Bank failures come in waves
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Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that profit to depositors. However, each of these banking activities create risk, which is passed onto the deposit holders and is offset, to an extent, by deposit insurance. In low to zero-interest-rate scenarios, banks act as pure custodians as their revenues decline, which is why we saw EU banks charging negative interest rates, i.e., a fee, to maintain customer deposits.
There's a delicate balance and an inherent conflict between keeping money safe and earning yields, the two functions performed by a commercial bank. Customers don't perceive this conflict unless a bank breaks down as SVB did.
I think this crisis is the strongest yet reason to push for CBDCs as only a central bank can fully guarantee a deposit. In terms of systems design, this is a clear delineation of responsibilities.
CBDC: If you want safe custody of your money.
Bank: If you want to lend your money in return for a yield. And as with any lending, you take the risk of a borrower defaulting.
Here's quote from former Federal Reserve Vice Chairman Alan Blinder: "What bad practices would have been prevented if Glass-Steagall was still on the books? I've yet to hear a good answer."[1]
You know that saying: generals always prepare to fight the last war.
Finantial Regulations are like that too. We don't know where the next crisis will come from, and so we don't know if we're ready for it.
[1]: https://www.npr.org/sections/thetwo-way/2015/10/14/448685233...
Crisis would happened anyway for sure, but the scale could have been smaller. But it's hard to do what-ifs.
If letting retail banks take depositors' money and gamble with it was a bad idea then, it's almost certainly still a bad idea now.
You get most of the safe custody benefits of CBDC whilst minimising the costs of restructuring the banking system. Customers could still use all the same banking apps and branches.
Such a program could even be eased in over time by steadily increasing the proportion of bank balance sheets allocated to short dated government debt.
[0] - https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-...
But this shifts risk from your FDIC insurance to your SIPC insurance.
In the UK, banking is normally free, but on the continent, you normally pay for the account itself and any cards you may hold. Some banks may offer fee waivers for those whose salaries get paid into the account, or if you have a cardless account etc, but it is fairly common practice to charge a small fee for the bank account itself.
Would this result in more efficient spending of taxes in a corrupt economy? Not immediately. A lot of shitty people would get reach fast in the meantime, but the system would balance because people would no longer participate in the corruption directly as they used to.
Yes, you remove some freedom, but I am convinced that for societies that have a trust disconnection between the government and the people would be a net benefit (assuming democracy).
Additionally, comercial banks have been pretty shitty on providing liquidity to the real economy throughout the QE (at least in some parts of the west). They had their chance to not be a bottleneck, they missed it. Good riddance.
> I reckon we could fund universal basic income just from whitening the economy, in any given country.
I reckon that no economy, no matter how advanced, is so productive that you can provide a systemic incentive for everyone to not produce anything yet still be guaranteed to be supported. Will some work even when they don't have to? Sure. Will more people not work than before? Almost definitely. Will this effect compound over time and topple the system sooner rather than later? Guaranteed.
It is much more likely that the effect will fade over time, as people who are traumatized and exhausted from being forced to work terrible jobs for inhumane hours recover and once against find themselves ready to do something more active and productive.
You have to actually implement Universal Basic Income on a large scale, and keep it going for decades.
If you aren't willing to support doing that because "there isn't permanent, universal evidence", then you're creating a catch-22.
There is evidence that is robust and scientifically rigorous. That should be enough, at the very least, to say that we should be doing larger, more extended trials, and to at least plant a seed of doubt about this idea that humans are inherently lazy selfish slobs.
As for "real humans", I've talked to plenty. I know multiple who are constantly frustrated that they are not allowed to work productively, because of disabilities they have that make them inconvenient to employ (as with many disabilities and chronic illnesses, they have good days and bad days: they can work very well some of the time, but can't commit to a schedule that the company controls, because they can't even commit to a schedule that they consciously control).
I don't personally know a single person who, if given the chance, would choose to abandon work of all kinds forever.
