[londons_explore]

Iceland let it's banks default, and is now doing rather well.

In fact, bank failure and then having the government only guarantee ~$50k of funds per person is a good way to hand wealth to the people and take it from corporations and the super wealthy.

[petesergeant]

> and is now doing rather well

I was going to write a shitty reply to this, but the more research I did, the more it seems actually this went pretty well for them. UK and NL governments that lost deposits in the Icelandic banks mostly got their cash back (eventually), there was recession and unemployment but not that much worse than other countries, and the country is in good standing again with the markets.

I would note that this is much much easier to do if your investors are foreign, rather than domestic pension funds, so it doesn’t bring down the government, though.

[embedding-shape]

> good way to hand wealth to the people and take it from corporations and the super wealthy

Hence the power that be try to prevent it best they can. In some cases, unsuccessfully (Iceland) and in others, a bit more successful (the US). But seemingly, they're only able to delay the inevitable, not completely prevent it.

[adjejmxbdjdn]

The U.S. also let a bank collapse and shit hit the fan across the world.

The global economy isn’t pivoting off Icelandic banks the way it is off US ones.

[laughing_man]

Iceland's banks were full of money from people in the UK. It's a lot easier to default when there only a small political and economic price.

[hparadiz]

Is everyone just glossing over the fact that the feds make a profit on bailing the banks out? Seems like a win win to take over ownership in the event of a bank failure.

[actionfromafar]

The "feds" as we used to know them are going extinct. They are all being replaced by GOP apparatchiks, who care only to look good to the Leader.

[pfannkuchen]

Was this definitely not accounting trickery? Like even the way money is created is intentionally convoluted and approximately 1% of the population even attempts to understand it. Can we really trust the accounting of bank bailouts which stood to be unpopular when the accounting produced a convenient outcome? Has anyone plausible analyzed this to a convincing level of detail?

[hparadiz]

This was explained by Jon Stewart on The Daily Show ad neausum in 2008 and was common discourse for years after. No. It's not accounting trickery. Rather than allow the company aka the bank to go fully bankrupt the government simply forces a sale of the shares of the bank to the government. The original stock owners basically take a cap gains loss (potentially based on their cost basis). The bank then continues to operate as normal. This prevents a run on the bank and keeps it stable. Then 2-3 years later the stock recovers and the government sells its shares. Since they bought low this is highly profitable. Anyway yes and yes. The 2008 bailout ended up making a profit for tax payers. Thanks Obama.

[londons_explore]

If there was a reliable profit to be made, a third party would do it.

I suspect the real profit is made by also being in a position to adjust laws and rules to make sure your investment survives, as well as turning low rated bonds effectively into government bonds. All those things are at the expense of others in the bigger picture.

[hparadiz]

3rd parties don't have the capital to front the losses. That's the whole point for the government to do it. The feds get the advantage that they basically get to force the existing creditors to sell at a loss. Presumably that's what everyone here wants. The existing owners to pay a penalty on the failure and for everyone else to remain whole if possible. Well that's exactly how a bank "bail out" works. So what's the actual problem? The only one's "hurt" are the owners who miss managed the business.

[preg_match]

We have similar FDIC insurance in the US. The solution is companies have many, many deposit accounts to still get the insurance, mostly for payroll purposes.

[londons_explore]

Could easily change the rules so real humans get government insurance, but companies do not.

And perhaps have the insurance pay out only once per year per person too, so that when multiple bank failures happen at once there is not much benefit to splitting funds.

[laughing_man]

But that defeats the purpose of depositor's insurance. The purpose isn't to make sure people get their money back; that's only a side effect. The point of depositors insurance is to avoid bank runs, which can be contagious.

The cause of the run isn't that important, and if you banking system collapses because companies pull out all their money you're not in a better position than if individuals do.

[bulbar]

Big corporate borrowed the money already, so it will stay with some (other) big corporate in this scenario. The bankers who did it will see that coming and move their money elsewhere and keep their money as well.

What you suggest will hit normal persons.

What we really need is people going to jail that let stuff like that happen. Let them bear actual responsibility for their 1,000k+ salary.

[short_sells_poo]

The issue is that major US banks are systematically important to the US and also everyone else. Practically nobody cares about Icelandic banks - not even their depositors if their deposits were protected by the state (which they were).

If a bank like JP Morgan were to fail, the event would be without exaggeration cataclysmic to everyone, even small local banks and credit unions. Even if ultimately the clients of JPM could be made whole, the weeks of uncertainty and frozen funds would single handedly obliterate the financial systems across the globe. It's the age old adage: "if you get margin called and get wiped out, it doesn't matter that you'd have recovered just 2 weeks later". The world as a whole is deeply leveraged. It's that leverage that affords us the ability to supercharge all the growth, from AI to drugs research, insurance, EV... everything. But that leverage comes at a cost, which is that systemically important institutions failing can have disastrous cascading de-leveraging effects.

I'm sure we'd more or less all survive and the world would recover, but it would likely be a 2008 GFC style scenario most likely.

[dofm]

The collapse of Landsbanki was absolutely not a nothingburger. Risked triggering a 21st Century Cod Wars: the UK government was forced to use organised crime laws to freeze its UK assets to protect UK savers in Icesave, to whom the Icelandic government did not clearly intend to extend protection.

[Ferret7446]

It's the middle class who gets screwed. The super wealthy and corps don't have their assets stored in banks.