If everyone was talking to each other, and they’re so smart and rational, why didn’t they decide to have everyone take out a small amount to cover essentials like payroll? Was it maybe… greed? Lack of ingenuity? To be fair, bank runs do happen, but everyone who caused this one was in a big old group chat and they could have prevented it, and nobody had the idea.
If it was so rational, why did they continue to demand a bailout even after it became clear the FDIC would get them nearly 100% back? Was it maybe… greed? God forbid that anyone lose even a few cents of uninsured deposits. What happened to paying for extra insurance? Now they complain about contagion to get a bailout, contagion which they began and continued.
I am talking about the period just prior to when the bank ceases normal operation, when everyone is panicking and deciding whether to withdraw everything. People in bank runs are judging the behaviour of other participants. If you think everyone else is going to do that, then yes, it’s rational to do that ASAP. If you have all day to talk about it, and everyone relevant is in the room, then if possible you don’t do that. Because bank runs are bad! You might try to soften the blow, even out the damage, ensure nobody’s left behind, and then get the bank to go down gracefully. The people here acted as if they thought the bank run would go on until all the money was drained, or worse, as if bankruptcy meant getting pennies on the dollar. Of course that wasn’t going to happen. Maybe 20% got out, which amplified losses slightly for the slower reactors. Was the risk of a few percent worth causing a panic and threatening a larger one? No!
But no, it had to be run run run, full speed, and then threaten the government with more panic if they didn’t bail it out. This path is greedy and needy, and it will not make big tech any less of a pariah in the American psyche.
PS, I think much of this irrational behaviour may be attributable to the 250k insurance cap. Everyone sees that figure and sees the absolute worst case scenario, blinded to the actual likely amount they’ll get back from someone selling off the assets. When you have $10 million in there it looks really bad even if it’s really fine. If you have to force people to pay for 100% insurance coverage just so they don’t all act like idiots in the face of a run, then maybe that is worth it.
People hate this when I say it but ideology makes you a dummy. And that's what they were being because of their paranoid libertarian ideology.
Have you considered that rational decision may actually be a rational decision?
As in, something is actually wrong there, with the way banking is done?
It seems your thinking stops at "Rational actors would expose a problem with the current style of banking. Therefore, stop rational actors from acting, in order to PROP UP that same style of banking."
The moral hazard is real. People who point to it are simply one step ahead of you in how such actions necessarily pan out over time, not "missing the point by a mile".