The point isn't "glorifying work". It's that people don't actually want to be couch potatoes. They want enrichment. They want activity. They want meaningful stimulation.
Look at us more like zoo animals and maybe it'll make more sense: we know that giving tigers a pumpkin full of meat is more beneficial for their mental health than just dropping the same meat in front of them to eat with no effort. Humans aren't that different.
Even beyond that, though, humans want purpose. We want our lives to have some meaning, and it's pretty hard for most people to find that in sitting around doing nothing all day every day unless they have no other choice.
Perhaps it would also help to note that "work" isn't synonymous with "go to an office and file insurance claims for 8 hours" or anything like that. Writing is work. Acting is work. Making video games is work. Helping old people get around is work.
But the other thing is...if you would, if given the chance, just sit back and relax all day every day...then I hope that you get that chance! I believe that every person should have the opportunity to do what feels most fulfilling to them, and not just be required to work at specific kinds of jobs for specific types of schedules simply to be allowed to continue existing on this planet.
> Writing is work. Acting is work. Making video games is work. Helping old people get around is work.
All true, but keep in mind that value is created when work produces something that someone else wants to consume. Enrichment and meaningful stimulation to one may not produce anything useful to another, and in fact can often come from consumption. The alternative to being paid to be at a job you don't want to be at isn't sitting around doing nothing all day; it's being out there, enjoying themselves, living life, consuming products and services that others produced.
Would you rather clean toilets (providing what is desired by others, i.e. having a clean bathroom) for five hours or go do your favorite leisure activity, be it playing basketball, hiking, or spending time at a museum (consuming to fulfill your desire), for the same five hours, if you got the same universal basic income payment regardless of your choice?
Work is often hard and stressful. People have to deal with irate customers. People have to sweat and lift heavy things and have their bodies ache afterwards. People have to struggle and wrack their brains to solve a technical problem under a deadline. People have to do all sorts of things that they may not want to do in the immediate moment. Currently, the incentive for that is remuneration for time and labor performed. When you take that incentive away, who remains to do the work that is hard, isn't enjoyable, and may not be fulfilling?
What's that you say -- humans want their lives to having meaning, and this will somehow result in all of that stuff being done, anyway? All against the backdrop of a culture that is steadily moving away from one that values hard work in a moral sense? I'm skeptical.
To quote patio11: "The optimal amount of fraud is non-zero". The financial system needs slack, otherwise it destroys itself.
https://www.bitsaboutmoney.com/archive/optimal-amount-of-fra...
I haven't heard the term before, and thought maybe it had something to do with racial BS. (or maybe a teeth whitening campaign?)
Ask south europe how well it worked for them having no power over their monetary policy.
The people should control the money and that's only possible with Bitcoin.
Why would a bitcoin billionaire's money be distributed more than a traditional billionaire's? At least a traditional billionaire will invest his fortune in assets like stocks and thus help fund some innovative companies to protect his fortune from inflation. The bitcoin billionaire can just hold his fortune in bitcoin forever since it's deflationary.
Every time I see a bitcoin backer talk about finance, the things said fly in the face of Econ 101 and basic common sense. I guess I "just don't get it".
Edit: Modern economics seems to require more mental gymnastics than a Bitcoin standard. We invent things no one really understands until the rug gets pulled one day and the scam become clear. Then we move on to the next scam. Financial instruments seem to be designed to fool the common man into believing we need these complications while what's really happening is that someone is simply stealing money until something breaks and we bail them out.
The deflationary model favors savers over consumers, giving benefit back to people who are willing be patient by forgoing immediate consumption.
You seem concerned that early adopters stand to gain disproportionately from mass adoption. Well, what outcome would you prefer and how would we get there?
This can't work with bitcoin. If your country can't export things in a premium you are F'ed. You can't print money to stimulate demand for local goods, your only option is to violently reduce the average quality of life enough that you will be wiling to work for less. Printing money creates inflation but it can also kick a positive spiral of demand/supply. While "austerity" has been shown to just make the problem worse by gutting demand in general
This makes zero sense. A CBDC doesn't have a stronger "guarantee" than normal central bank money, yet it has all kinds of negatives like total surveillance and control.
