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> Mistrust of banks' ability to honour withdrawal requests is largely irrational in a developed country given the existence of government-backed deposit insuran

> Mistrust of banks' ability to honour withdrawal requests is largely irrational in a developed country given the existence of government-backed deposit insurance (and the much greater risk of having your cash stolen). I'd actually consider this to be the classic example of irrational mistrust based on a limited understanding of who actually loses out as a result of bank failures Pretty much every developed country has spoken in the last few years of forcing depositors to take losses in the event of bank failures, and some have actually done it. Governmental deposit insurance SHOULD be inviolate, but that isn't the way the regulators are talking and acting. Meanwhile, how many HNers are currently praying that Mt. Gox will stay liquid long enough to give them back their money?

aj12345 13y ago
Can you please provide examples of developed countries speaking "in the last few years of forcing depositors to take losses in the event of bank failures" and which ones "have actually done it"? Cyprus is the only example that I can think of that discussed it and I can't think of any that have actually done it.
- thyrsus 13y ago
  According to this http://wealthcycles.com/features/cypress-bailout-deal-is-pilot-program-for-bank-deposit-confiscation http://wealthcycles.com/features/cypress-bailout-deal-is-pil... deposits under 100,000 euros were exempt, with a 40% forfeiture of amounts over 100,000. There were other proposals, but that appears to have been the actual outcome.
  - aj12345 13y ago
    So in other words, insured deposits were paid out fully and uninsured deposits got a big haircut. Sounds like the correct outcome to me.
- wintersFright 13y ago
  Europe has repeatedly stated cyprus is a template for future bailouts.
waps 13y ago
This sort of argument is what the article complains about. Yes there are easy protections that prevent very rich people from losing money. (The $100k limit simply causes them to open a lot of accounts. Which is why you have mint.com to keep track of it all, I guess. But any rich person will have 4-5 $99999 balance accounts, and have 4-5 of them in multiple countries (US, EU, Switzerland, Dubai, Australia for example), and they know why. There's firms that will arrange it for you). Suppose you're poor. You do not have the money to support yourself 2 months. You call the helpdesk for cox, they come and repair your cable modem, but somehow they "blame" the problem on you, and that's $250 for riding out thank you very much. Now let's assess what happens in 3 situations : 1) you have a bank account - the money's gone the moment they say you spent it with them - you have no recourse - you call them - they've got everything they want, you have zero negotiating position - even if you achieve the impossible and talk them out of it, the money's gone for 2+ months 2) you pay by credit card (obviously only available to "the rich", granted, not quite "the 1%", but I'm pretty sure >20% of Americans effectively don't have access to a credit card) - the money's gone the moment they charge you - you call them up, ask what's going on, they don't cooperate - you threaten them with a chargeback - they will suddenly become very cooperative 3) you don't have a back account (with positive balance) - their payment request bounces - they have no recourse - they call you and ask if there's anything they can do - they're pretty cooperative The "mystery" of why poor people, students, ... go with option 3 is not much of a mystery to me. It's because option 2 is not available to them. The same goes for being a customer of any service firm. Internet, telephone, car insurance, ...
mahyarm 13y ago
The people waiting for their money on Mt.Gox should change it back to bitcoin and take the possible hit. The ones waiting for cash withdrawal are playing chicken with Mt.Gox's liquidity problem, and that is the risk they take in exchange for the ~$20 premium they have now.

aj12345 13y ago

Can you please provide examples of developed countries speaking "in the last few years of forcing depositors to take losses in the event of bank failures" and which ones "have actually done it"? Cyprus is the only example that I can think of that discussed it and I can't think of any that have actually done it.

thyrsus 13y ago
According to this http://wealthcycles.com/features/cypress-bailout-deal-is-pilot-program-for-bank-deposit-confiscation http://wealthcycles.com/features/cypress-bailout-deal-is-pil... deposits under 100,000 euros were exempt, with a 40% forfeiture of amounts over 100,000. There were other proposals, but that appears to have been the actual outcome.
- aj12345 13y ago
  So in other words, insured deposits were paid out fully and uninsured deposits got a big haircut. Sounds like the correct outcome to me.
wintersFright 13y ago
Europe has repeatedly stated cyprus is a template for future bailouts.

waps 13y ago

This sort of argument is what the article complains about. Yes there are easy protections that prevent very rich people from losing money. (The $100k limit simply causes them to open a lot of accounts. Which is why you have mint.com to keep track of it all, I guess. But any rich person will have 4-5 $99999 balance accounts, and have 4-5 of them in multiple countries (US, EU, Switzerland, Dubai, Australia for example), and they know why. There's firms that will arrange it for you). Suppose you're poor. You do not have the money to support yourself 2 months. You call the helpdesk for cox, they come and repair your cable modem, but somehow they "blame" the problem on you, and that's $250 for riding out thank you very much. Now let's assess what happens in 3 situations : 1) you have a bank account - the money's gone the moment they say you spent it with them - you have no recourse - you call them - they've got everything they want, you have zero negotiating position - even if you achieve the impossible and talk them out of it, the money's gone for 2+ months 2) you pay by credit card (obviously only available to "the rich", granted, not quite "the 1%", but I'm pretty sure >20% of Americans effectively don't have access to a credit card) - the money's gone the moment they charge you - you call them up, ask what's going on, they don't cooperate - you threaten them with a chargeback - they will suddenly become very cooperative 3) you don't have a back account (with positive balance) - their payment request bounces - they have no recourse - they call you and ask if there's anything they can do - they're pretty cooperative The "mystery" of why poor people, students, ... go with option 3 is not much of a mystery to me. It's because option 2 is not available to them. The same goes for being a customer of any service firm. Internet, telephone, car insurance, ...

mahyarm 13y ago

The people waiting for their money on Mt.Gox should change it back to bitcoin and take the possible hit. The ones waiting for cash withdrawal are playing chicken with Mt.Gox's liquidity problem, and that is the risk they take in exchange for the ~$20 premium they have now.