The delicious irony in it all is that the money in your bank is backed by about $0.10 for every dollar they owe savers.
I hope for the day when people expect the same of the banking system that underpins the whole economy.
If there were an F.D.I.C. for tether then I'm sure people would have different expectations (and likewise, if there were no F.D.I.C. for the US banking system).
>"Currently, the Deposit Insurance Fund (DIF), which is a fund set aside to cover the insurance obligations of the FDIC, has a required reserve ratio of only 1.35%. And that is only after a decision was made in October of 2015 to raise it, from its original level of 1.15%. Even more daunting, the DIF has until 2020 to reach this new 1.35% required reserve level. This means that, using the newly designated 1.35%, the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring. Feeling secure? And, sadly, the reality is even less reassuring.
On a macro scale, the FDIC currently “insures” $10.8 trillion of deposits, yet the DIF only has $52 billion of actual cash with which to insure that massive amount of money. Quite a massive shortfall, and well below the measly 1.35% that it is required by law to maintain." http://www.escapeartist.com/assetprotection/what-does-fdic-i...
In the end the fed can print the dollars too, at the expense of inflation... but who knows what schemes they have come up with.
No, it isn't. If the FDIC busts, the government would step in to back it up. Moreover, the FDIC's oversight keeps bank failures to a tiny fraction of the alternative, which we can now measure in the massive rates of fraud and failure around cryptocurrencies.
In fact, it becomes smart to put your money in these poorly run banks since they will make more money on riskier activities but get bailed out when the same fail...
Many people are dissatisfied with this situation.
As am I. But the carnage in cryptocurrencies is a reminder that the status quo beats anarchy or random stabs in the dark.
A human tendency with inefficient systems is to throw out the baby with the bathwater. There are reasonable discussions to be had around reforming and renewing the FDIC to be more friendly to new entrants.
The situation with bad cryptocurrency exchanges failing does not remind me of that at all. It is far superior since only the people who leave their money in the bad exchanges get punished.
Under your preferred system I get held hostage even though I can see clearly something is wrong.
This is a silly thing to complain about.
Surely you don't think your car/home insurance company keeps the cash value of all the property they insure on hand? They keep a tiny fraction of what they've insured, to cover the tiny fraction that gets claimed as a loss in an average year.
https://www.npr.org/templates/story/story.php?storyId=102384...
> The next day, Ric Carey, an Umpqua vice president, heads into that meeting. "The FDIC had taken a location approximately two miles from the main office of the bank in a hotel under a different name," he says later. "And they've been through quite a few of these. I think one of the gentlemen leading the discussion said, 'You know, I've done over 200 of these over my 25 years, and let me tell you how it's going to work.' "
My bank in Australia has $500 billion AUD (~$350B USD) of cash deposits on it's liability book. That's just one bank.
> your bank is backed by about $0.10 for every dollar they owe savers.
And the bank has the other $0.90 in long-term assets.
While no bank can survive every depositor wanting every dollar out of their chequing account on the same day, there is something auditable backing each dollar of deposit.
Those long-term assets (aka loans) aren't guaranteed, realisable to pay creditors nor of fixed value.
They can be sold to the Federal Reserve at its discount window. That's a founding reason for the Fed's existence. Ensuring liquidity crises don't prompt solvency ones.
I'll be generous and assume you know thtat banks don't store your money in a big vault a la Scrooge McDuck
There's a big difference between banks redistributing your money as loans and mortgages vs. a cryptocurrency tied to a supposed dollar-backed instrument 100% controlled by the same party. The entire premise of fiscal policy depends on their being a difference.
If you want to secure 100% of your money you're welcome to put it in a safety deposit box.
No one is actually checking that Tether backs their currency 100%, you know.
What do you mean? From that link: “banks lend out most of the deposits they have collected”, “keep a fraction of their deposits in reserve and may loan out the rest”. Obviously they can not hold and lend the money at the same time.
This is like a government claiming they lost their most sovereign currency and have no idea where it went.
https://www.econlib.org/who-should-be-allowed-to-deposit-mon...