> only a central bank can fully guarantee a deposit
The buck stops at the government, as we are seeing with changing laws to allow Credit Suisse acquisition or by Biden and European representatives statements abou "doing whatever is needed" or similar.
Not to mention the majority party in the US House is threatening default.
As they say, the deficit hawk is a seasonal bird.
Certainly, all the notable debt ceiling crises listed here[0] were instigated by Republican Congresses.
[0] https://en.wikipedia.org/wiki/United_States_debt_ceiling
Not safe from the moralizing pricks (of which there is a surplus in our midst) who the executive or legislature will inevitably try to cozy up to by stealing my money on the basis of some attribute or box that I check.
https://www.investopedia.com/terms/c/central-bank-digital-cu...
See Credit Suisse.
Similarly, the App Store mixes "Store" with "Content filter". We should be able to choose both independently.
That's cash. CBDC is if you want no control over your money. At the flip of the switch you can be put on a denial of service list. Except unlike when PayPal does it, you can't just switch providers.
> Bank: If you want to lend your money in return for a yield. And as with any lending, you take the risk of a borrower defaulting.
Ideally, depositors in a CBDC would also get at minimum the central bank rate.
At no point has anyone been advocating for a Central Bank Digital Currency (CBDC) and furthermore the only people who stand to gain from this are the powers that be. I'm vehemently against a CBDC purely because I like to play a thought experiment if I were from the 18th century and landed in the present day, how hard would it be for me to engage with society. A CBDC is 100% the anti-thesis to creating and supporting people.
In short, boo to OP, I doubt their legitimacy.
Why can we not have a similar system for deposits? A bank takes a deposit, the fed "destroys" the money, but pays interest to the bank. When the depositor wants to withdraw their money, the fed/bank recreates the money.
I guess this is sort of what happens with banks buying bonds from various government bodies, but the banks are managing a mix of bond maturity durations.
If bank runs are a worry, why not do away with this flexibility for the banks?
https://johnhcochrane.blogspot.com/2018/09/fed-nixes-narrow-... https://johnhcochrane.blogspot.com/2019/03/fed-vs-narrow-ban...
It's a bit of work but very manageable. 10/10 recommend, you earn more than a savings account.
edit: It was Scott Sumner, commenting on Cochrane's blog, who speculated that the motive might be cross-subsidizing the normal bank lending activities: https://www.econlib.org/why-does-the-fed-oppose-narrow-banki...
https://www.reddit.com/r/AskEconomics/comments/11vtl1c/what_...
So a safer, more efficient mechanism for banking is declined in order to keep the established banks competitive?
Isn't that sort of outrageous?
From a perspective of someone who understands very little of these matters, it seems like responsibilities are shuffled around and the whole structure is unclear.
There are other ways to solve the problem you describe right? For example credit unions come to mind.
I usually look things up on this site, as it seems to discuss financial matters neutrally and explains them so I can understand them: https://www.investopedia.com/terms/c/creditunion.asp
The narrow bank would be safer than US Treasury Bonds. In a financial crisis similar to 2008 this would amplify chaos as money drained from all other investment classes into the narrow bank at a time when the government probably needs low interest rates on their debt to solve things.
If they took large losses or lent out too much, inflation would skyrocket.
Commercial banks can not create loans out of thin air during normal operation. They either have to use depositors' money or share holders' capital. In other words, bank's liabilities (e.g. user deposits) should not exceed its assets (loans to users, securities, reserves at Fed, etc.). There are games which can played with how assets worth is measured (e.g. mark-to-market vs. mark-to-maturity), but otherwise the rule must be followed by banks.
>Why can we not have a similar system for deposits? A bank takes a deposit, the fed "destroys" the money, but pays interest to the bank. When the depositor wants to withdraw their money, the fed/bank recreates the money.
