So what is 3? Why don’t we just have nationalized banking? I mean, seriously?
These bankers are dangerous idiots who are destroying millions to billions of value. It is a terrible idea to start handing out free passes to the people who enable them - ie, depositors. It is easy to imagine a bank that doesn't have bank runs - 100% reserves. If a person is going to put their money in banks well known to be a house of cards then they have some responsibility to pay for when the cards collapse.
We cannot sustain a system were people just donate money to Joseph Gentile again, and again, and again. They have to stop doing that. And losing money is the only way to make that happen, anything else will let too many cockroaches through the screen. Instead, the proof in the pudding right now is that he is one of the safest people in the world to give money to!
These regulators are the ones driving the market to take these stupid risks, they slowly push out anyone who tries to make sane decisions by giving handouts to people who insist on setting their own money on fire. They're systemically removing the major incentives for people to think before acting.
There is an easy, sustainable path to a robust system here that creates wealth - stop making prudent investors pay for the reckless risk takers. That means we don't just pay out people who give no thought at all to what their money is funding.
Regulatory capture is more dangerous than no regulations because of naive people who dont see the graft despite it getting worse every year, decade after decade.
The only way to fix this is to ban fractional reserve banking (FTR: we have now something even worse than fractional reserve banking because now the deposit guarantee required is 0%, which means it's not even a fraction anymore). Good luck with that.
We need a secondary class of banks: ones that don’t leverage their deposits into investments, but rather simply keep people’s money safe.
That way you can choose your bank. Do you want a bank that will actually yield return on your deposits and pay you back in kind or do you just want to keep your money safe? It would effectively bring back investment carried savings but also allow people to store their money in safer banks with actual deposit insurance if that was their goal. The problem is that a bank is a bank and we don’t know what their business priorities or risk calculus is in any meaningful terms, so how are we supposed to choose a “safe” one?
There was actually a recent case where one bank (Custodia) tried to do this - they wanted to charge fees instead of gambling with their clients money. But the FED denied their application. They say it’s because they wanted to service crypto companies - but how would that even be a problem if they’ve always got all the deposits at hand. It smells fishy.
The problem is that those suggesting this aren't really engaging with how our finance system works. What they're saying is "I don't want my money at risk" but what they're proposing is "I don't want to ever be able to get a mortgage". They're saying "I'd be happy with an account that doesn't pay interest" but actually, if this product was offered, you'll likely find people still opt for the interest paying accounts that have risk because they aren't really capable judging that risk.
It's also just quite a difficult thing to imagine happening, can you imagine it - out comes this product from a bank "100% backed, guaranteed not to default, 20bps charge, 0 interest", and let's imagine it really is popular and capital flees to it. You've just caused the single biggest run on the US banking system in history. How do you mechanically actually make this work?