[jonathankoren]

No. The people that didn't participate in a bank run are the ones that get hurt. The whole point of depository insurance is that people like you and me with less than $250,000 in a single account shouldn't get screwed over with billionaires like Peter Thiel decide to play games with other people's money.

[ChadNauseam]

> The whole point of the FDIC is that it's not good idea to reward people for participating in a bank run.

> No. The people that didn't participate in a bank run are the ones that get hurt.

These are the same, right?

[jonathankoren]

No. Because the people that participated got their money out leaving the people that didn’t participate with nothing in their accounts. This happens because of fractional reserve banking.

Think about it. Assume we both have an account with $1 dollar in it, and the bank only has $1 on hand. Now I create a run where I take my dollar out, but you don’t participate. I have my dollar, and now you have nothing because the bank failed.

How are we the same?

[dragontamer]

> and the bank only has $1 on hand

Well, that's not the truth either. The bank is holding onto 30Y mortgages / 30Y Treasuries that will be worth $2 in the year 2050, but is only worth $1.4 (fair market value) right now.

This loan was good 2 years ago (ie: its fair-market value was $2) in the year 2021. But the Fed rate-hikes have caused the loan's value to collapse, and so here we are.

You withdraw $1, the bank doesn't want to sell the bonds because it'd lock in the loss. The Fed provides a loan at the full principle of the bond (so the Fed now backstops the missing money). The Fed is now acting as the bank of last resort, providing $2 of true dollars to backstop the $1.4 (fair market value) of the bond, which will truly become $2 by the year 2050. The Fed will exist that long so everything should be kosher, in theory.

Or so goes the story one month ago. Why didn't this work? Why is FRC still collapsing despite these loans from the Fed?

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Believe it or not, life is a bit more complicated than just "fractional reserve banking". You're missing a huge part of the story if that's all your mind is open to. I'm not claiming to have all the answers, but I think it would behoove you to at least try to understand the current situation with a bit more nuance.

[jonathankoren]

That’s a lot of words to intentionally obfuscate the simple fact that banks don’t have the money on hand to allow every depositor to simultaneously withdrawal their money.

[dragontamer]

It's important to know the difference if you hope to fix the system.

Blaming fractional reserve banking for something totally unrelated will help nobody.

[jonathankoren]

That wasn’t the point.