When a bank receives a deposit, it has to decide what to do with it. It can either loan it to someone (either directly or by buying bonds), invest (e.g. by buying stocks), pay it as a dividend to share holders (assuming it has far more assets than liabilities), or keep it in bank's reserve account at Fed. In the later case it gets payed roughly the key interest rate. This is why rate hikes suppress inflation (at least in the near term), banks instead of deploying their capital into the economy deposit it at Fed, thus temporarily removing it from circulation. It also means that cost of loans in the wider economy rises accordingly, since banks will not loan without a sufficient premium to the Fed's rate.
Banks operate by discount. You take a thing to the bank, the bank values it and then a financial asset is created which the bank buys by creating an advance of its own liabilities against it. The bank then books the assets (the mortgage) against the advance. The bank's balance sheet is expanded.
The individual then 'pays' people with the advance - which does nothing other than change the ownership on that advance. When the payment process is complete we stop calling it an advance and start calling it a deposit.
You don't even need somebody else's money to start a bank. The Bank of England was started by issuing shares to subscribers and booking them on the asset side as nil paid.
A deposit 'moving' to another bank is really the destination bank taking over the deposit in the source bank, or delegating that to the central bank via a centralised clearance process.
Bank capital, either equity or notes, is convincing somebody with a deposit to swap it for another liability that has less security.
Much of the problems we have with banking and the view against it is because of the persistence of the Monetarist view that they pick up bag of coins from somebody and pass them on to somebody else. There are no bags of coins, and there is no passing them on. Never has been, never will be.
We discuss commercial banks. The Bank of England is quite far from your run of the mill commercial bank, to say the least. Try to start a commercial bank without any capital, it will be a fun exercise.
As I've said in the post, there are various make-believe games which can be played with assets. My favorite example is the irredeemable gold certificates owned by the Fed.
Your systematic view is certainly valid, but it does not matter much for day-to-day operations of most banks. They do not care about how the system was kick started. For them reserves at a central bank play role of bag of coins, even though, as you said, there are no real coins, just pairs of assets and liabilities spread out between different balance sheets.
>Much of the problems we have with banking and the view against it is because of the persistence of the Monetarist view
Oh, so the current debacle is mostly fault of monetarists? Got it. And here I thought that the "temporary" make believe games introduced after GFC, lax regulation, irresponsible fiscal and monetary policy had something to do with it... /s
It's precisely the same. You issue shares to subscribers and mark them as nil paid.
That is capital - because you have a call on their resources - much as the names of Lloyds of London capitalise the insurance market.
Reserves are irrelevant to banking. Here in the UK we didn't even have reserves until 2005 yet we'd been operating a central banking system for 300 years at that point.
This obsession with central bank reserves is a peculiarly American concept.
Loans create deposits, and the central bank simply accommodates the simulation of money moving around the payment system.
There is no control function from central bank reserves. It's a complete myth. If the central bank tries, monetarist style, then the payment system breaks, fires break out and they have to back off. Hence the Bank Term Funding Program.
There comes a point when the belief in bags of coins and fixed amounts of money has to die.
A bank can, with some capital buffer, borrow money from the fed, loan it out to someone else, and earn an interest spread.
Deposits help here because you pay a depositor less money than you pay the Fed, but they aren't crucial. And the Fed does have the advantage of not demanding it's money back at random.
Though perhaps I am wrong about how easy it is to carry a negative balance with a central bank? I imagine it is fine as long as the balance sheet looks good.
Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage.
At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.
It also lets the bank pass on the increased rates to customers. The current fed interest rate is ~4.5%, but there are banks out there right now where you can get >5% in a savings account[1]. Your system would remove that option for consumers.
[0] Other option being some regulatorily approved option, not throw it all in the latest crypto ICO
Basically it’s a bank that puts all its deposits directly with the Fed. There have been attempts to start such a bank in the past and they have been denied a banking charter.
