Comment by t0mas88 | Hacker News Reader

Comment by t0mas88 | Hacker News Reader

In the Netherlands a bank got destroyed a few years ago by a single person starting a media campaign for a bank-run. This was done in response to "shady practices" on the mortgage side of the bank.

He got people to withdraw over 600 million from DSB Bank in a few days, which caused the bank to run out of liquidity and forced them to freeze accounts. This meant they lost all trust in the market and needed to ask other banks for emergency financing. All other banks declined (with good reasons, a bank falling apart combined with pending legal action on the mortgage side is a very high risk for them to take).

So within three weeks DSB was bankrupt. More here: https://en.wikipedia.org/wiki/DSB_Bank

I can imaging some disgruntled customers going after Wells Fargo in the same way. They have severe legal action pending (which makes them risky for others to save) and have destroyed their image by their reactions to this (which makes it easier to motivate customers to take action). All ingredients that killed DSB are there... The only difference is that DSB was one of the smaller banks and Wells Fargo is huge.

In the Netherlands a bank got destroyed a few years ago by a single person starting a media campaign for a bank-run. This was done in response to "shady practices" on the mortgage side of the bank

Happened here in the UK too. Northern Rock was in trouble but companies get in trouble all the time; what killed it and precipitated a full-blown financial crisis here was certain journalists revelling in the downfall of capitalism from the safety of their state-broadcaster sinecures...

Them going bust is actually a pillar of capitalism. This whole "too big to fail" bullshit coming from business-friendly politicians was just skewing the free market.

Weren't they actually too big to fail, though? I thought that multiple huge American banks failing would've made the recession a ton worse because banks would've failed and some large companies wouldn't have been able to make payroll and it all could've snowballed

The trick is to let them fail, then rapidly sift through the pieces and sell anything off which still has value. Even failing banks have plenty of good loans.

Ordinary deposits with banks should be protected by the government because the general public cannot evaluate the risk of a bank collapsing. There's probably a case for some protection for companies that hold accounts -- although companies should really be aware that by depositing money in a bank, they become lenders to the bank, and they should have the skills to mitigate that risk. Perhaps smaller companies, and accounts specifically holding payroll, should receive greater deposit protection.

That makes sense. If the government were able to do all of that super fast it might be been fine. I just don't get all of the hate for the bailouts. I know it feel's like to many people the banks sort of "got away with it" but the bailout both stopped any bad effects from failed banks and the government made money off of it so it seems like a win-win for society in my perspective

When financial catastrophes are "bailed out", the main effect is not the money gained or lost by the involved parties. Rather, the main effect is the inevitable identical-but-larger financial catastrophes that will result when rational bankers compare speculative upsides to presumably bailoutable downsides.

If it's a win-win, then it should be okay - even good! - for the banks+government to do it again. After all, everyone made money and the economy only almost collapsed, not actually.

Regardless of the actual dollar amounts changed hands, what the US Federal government demonstrated was that risky - even illegal - behavior will be covered and some losses will be covered. It means that next time (and there will be one), we should assume the risks and losses will be even bigger.

But the current system was insufficient to stop the previous failure, too. Wouldn't bailing them out short term and then adding some regulation long term be a sufficient solution?

If the global financial system was built on a blockchain, couldn't we just fork and rollback the bad transactions?

But more seriously, why did the resolution have to be a bailout. Could someone with the authority, and here I mean The Government, because they've got the guns, just tell the banks to rollback the wonky transactions?

Isn't this happened with many of the forced sales like WAMU, merrill lynch, countrywide?

You say "ordinary deposits with banks should be protected by the government", and then go on to say something to the effect of 'oh yeah, and these other things which I think are good, but screw big companies, then can get fucked'.

Which seems to translate, at least in my mind, to 'banks should be too big to fail, but only in the ways I like'.

It's not clear, under your scheme, how we would draw the line between companies that "should be aware" of the risks and how they would mitigate them? Do we have to have insurance policies against our bank deposits? But who pays for that?

Maybe I'm not reading with enough goodwill here though. Perhaps by "the government should protect" you mean to say something like 'there should be laws / regulations making it so that banks shonky investment dealings can't affect depositors accounts, at least for some class(es) of depositors' - in which case I agree.

> Which seems to translate, at least in my mind, to 'banks should be too big to fail, but only in the ways I like'.

I didn't say any of that. Banks should never be too big to fail. The only question is which of the bank's account holders should the government preferentially bail out by printing money equivalent to the holders' deposits.

I don't see that happening in the U.S. This person's campaign would be subject to a flurry of DMCA takedown notices[0] and mafia style legal threats.

[0] Legal or not.

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