[nabla9]

Because there was a systemic risks.

You let one bank collapse, OK. If the collapse causes other banks to collapse then it's bad. When WalMart, Costco can't transfer money to fill shelves, people go hungry. When people can't get their wages, they go hungry.

[NotACop182]

Then the laws need to change and a solution for the future must be made. We can't keep bending the rules when the laws don't work out for this one entity but when the little guy is in the same position he’s on his own. We need a system that's fair across the board. Increase fdic insurance add optional insurance options. Call it a day.

[specialist]

Alternately, recognize that Capitalism is chaotic and prone to collapse. Then require risk management be updated accordingly AND use something like Socialism for when that chaos and risk are unacceptable.

And then don't mix the two.

Basically the (idealized) Democratic Socialism of the Nordic governments.

Food for thought:

David Graeber in Debt: The First 5,000 Years asks if Capitalism might be intrinsically unmanageable, so therefore prone to collapse. He notes that every economy in history experienced a debt crisis, requiring intervention (eg revaluing currency, revolution).

More recently, Katarina Pistor wrote The Code of Capital, which documents the modern economy built on top of our shared legal fiction of property. Here's a pretty good interview. https://the-ezra-klein-show.simplecast.com/episodes/katharin...

FYI, I'm not an economist, so I'm not aware of anyone making the specific case that Capitalism is chaotic and so therefore will eventually collapse (aka chaos theory).

[wheelerof4te]

Then, at least be fair and nationalize the big banks.

There's no point pretending that the large banks are "private" if they are subjected to some special rules.

People put their money there willingly, no one forced them to. Let them all feel the joys of "free market capitalism".

[nabla9]

> nationalize the big banks.

That would be a good idea. If bank is too big to FDIC to absorb and "too big to fail" and it fails it becomes Treasury owned overnight.

For example Paul Krugman agrees. https://www.nytimes.com/2009/02/23/opinion/23krugman.html

>What Alan Greenspan, the former Federal Reserve chairman, and a staunch defender of free markets, actually said was, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” I agree.

>The case for nationalization rests on three observations.

>First, some major banks are dangerously close to the edge — in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.

>Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.

>Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.

... >Still, isn’t nationalization un-American? No, it’s as American as apple pie.

[criddell]

No need to nationalize them. AFAIK, Canada has had two bank failures over the past 100 years. Regulation can work.

[Ekaros]

Or we could just go with CBDC give everyone government paid 0-interest account at central bank. With zero risk to lose the money. As it could truly be cash equivalent while being there.

Then if people want more they could get account somewhere else, but fully carry the risks from that.

[nabla9]

People and businesses still need loans.

When my business gets a new order, and needs $200,000 loan we don't have to buy the raw material, we need short loan of 1-2 months from the bank. The bank uses your deposits to make that loan.

[Ekaros]

So the people could instead give their money to a bank which then would offer various deals. Give money to 1 year and receive certain rate on it.

Point is that no one should be forced to take on risk if they are using a bank. Instead it should work like any other investment.

[colinmorelli]

Isn't this just exactly what the FDIC is? The vast majority of people do not have more than $250k in deposits sitting in cash. More than that sitting around in cash wouldn't be a prudent financial decision anyway, since putting that capital to work (even in very safe investments), would yield a better return.

Those that are below $250k are taking effectively zero risk. The worst case scenario is possibly losing access to funds for one business day before the FDIC returns deposits up to the coverage limit.

This is, of course, without playing games using sweep accounts or other instruments.

[rashkov]

How many businesses have less than 250k though? I’m surprised that the insured limit isn’t higher for businesses. Depositing your money in a bank doesn’t feel like it should be a risk/reward decision, like investing in the stock market

[wheelerof4te]

The bank uses a portion of everyone's deposit to make the loan. The rest is made out of thin air.

FIAT currency is proped up by private bussiness banks. Only a tiny fraction of the money supply is the M1, or base money (printed by FED).

[Armisael16]

All of the money the bank gives out comes from deposits or shareholder capital. The bank isn’t the mint; it isn’t allowed to print money.

The way that banks expand the money supply is by providing the illusion that all my money is there and available while at the same time being loaned out to someone else.

Fractional reserve banking means that banks don’t have all their deposits in hand. It does not mean that they invent cash for loans.

(The distinction here is less obvious in a digital world, but it’s quite clear if you think about how it would work if physical cash was used)