at a cost, which is that systemically important institutions failing can have disastrous cascading de-leveraging effects. I'm sure we'd more or less all survive and the world would recover, but it would likely be a 2008 GFC style scenario most likely.
DANmode 3mo ago
You should really define “everyone else”.
- laughing_man 3mo ago
  Everyone else is literally everyone else. It doesn't matter what you have or what you do for a living, the collapse of the financial system is going to affect you negatively.
  - DANmode 3mo ago
    If a large private corporation is allowed to grow to the size of “the financial system”, regulators have failed their responsibilities, and need to unwind that immediately. Can’t have your cake and eat it, too.
    - laughing_man 3mo ago
      I agree. We should have dealt with this in 2009, but we didn't. There are still individual banks that are too big.

The problem is if large banks fail they take everyone else with them. We should have dealt with this in 2009, but for some reason it didn't happen. But money talks, I guess.

fancyfredbot 3mo ago

Things have changed since 2009. It would be private credit which fails this time, not the banks. Private credit is not supposed to be systemically important and it's not supposed to need bailing out. Maybe we'll find out how true that is in practice.

darth_avocado 3mo ago
Private credit is just some guy skimming 3% while risking your pensions.
spwa4 3mo ago
Why would you think that? You think pension funds and governments didn't invest this time? Because that's the problem, governments either investing everyone's money directly (to fund their own loans and expenditures, or should I say fund their own expenses using pension money without admitting that's what they're doing to pensioners) or indirectly force investments (you'll find pension funds worldwide are legally only allowed to invest in loans to the government and specific things the government allows (like politicians' charities). "For safety", of course, no other motivations there) We can check if governments went back to their own tricks or not after 2008. What were the interest rates after 2008? Quick check ... yep, they went back to the old tricks. When "shit hits the fan". Either governments really cut spending, leave pensioners without income and see their new loan interest spike to 10%+ (if they're lucky) ... OR they do a massive cash injection saving the banks, and increase spending. Which would you chose? It doesn't even matter. If you were the government and chose the first option, you would quickly find suddenly everyone across the political spectrum uniting to depose you. A decent chunk of people would literally not have any other choice but to do that. (of course, as per usual governments aren't behaving "correctly" according to economic theory. If you take the old "government as spender of last resort" governments should have radically cut spending in the last 10 years, because there was no need for extra spending. If you take the new "government invests pensions", then of course government spending needs to be investment. In other words, governments only allowed to spend like a normal investor, expecting and demanding a return. Ie. no social spending increases. In practice governments increased spending at any cost, and so we're in trouble again) Oh and should I mention that for any other entity investing pension money in loans to yourself is a very unique thing in law. It is THE ONLY financial crime where corporate structures do not protect management. You're the worldwide president of ExxonMobil? Doesn't matter. You do with employee pension money what government does with it? (ie. loan it to yourself, in this case ExxonMobil). You go to jail. Directly and long-term. In America. In Spain. In Japan. In fucking Vatican city.
- fancyfredbot 3mo ago
  Pensions will have exposure, probably through private credit, and probably in the range of 5% to 10% of assets. It's a lot, and it'll hurt people. But I'm not at all sure it is enough to require a bailout. US government direct investment exposure is not likely to motivate a bailout in my view. The government might be motivated to bail people out for other reasons but not because they've lent too much.

londons_explore 3mo ago

Iceland let it's banks default, and is now doing rather well. In fact, bank failure and then having the government only guarantee ~$50k of funds per person is a good way to hand wealth to the people and take it from corporations and the super wealthy.

embedding-shape 3mo ago
> good way to hand wealth to the people and take it from corporations and the super wealthy Hence the power that be try to prevent it best they can. In some cases, unsuccessfully (Iceland) and in others, a bit more successful (the US). But seemingly, they're only able to delay the inevitable, not completely prevent it.
petesergeant 3mo ago
> and is now doing rather well I was going to write a shitty reply to this, but the more research I did, the more it seems actually this went pretty well for them. UK and NL governments that lost deposits in the Icelandic banks mostly got their cash back (eventually), there was recession and unemployment but not that much worse than other countries, and the country is in good standing again with the markets. I would note that this is much much easier to do if your investors are foreign, rather than domestic pension funds, so it doesn’t bring down the government, though.
short_sells_poo 3mo ago
The issue is that major US banks are systematically important to the US and also everyone else. Practically nobody cares about Icelandic banks - not even their depositors if their deposits were protected by the state (which they were). If a bank like JP Morgan were to fail, the event would be without exaggeration cataclysmic to everyone, even small local banks and credit unions. Even if ultimately the clients of JPM could be made whole, the weeks of uncertainty and frozen funds would single handedly obliterate the financial systems across the globe. It's the age old adage: "if you get margin called and get wiped out, it doesn't matter that you'd have recovered just 2 weeks later". The world as a whole is deeply leveraged. It's that leverage that affords us the ability to supercharge all the growth, from AI to drugs research, insurance, EV... everything. But that leverage comes at a cost, which is that systemically important institutions failing can have disastrous cascading de-leveraging effects. I'm sure we'd more or less all survive and the world would recover, but it would likely be a 2008 GFC style scenario most likely.

DANmode 3mo ago

You should really define “everyone else”.

laughing_man 3mo ago
Everyone else is literally everyone else. It doesn't matter what you have or what you do for a living, the collapse of the financial system is going to affect you negatively.
- DANmode 3mo ago
  If a large private corporation is allowed to grow to the size of “the financial system”, regulators have failed their responsibilities, and need to unwind that immediately. Can’t have your cake and eat it, too.
  - laughing_man 3mo ago
    I agree. We should have dealt with this in 2009, but we didn't. There are still individual banks that are too big.