More centralization.
This just balloons up giants which are too big to fail.
The end result as always: More money printing.
The genie was let out of the bottle in 2008 and will not be put back:
This just balloons up giants which are too big to fail.
The end result as always: More money printing.
The genie was let out of the bottle in 2008 and will not be put back:
The underlying issue is that even uninsured risks in banks must de-facto be largely covered by some central authority (whether FDIC or otherwise) otherwise the whole system is at serious risk of pretty catastrophic failure. The interaction of the lack of (formal) insurance for large deposits and the fluidity of those deposits make bank runs at the first sign of serious risk inevitable.
How important that problem is - I'm not informed enough to have an opinion on. But that problem didn't start in 2008, that's for sure. I am curious as to what actual subject matter experts think ideal solutions would be, and what haphazard lobbyist inspired patch-job we'll actually get.
One huge, positive difference between 2008 and now: owners aren’t being bailed out. Stock and bondholders in 2008 got rescued. Not this time.
In February, First Republic had a $40bn enterprise value [1]. That is largely, if not entirely, gone. (JPMorgan acquired “substantially all of the assets of First Republic Bank,” so there will still be scraps to fight over.)
It's 15 years later, and I don't recall the details, but I'm pretty sure that at least one of the big players went down in a way that the stockholders got zero.
Yes, the banks that outright failed. But e.g. Bear Stearns got a bit of a sweetheart deal.
Shares of those banks play a much larger role in index funds, retirement accounts, etc than First Republic or SVB. The major banks are so tightly coupled that if one fell most of the others would have, and the very debt that created our currency in the first place would have disappeared.
Whether bailing out the banks in 2008 was a net positive won't be known for a while. We're still dealing with the blowback from 2008 and we can't know whether the bailouts saved us from further pain or pushed it under the rug and made the pain worse later.
Just like cookies on a website, banks should be required to give depositors a clear and easy way to choose whether their money will be lent out.
Will that mean less lending overall? Yes. Will that be good for the economy? Yes, because it’ll couple inputs and outputs more closely.
Moreover, depositors who do use banks to lend should be given a prospectus and information comparable to stocks.
Deposit insurance is a moral hazard. It encourages people to be reckless with where they put their money.
I like the idea of banks giving consumers a prospectus, but I should point out that publicly traded banks do, every three months, in the form of a quarterly earnings statement. How many people use it as such, I’m not sure.
I understand what you're saying. It's worth noting that the needs of the depositor are below the needs of the system itself.
In a system where mortgages didn’t exist, maybe houses would be more affordable for people.
Fractional reserve banking began when the banks started converting the deposits to issue loans without the depositor’s knowledge or consent… and that’s largely the way it remains.
The vast majority of the population would not have the time or ability to digest and perform a comparative analysis between countless pages of bank prospectuses. We put that effort into stocks now. Most use some variety of funds, often suggested by general guidance from 401k plans based on a vague risk tolerance and retirement goals.
Ultimately I don’t care if people change their behavior, but I’m offended by the fact that I’ve opened several accounts in my life and none have clearly indicated that they don’t keep most of my money. I’ve even read a couple sets of the papers that come with an account and they didn’t seem to say anything about it.
As far as I’m concerned banking is fraud / conversion.
In effect, your deposit is directly, causally linked to the ability of the bank to keep more interest _earning_ loans on the books; i.e. your deposit helps back those loans, and were it not for deposit insurance (assuming your account is below the limit) you would be on the hook for risks the bank took.
Your deposits are thus both necessary, and (barring FDIC) risk-carrying when it comes to the loans the bank makes. Isn't that in essence "your" deposit being lent out? If not in a literal sense; then at least what's the value in emphasizing the distinction?
You linked to a chart showing a 10% decrease in the monetary base from peak, even including the run-up since February.
There are many reasonable issues with this purchase and sale. But “money printer go brr” isn’t a particularly insightful nor relevant one.
I think for most people having something like the gold standard seems much more plausible.
Having a flexible supply of the settlement currency is a pretty new experiment. Not even 100 years old. And it has ended in desasters around the world multiple times already.
We don’t vote on individual drug approvals, either.
Some people have a broad vendetta against the Fed and fiat currency. That is fine. But shoehorning it into every discussion, even when it isn’t relevant, doesn’t advance anything. This is a bank failure being resolved with public-private participation within the FDIC’s framework with support from the OCC. There are smart things one can say about the FHLBs, TBTF and liquidity ratios. (You pointed out centralisation. That’s a smart thing to discuss!) There isn’t much relevance to the monetary base, however, unless we’re speculating on the next rate rise.
Not having a flexible currency supply causes separate problems as people run out of specie. Furthermore the counterfactuals for 2008 and 2020 look .. bad.
Well the global economy and most national ones were in a permanent boom and bust cycle between at least the mid to late 18th century and the Great Depression.
The gold standard was never stable, just look at:
https://www.officialdata.org/us/inflation/1800?amount=1#:~:t....
Just instead of steadily (well prior to 2020 anyway) going up all the time like now the worth of currencies was swinging up and down in a wildly volatile and unpredictable manner every few years..
You should compare today's figures with 2010 figures, not the ones from a year ago.
Nobody will argue we didn’t print money in the last decade. Per unit of GDP, we have 22% more money than we had ten years ago [1].
Implying recent bank failures are causing that to increase is false, and in some ways backwards.
It’s convention because it cancels out a lot of noise. (Both nominal.) And there are practical reasons for a larger economy needing more money to work than a smaller one. But if you prefer, it can be calculated in various ways, all of which tell a similar story: we’ve been in a different regime for the last 1 to 3 years in which there is less money, and a regime before that since 2008 when there was a lot more money.
Btw, the expansion of the monetary base has a lot more to do with the Fed paying interest on excess reserves than on rescuing a few banks here and there.
See https://www.cato.org/working-paper/floored or https://www.mercatus.org/macro-musings/floors-and-corridors
It's precisely the opposite, because the money printer is now a money vacuum, a lot of banks have solvency issues.
Money printing would have saved FNB.
because the money printer is now a money vacuum
The printing of unprecedented amounts of money from 2008 to now created those low yields the banks are seeing. And now there was a tiny increase in yields the banks go under.
This would not have happened with a stable supply of the base currency.
We spent millennia with examples of stable, metal currencies and bank failures. Then, like now, bankers chased risks. First Republic financed long-term Treasuries. Romans financed eastern fineries [1]. Many others blew capital on kings’ failed wars.
Booms and busts are inherent to money and credit, this is a foundational learning every industrialised non-Malthusian society learned fast and, in many cases, including our own, the hard way.
[1] https://epicenter.wcfia.harvard.edu/blog/financial-crisis-th...
https://www.officialdata.org/us/inflation/1800?amount=1#:~:t....
or even in the 18th century:
https://www.in2013dollars.com/UK-inflation
The counter-swings just created an illusion of longterm stability. But it definitely didn't feel that way for people living on the ground (of course a lot of that is down to unstable food supply and not just the monetary system. Not that it was avoidable, you can't really have a fiat currency without a stable and somewhat reliable government anyway).
You wouldn't have had a stable fractional banking system prior to the 1930s anyway. So yeah, in a way you're right.
Generally financial systems are much more stable nowadays than they were under the gold standard.
This is good. We need to get everything down to a sufficiently small number of big banks so that "too big to fail" also means "so big that even the most ardent small-government anti-regulation leave everything up to the market people in Congress are afraid to deregulate them".