This meme is about to get more crowded.

in banks •  2 years ago 

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Take off your libertarian, democrat, republican, or green hat for just a moment, and put on your pragmatic one.

The feds stepping in directly for depositors (distinct from the banks), is defensible.

However, doing so without also addressing root causes (by raising reserve requirements, requiring transparency by valuating assets at market rate, limiting investment vehicles funded by deposits to ensure greater liquidity, etc.), is almost as irresponsible as congress raising the debt limit without addressing the growth of the national debt.

Just as it would be totally irresponsible for the feds to raise the debt limit without any plans for entitlement reform and empire unwinding, bailing out depositors without any systemic change just lands us in the same place the next time the feds jack up rates with some other bank or set of banks, and in the meantime the bank behemoths grow as regionals die.

The amount insured by the feds shows what existing indisputable obligation government has.

When I say defensible, though, what I'm pointing to is that depositors had ever reason to suspect their money was not safe (regardless of the number of dollars). SVB was following the rules, and not making crazy investments. They were investing in safe things like government bonds that got demolished when the fed raised rates. There was nothing in their official accounting depositors could see that could have warned about a problem.

I'm not advocating we bail out depositors, exactly, but it's a defensible argument to make, unlike bailing out SVB itself.

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