Stashing money at the Fed is possible by the way, and effectively does destroy the money (or rather, takes it out of the economy). Banks can deposit money at the Fed earning exactly the interest rate that the Fed controls. This effectively takes that money out of the economy. That is generally rather bad, because it stifles growth. But in case of inflation, it can sort of help. That is part of why the Fed interest rate helps regulate inflation.
But generally speaking, you want loans to be made! It helps good and productive ideas get of the ground. It is core to Western economies. Hence the Fed is quite scared of narrow banking. They want to be the 'borrower of last resort'.
I've never asked my loans to be paid out in cash or transferred to another bank. When people say commercial banks create/issue money they mean that cash/central bank reserves have become irrelevant other than as a rudimentary payment method or network to transmit between banks.
If you wanted to make the point that banks lends existing deposits you would have to basically argue that people never wire money and always pay with cash and deposit their cash paychecks manually and pay taxes in cash. Curiously, my government points me at major banks and their ATMs when I want to pay my taxes in cash.
Why can't I do that with the central bank directly? Why the rent-seeking middleman?
Perhaps you can clarify by what you mean by 'destroyed'.
To my knowledge once the bank has 'created' the money it will always exist in the system. However it has devalued all other money by a small amount which we understand today as 'inflation'. So it's not clear to me what you mean by destroyed.
An asset is removed from the lendee in the form of a debit against their deposits thus destroying outstanding cash.
Nah it’s simpler.
You put a dollar in the bank. The bank loans 80 cents to Bob. Bob puts 50 cents of that 80 cents in the bank. The bank loans out some of that.
Even without going beyond Bob, the same dollar is now in the bank twice. That’s what people mean by money being created.
Certificates of Deposit are supposed to be the thing that "helps" a bank balance the "short duration" deposits with "long duration" loans - but when interest rates are so low the CDs are not worth bothering with.
I wonder if we'll see a maximum interest rate on "cash accounts" or something in the near future to try to balance it.
It's just out of fashion for central banks to control it. (For several reasons that exist, but I'm not sure are good ones.)
If a country has reserve requirements that are larger than the banks safety margins, the central bank has complete control on the size of M1.
I'm sure it was all the low rates, and not at all due to printing 40% of the money supply in two years and mailing people checks.
> printing 40% of the money supply in two years
Feb 2020: 15,457.9 Feb 2022: 21,699.2
This is a 40.3% increase.
To be charitable, this money isn't all on printed physical cash dollar bills, but nowadays there is no need for it to be. (I'm tempted not to be charitable though.)
Like if someone found a trillion long tons of pure gold somewhere, but decided not to sell it or even use it. The price of gold isn't just going to collapse overnight. Sure the markets will panic sell for a few days, but it's still a real commodity with real uses & demands.
Putting a ton more _active_ money in the system does change the value of money.
You could argue that central banks putting non-market pricing on the money supply distorts the information that a market-priced money supply would transmit effectively - and that's why all these crises seem to originate in the finance sector.
Edit: the paper https://www.princeton.edu/~wbialek/rome/refs/kelly_56.pdf
If your deposits are backed by mortgages or other secured loans you and the bank expect an added return for the "risk" - which is really just making a bet that enough people can pay something extra to compensate for those who default.
This is presented as "how things are" but it actually makes no sense - not least in failing to explain why most of the population is so starved of cash, in spite of long working hours, that it has to borrow at all.
That aside - there's a feedback loop which pushes investors to riskier and riskier lending, sometimes supported by more and more extreme kinds of fraud. Eventually, but somewhat predictably, the system suffers logistic collapse. Because that's what happens to recursive systems with permissive parameters.
Naa most of the loans are not using other people's money, banks just create money out of thin air (aka put a record in some database table) and that entry is your loan money.
1. The central banks control supply (by controlling their interest rates)
2. The banks allocate resources (lending out with a risk premium)
3. Consumers and entrepreneurs use the money for value creation.
To me it seems like banks ought to be able to fail. The problem is that banks have gotten the responsibility of the money infrastructure (the cash to e-money transition) which we can not afford to fail.
