[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.