[jonpress]

I was surprised that he mentioned the global financial crisis. I think 'too big to fail' was one of the biggest frauds ever committed against society. There is no such thing as too big to fail.

I think the 2008 financial crisis was an evolutionary mechanism for society to rid itself of excessive greed among its leaders (natural selection). The bailout was an unnatural intervention and will only serve to propagate the genes for greed in our society.

I think it's only a matter of time though before the next crisis - And I think it will be the same people who will take us there - This time the cause will be more clever and more complicated than the last time.

[deadgrey19]

This seems a little short-sighted to me. Bailing out the banks was not a question of protecting the banks (who are by no means blameless), it was a question of limiting collateral damage. A large bank failing has the potential to render (literally) millions of innocent people ("mom's and pop's") instantly bankrupt. If a bank fails, there's no way to get your money out. The money simply goes away. Typically banking preferences run in families, so the effects would probably be even greater, with entire families going bankrupt. The ramifications of such a failure would be felt for generations onwards. This is what "too big to fail" means.

[deong]

Well, the banks are fine now, but we still can't pass even the tiniest bit of legislation curtailing the worst of their activities.

You're right; we did have to bail out the banks. The decision to absolve them of any responsibility, continue groveling at their feet, and just generally lay out a red carpet lined with bags of money for them to take on their way to the next instance of destruction...that's a choice we're making.

[bitcoin-truther]

This book [1] says the popular narrative is wrong, and that "mom & pop" businesses/households were never in danger. It wasn't a bank bailout to save accounts... that would have been covered by an existing program like the FDIC[2]. It was, rather a hedge-fund / gamblers bailout.

[1] http://www.amazon.com/Great-Deformation-Corruption-Capitalis...

[2] Technically the FDIC has a trivial amount of money, this link [3] shows how laughable it is in the casino of Wall St.

[3] http://demonocracy.info/infographics/usa/fdic/fdic.html

[FeeTinesAMady]

That doesn't make any sense. You seem to be assuming that it's impossible to bail out the bank's clients and let the bank itself fail, but that is not, in fact, impossible. That would insulate all those families from that collateral damage while still allowing the scumbags at the top to feel the effects.

[deong]

> You seem to be assuming that it's impossible to bail out the bank's clients and let the bank itself fail, but that is not, in fact, impossible.

It probably was impossible. Banks don't just function as holding pens for your money. They're (by design) overly leveraged based on the idea that not everyone will want their money at the same time. If the bank fails, you need to come up with all the money at once, and there was never that much money in the bank to begin with.

Maybe you could have handled this by some system in which you backed people's deposits with things like bonds, but at a minimum, it's pretty complicated. It's easier, and probably better in the long run, to just reassure everyone that their money is safe in the bank, and give the bank whatever is needed to ensure that promise is kept.

Where we went wrong was in failing to meaningfully change the system that incentivized and allowed the failure to occur in the first place. We probably couldn't have done anything to avoid bailing them out the first time, but we could be doing much more to avoid the need to do it again and again in the future, but we're not, because the banks own the government and don't want us to.

[FeeTinesAMady]

But all that would have been needed would be for the money that the government used to bail out the banks instead go directly to the depositors, and for the government to seize all the bank's assets to help pay for that. All they would need would be the relevant records. That would only be impossible if the depositors had so much money invested in the banks that there wasn't enough to cover them. Was that the case?

[deong]

> That would only be impossible if the depositors had so much money invested in the banks that there wasn't enough to cover them. Was that the case?

Well, you're probably right in that I think there would have been enough money between the banks' assets and the amount the government contributed to cover the amount immediately owed. Probably. I'm just guessing really, but let's say that's true.

What would the next day have looked like? My guess is that the banks who weren't already failing probably would start to fail very quickly. My guess is that if you let the "bad" banks actually fail and cease operations, with the federal government giving out hundreds of billions of dollars in deposit guarantees directly to the people, you'd have had lines at the banks the next day as everyone else rushed to get their money out of the banks that hadn't failed yet.

[FeeTinesAMady]

I don't think they would, though. I think people would see that their money is in fact safe, as the government guaranteed it, because now the possibilities are 1) the bank will fail and the government covers the deposits and liquidates the bank, and 2) the bank doesn't fail and the deposits are safe anyway.

[marcosdumay]

By the book, the procedure for "bailing out" a bank is to seize it (what's worth nothing, since it's bankrupt), pay enough of the debit so it gets some market value, and auction it back to the private economy.

[hnnewguy]

>I think 'too big to fail' was one of the biggest frauds ever committed against society.

I wonder when we'll stop blaming the "banks" for every problem we have, instead of the the real culprit of most of our problems, including a terrible education system and the financial crisis: the government.