We should lift the money infrastructure responsibility of banks.
[1] https://en.wikipedia.org/wiki/National_Savings_and_Investmen...
If there is no default risk, then money will be increasingly stored away inside banks, removing much of the healthy risk-taking activity that generates long term growth and improvements in the standard of living.
Rich people know there is a tiny chance of losing their cash if they stick it in a bank. So they buy other things instead. Those things generate real growth in the economy and improve productivity. Banks have to invest very conservatively because of regulations. Without the tiny risk of default, banks would get all the cash and the economy would stagnate.
Another word for this kind of stagnating economy is “the 1970s.”
I'm surprised that belief still persists.
The counter to that, of course, is that the silly instability in the banking system we're now seeing worldwide will destroy risk taking as people scramble to protect their positions.
Look at the damage to stock market valuations. How many banks are thinking about creating loans at the moment?
Banks provide liquidity against real things by creating money. They don't invest, and they don't take in money. All they do is shuffle their balance sheet to try and improve their net interest margin.
This idea that banks will suck up all the money is yet another consequence of thinking about banks backwards. There isn't, and never has been, a fixed amount of money.
Just as you get fancier trapeze moves if you have a safety net installed, you get far more risk taking when the basics operate correctly, safely and without having to think about them.
Backstops have a cost, and infinite backstop subsidizes risk taking activity of deposit taking institutions.
I'm not even saying that what was done in the wake of SVB and Signature was wrong, per se, but making it formal policy that all deposits in a bank are insured is a fundamental change to the foundation of banking in the US. It may be "right" or it may be "wrong", but the one thing it is not is "simple", because the consequences could be far reaching, unintended, and unpredictable, both short term and long term.
The bigger issue is the concentration of deposits and potential suppression of investment.
And if banks aren't allowed to make risky investments with deposits (good policy, IMO), then I believe we want people and businesses using banks for their most liquid needs, but otherwise, putting their money to work through investment.
That’s why it’s a morale hazard and the fed taking over it doesn’t solve it.
Basically, VCs did not wanted to pay for that and were rewarded. They advised or forced their startups to not insure money too. Also, before someone makes that point, these are supposed to be highly sophisticated operators. They are supposed to have know how. The people being bailed out are not Johny-the-cleaner working on his small busines.
Would it be easy nowadays to just have a software service that split up an account into n accounts of less than $250k, and then presented a single interface to all of them?
I guess individual purchases over $250k would be a problem, but I guess a short-term gather operation could be ok, as long as you aren’t too worried about a bank run while that transaction was occurring.
https://accountopening.fidelity.com/ftgw/aong/aongapp/fdicBa...
>To provide you with the benefit of FDIC insurance eligibility, the cash balance in your account will be automatically swept into an interest-bearing FDIC-Insured Deposit Sweep position. Since FDIC insurance coverage is currently limited to $250,000 per qualified customer account per banking institution, Fidelity may use several banks, rather than just one, to maximize your FDIC coverage.
https://mercury.com/blog/company-news/understanding-bank-swe...
This stuff is immensely complicated once you peer behind the curtains.
But yes, the US has more singular things that can interact badly with no limits on insurance. As a start, the insuring entity has much shallower pockets than most places I know about.
To me this makes intuitive sense, but are the only options 250k or infinity?
What's the "magic" behind that $250k number? Is there some reason to expect that this is an optimal number? I feel like maybe it's cargo-culting - it isn't even re-adjusted for inflation is it?
250k probably still covers 90+% of people in the US.
The sarcasm was warranted.
I do agree that only the US (or whichever country controls the reserve currency) could really get away with this. But it already gets away with quite a lot, including "exporting inflation," so why not squeeze the dollar for all its worth as long as it's printed by the world's only superpower?
Seems disingenuous.
The actually modern theory has a much more complex lifecycle for money. Yep, government spending creates it, and taxing destroys it, but between all the kinds of money and the entities that can create them, it's not automatic that the government numbers are the important ones.
