Because they are more important than the goverment. If the big banks die the entire US economy dies with them.
Why Americans would let a few bankers wield such power and be accountable to no one is another question.
Why Americans would let a few bankers wield such power and be accountable to no one is another question.
Can you clarify exactly how this happens? This has been claimed before, that these banks are "too big to be allowed to fail", but I haven't seen an explanation of why, and it is certainly in the interest of the banks to promulgate the idea "if we die it's the apocalypse" regardless of whether it's true.
The loss of money in the commercial sector means (after a series of cascading failures) we're all unemployed and burning dollars to stay warm.
Close, it's actually $250K per depositor per ownership category per institution. Multiple accounts in the same category don't add insurance limits.
Whether things are solvent or not, right now everything has to look like it’s totally under control. Perception is very critical here.
People have a tendency to call everything a bank. Lehman Brothers was an investment bank. AIG is an insurance company. They were buying and selling mortgages and credit default swaps, but they weren't savings banks or mortgage banks.
What happened in 2008 was that the mortgage banks (spurred on by government policy) were making mortgage loans to everybody. People with bad credit. Interest only payments. Because the regular banks were selling the mortgages to Lehman Brothers or buying credit default swaps from AIG, so they didn't care if people would default. This naturally caused housing prices to soar.
Then interest rates went up a little and people did start to default. Then people started to notice how uncreditworthy those borrowers were and didn't want to buy those mortgages anymore ("toxic assets"), so banks stopped making them. Which tends to cause housing prices to crash, which tends to lead to more defaults as people notice they're underwater, and so on.
If housing prices came down a lot there would be too many defaults, so the Fed responded by lowering interest rates. That gets people to borrow more and bid up housing prices again, but that's only kicking the can down the road unless they plan to leave interest rates low indefinitely... except that's just what they did.
Meanwhile they also had to do something about the companies selling these credit default swaps, which were basically insurance banks bought against having their borrowers default. If AIG went bankrupt then so would all of these actual mortgage banks who they had insured and were about to have claims to file. And if all these mortgage banks went bankrupt -- even though they were the ones being smart and buying these credit default swaps -- investors would start to view mortgage lending as a risky investment in general. That would tend to raise mortgage interest rates, because investors would demand a higher return for this newfound risk. But they needed lower interest rates to keep housing prices from crashing and causing defaults/foreclosures, so they bailed out the dumb investors and insurance companies to save the "smart" mortgage banks who didn't expect their insurance scheme to be so successful that it bankrupted the insurance company.
This time, in 2020, it isn't a question of bailing out some insurance companies. The problem right now is that nobody really wants to borrow more money, despite literally zero interest rates, because they've been so low for so long that everybody is already leveraged to the hilt. But we're also experiencing deflationary forces from this coronavirus, which generally requires some kind of inflationary force to counter it and prevent a deflationary spiral -- commonly done by lowering interest rates to increase borrowing, except that everybody's already tapped out.
So what that leaves is having the government counter deflation by creating new money, and ideally give it directly to real people and not Wall St which has no excuse whatsoever to get it this time.
If you require a bailout, you had your chance as a for profit concern. Entirely reasonable to run services at a loss as a government entity. Some services are simply expenses.
"Makes the trains run on time" is a pretty weak argument when the alternative (e.g. UPS) has a demonstrated ability to do the same thing without losing billions of dollars.
> If you require a bailout, you had your chance as a for profit concern. Entirely reasonable to run services at a loss as a government entity.
Isn't this a double standard? A private entity loses money and requires a taxpayer bailout once, they've had their chance. A government entity loses money and requires a taxpayer bailout every year, cost of doing business?