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Bank failures come in waves

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Re: Bank failures come in waves

#141

Post by rjtavares »

nobodyandproud wrote: post #131
rjtavares wrote: post #127

Earlier quoted context omitted.

We don't know. Glass Steagall Act doesn't really deal with the fundamental problem with 2008, which was at its core an error in measuring potential risk of new finantial products. It could have prevented some of the worst impacts of that error, but we're not sure. 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…

Wouldn’t Glass Stegall have made mortgage backed securities difficult if not outright impossible to create?

No. It could have prevented some banks from owning them directly, and that could have cointained their growth, but we don't know really.

Crisis would happened anyway for sure, but the scale could have been smaller. But it's hard to do what-ifs.

Re: Bank failures come in waves

#142

Post by vonmoltke »

nobodyandproud wrote: post #131
rjtavares wrote: post #127

Earlier quoted context omitted.

We don't know. Glass Steagall Act doesn't really deal with the fundamental problem with 2008, which was at its core an error in measuring potential risk of new finantial products. It could have prevented some of the worst impacts of that error, but we're not sure. 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…

Wouldn’t Glass Stegall have made mortgage backed securities difficult if not outright impossible to create?

Since mortgage-backed securities have been a thing since the mid 1980s, no.

Re: Bank failures come in waves

#143

Post by roflyear »

sgsag33 wrote: post #90

Why do we even need banks? If they make money by lending money that mostly belong the people (state/feds) anyways, I guess we all would be better if banking was just a state monopol. I guess I'm just missing some points here so maybe someone can help and explain me why this is a bad idea?!

It's a way for society to make long term bets in aggregate without taking a ton of risk. Mortgages, small business loans, etc

Re: Bank failures come in waves

#144

Post by roflyear »

ttul wrote: post #6
bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

While it may be difficult to see things this way, when you put money into a bank, you’re choosing to not invest that money into something else that might generate a better return for you and for society. The small but real risk of losing your deposits in a bank encourages companies and people with money to invest it into other things. If there is no default risk, then money will be increasingly stored away inside ban…

That's an argument for no insurance. And it isn't true. People put money in a bank because it is safe. They leave cash cash because it is safe.

Re: Bank failures come in waves

#145

Post by thwayunion »

retube wrote: post #138
vishnugupta wrote: post #95

Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks. 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 p…

central banks could offer 100% guaranteed deposit facilities without a CBDC.

I'm so confused by what role a CBDC is even supposed to play... why would the government establish a new currency pegged 1:1 to its existing currency? Why not just... allow normal Americans to keep deposits at federal reserve banks?

Re: Bank failures come in waves

#146

Post by meh8881 »

zizee wrote: post #41

From what I understand, when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank (on behalf of the fed), and the bank needs to pay the fed interest. The bank also needs to pay the loan back by an agreed uppn time (which destroys the money). Why can we not have a similar system for deposits? A bank takes a deposit, the fed "destroys" the money, but pays interest…

> From what I understand, when someone takes out a loan, a bank doesn't lend out depositors' money. Instead money is "created" by the bank

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.

Re: Bank failures come in waves

#147

Post by thwayunion »

spacebanana7 wrote: post #133
drexlspivey wrote: post #130

Earlier quoted context omitted.

You can already do that by buying a money market fund no?

To the best of my understanding you can’t initiate payments with a money market fund using, say direct debits or visa/Mastercard. So they can’t replace an ordinary bank account.

Can't replace it. But with some trivial API glue and a cron job, you can get away with storing next to nothing in the bank account on most days as long as all of your credits and debits are scheduled and upper-bounded. E.g., if the debit side of your entire financial life is payroll + rent + credit card bills.

But this shifts risk from your FDIC insurance to your SIPC insurance.

Re: Bank failures come in waves

#148

Post by maxwell »

thwayunion wrote: post #145
retube wrote: post #138

Earlier quoted context omitted.

central banks could offer 100% guaranteed deposit facilities without a CBDC.

I'm so confused by what role a CBDC is even supposed to play... why would the government establish a new currency pegged 1:1 to its existing currency? Why not just... allow normal Americans to keep deposits at federal reserve banks?

CBDCs are programmable: whoever controls the CBDC can decide where it is or isn't spent.

Re: Bank failures come in waves

#149

Post by Kye »

pharmakom wrote: post #97
bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

This is a monumentally bad idea. 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.

This won't happen for the same reason people most don't just burn their house/business down for the insurance payout. People lose insurance all the time this way even if they're just unlucky. Like any insurance company, the FDIC can and will drop a bank and isn't obligated to insure a new one if it's run by unreliable people.
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