They focused on businesses and HNW individuals and used exclusive banking agreements as preconditions for some deals, so, this is not surprising; had it been engineered to maximize uninsured deposits, it would have been hard to do better.
The money behind the $250k isn’t magic and can’t just be multiplied like that. each FDIC-insured bank pays a premium for each qualified account. 10x the accounts means 10x the money into the pool. So it scales logically.
This is a separate issue from the recent trend of the US federal government helping ensure that all deposits, even those beyond the limit, get assumed/recovered.
It is not the Fed itself, but a separate entity that doesn't receive any federal funding. The $250k insurance you hear about is not free, it has a cost associated with it: https://www.fdic.gov/deposit/insurance/assessments/proposed....
Just like your $25k car has an insurance premium, these bank accounts are also insured because they pay a premium. Now if your car's value is $250k, wouldn't you expect the insurance premium to be higher? What if your car's value is infinity dollars?
I love when people on HN start their comment with "Pretty Simple" or a variant of it, because it almost always means they're wrong.
The fed has already been using a lot of that 250. And this is likely not over. Not to mention this seems like it spread overseas
Maybe there needs to be regulation that forces banks to hold way more cash?
If there is infinity backstop, I will simply create a bank and lend millions to my friends and promptly go bust. They get paid out by the government and I walk away. They do the same for me. We laugh at the poor taxpayer who foots the bill.
I always think of that saying "If you owe someone a thousand dollars, you're in trouble. If you owe someone a million dollars, they're in trouble."
As much as I'd like to see greedy banks burn, the main people who will feel the most pain are the regular joes.
Alright. What do you mean by a wave? How did any of the 3 previous bank failures collapse "in waves"? Based on your graphic why did the S&L failure have more financial institutions fail towards the end of thr wave, but the 2008 crysis had more fail at the start?
The graph is beautiful but really, none of the analysis done even discusses waves, or how a bank failure can progress.
Finally, you make a point towards the end that SVB made a mistake and we don't know how widespread it is... Can we look at the pretty graph to other scenarios when a bank made a mistake and was isolated?
I somehow felt cheated at the end of the article, as if I expected some analysis but only found surface level news. This feels like a piece that should have been 2-3x long, and could have explored how each of the previous failures evolved over time.
Is there another bad assumption today?
The recent failure of Silicon Valley Bank has raised fears
of a new banking crisis. One way to look at SVB's failure
is: SVB assumed that interest rates won't rise.
The Gramm–Leach–Bliley Act of 1999 repealed the Glass–Steagall Act of 1933:
https://en.wikipedia.org/wiki/Gramm–Leach–Bliley_Act
The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 repealed part of the Dodd–Frank Wall Street Reform and Consumer Protection Act passed in 2010:
https://en.wikipedia.org/wiki/Economic_Growth,_Regulatory_Re...
Articles that only look at the numbers miss the elephant in the room, which is that policy controls economics. That's why academics generally don't subscribe to ideas like deregulation, at least they didn't before the Reagan administration began chipping away at public funding for universities to rein in the rabble of hippies opposed to war/monopoly/neoliberalism:
https://theintercept.com/2022/08/25/student-loans-debt-reaga...
At nearly every turn for 40+ years, our elected officials have made unpragmatic decisions. They push revisionist history and constrain debates to 2 ends of an approved axis of narratives so that people who think outside the box are demonized as fringe. Which is very not meta, and for me one of the great disappointments of the modern era, especially in how it's bamboozled the minds of so many thought leaders in tech.
Is that political? These policies affect our money and work and the trajectories of our lives. Are we supposed to just not seek working solutions anymore because they don't please the status quo? Every win for concentrated wealth is another pressure convincing people to vote against their own self-interest. Which creates the negative feedback loop we're trapped in, where every loss is compounded by further loss, enabling polarizing candidates who sell their vote to the highest bidder to consistently win at the highest levels of government.
https://en.wikipedia.org/wiki/List_of_banking_crises https://en.wikipedia.org/wiki/Panic_of_1873