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I don't buy the argument that allowing maximal loss in 2008 would have been good in a practical sense. Yes, it would have been edifying to watch those bankers who screwed up face their comeuppance. But firstly, the bankers already got the bonuses during the good times and they don't personally own the assets that would go to zero. And secondly the process of unwinding all of that debt and those complex financial instruments in an uncontrolled open market would likely have seen plenty of perfectly good investments go to the wall simply because the market wasn't able to fairly value them. You can't just put the entire economy on hold for 12 months whilst an army of PhDs go through and re-value every single marketable instrument.

It's perfectly reasonable for the government to step in and say "We'll back stop this now, but we're going to examine this and put in rules to make sure this can't happen again"- and that's what happened here. The reason JPMorgan can step in is because they have stronger regulations on them that have made them safer than last time.

> It's perfectly reasonable for the government to step in and say "We'll back stop this now, but we're going to examine this and put in rules to make sure this can't happen again"- and that's what happened here

We've just witnessed several of the largest bank failures in history happening this year. In an unexpected turn of events, Bitcoin is proving to be more stable than institutions like First Republic Bank (and Credit Suisse). We'll probably see a few more interesting names before this is through.

Run me through this "can't happen again" part. We've had banks for 300 years now and there is a financial crisis every decade or so these days. What is "this"? It seems to be happening quite regularly for something that can't happen again. The government has been all but force-feeding credit into markets for the last decade, that is hardly a strategy to build strong institutions. The US is at serious risk of being overshadowed by nominal Communists. My money is on the pension system bearing the brunt of this crisis.

What are the signs of regulatory success that we're supposed to be looking at? They seem to have taken an era of unprecedented prosperity and technological progress and done their best to bring that back to neutral.

What are you comparing to though? Are you comparing bitcoin to an equity investment in a single regional bank? Because if so, yeah if you just so happened to pick First Republic Bank and compared it to Bitcoin, Bitcoin has been more stable in the last 6 months. But that's only because you've looked at what happened now, then gone back in time 6 months to select the worst outcome and compared that to bitcoin. If you picked a random regional bank or took an average of banks, they've been more stable than bitcoin - and even then you're talking about an equity investment that is known to have real risk.

If you're comparing to the depositors in FRB or CS or whichever bank, their money has been absolutely safe, way more stable than bitcoin - and government guaranteed.

>What are the signs of regulatory success that we're supposed to be looking at?

That in capitalism, individual companies are going to succeed or fail, and those that invest in them will take the gains or losses, but that the broader system still works. And that's basically what is happening so far.

To take your bitcoin example, whenever a crypto company fails, the question is always "Will retail customers get their deposits back" and the answer is... basically always no. That's not how we expect companies to work - the customer deposits are meant to be protected.

But over any time frame that includes the present and FRB, anyone who tried to store value in FRB has underperformed the people storing value in Bitcoin. Many quite badly. It isn't really cherry picking to note that one of the systems has imploded rather more significantly - the one that was regulated and had bad incentives.

What is the value add of all these regulations? We could arguably replicate the system, more stably, if everyone just owned bitcoin and the government bailed out anyone who lost their keys. The regulations aren't doing anything useful.

The role of the regulators here is destabilising the system. We're running a live experiment between lightly and heavily regulated systems here; turns out that less regulation is more stable even with the waste of Bitcoin mining. That says a lot about what the market thinks of the regulators and their regulations - substantial value destruction, and a significant cause of instability. They caused this crisis by loading up the system with debt and risk through 0 interest rate policies.

The regulators are overseeing a system that is underperforming your definition of regulatory success. The unregulated system sees individual companies succeeding and failing but the broader system carrying on. Where the regulators are involved it seems quite likely that the government is going to have to step in and prop up the regulated system again because it isn't sound. Odds are good the bank failures won't end here if it is anything like '08.

> whenever a crypto company fails, the question is always "Will retail customers get their deposits back" and the answer is... basically always no.

That is certainly true, but that is why the crypto ecosystem is outperforming the US dollar system here in terms of stability. People actually have to pay attention to what they do with their crypto.

A 6% raise in rates hasn't been accompanied by mass failures in crypto. Mainly because they deal with the problems by a string of small failures that wipe out an inconsequential number of people and keep the incentives correctly in place. The US regulators disrupted that natural market cleansing and look what it gets them - massive value destruction. And we aren't quite sure yet where the blow is going to hit.

Ok again, I want to draw a distinction, are we talking about equity investments in banks? In which case, yes, by definition any asset has outperformed FRB which went to 0, but no, that's not a reasonable way to value forward looking investments. Or are we talking about depositors.

Because we need to be clear. For depositors the value of the regulation is very clear - when crypto exchanges are unregulated when they blow up their depositors money isn't safe. When regulated banks blow up, the customer deposits stay safe thanks to regulations. The thing that caused instability isn't the regulations, it's rate changes.

The problem you have with crypto is very simple - you can't point at the value of bitcoin or FTT or ETH or Terra or Solana and say that it's safe, because alot of the time the people who were invested in it no longer have the asset! It's all well and good to say that BTC isn't down 100% but the people who had BTC on FTX don't have the bitcoin anymore so the nominal value of BTC is academic.

I'm talking about depositors - the regulations obviously didn't help because the regulators had to bail depositors out. If the regulators bailed out bitcoin institutions the people with crypto in those institutions would not lose any money either. Neither would be a planned action.

The regulations are so useless that the regulators have to roll in and start handing out money to fix their own mess. The system under low regulation is more stable - it works without intervention and rules changes. The regulated system the regulators keep having to make up new rules on the fly to cope with the fact that they are fundamentally destabilising the system and causing enormous losses of value to happen along the way by removing the feedback loops and protecting people from their actions at cost to the bystanders.

The regulations are net-negative value add and destabilising. The regulators are papering over that by unplanned cash infusions. Everyone in the regulated economy is assuming that the regulators fold and change the rules but they're all gambling on how the system will be broken. Nobody is behaving as though the regulations themselves are helping.

The point I'm making is if the rules are going to dissolve anyway, Bitcoin is a better system to go around bailing people out, because at least it is low-friction. It isn't exactly true, but superficially since Bitcoin can reliably preserve value in a way that the banks can't, we should bail out the bitcoin firms in preference to the banks. It is a more fundamentally sound system. We aren't see the sort of cascading failures that happen under the regulators. FTX goes bust and that is kinda it, whereas we've just had 3 huge banks go bust in a more regulated system - likely with more to come and high risk of a cascade of failures through the whole banking industry if the regulators follow the official playbook. Everyone agrees that following the regulations would result in systemic collapse in the event of a crisis. Compare and contrast to the Bitcoin ecosystem where something like Tether has survived at least 2 depegs and carries on like it is nothing. If the banks had that sort of resiliency against a run, this current crisis would not require a response. The reason they don't is because everyone is playing the regulators.

But regulators haven't really bailed out depositors. Firstly, the vast majority of the assets have just gone with the sale of FRB, along with that there is some cost, but the costs associated with this sale are estimated to only be around $13Bn and that's going to come out of FDIC - so it's funded by the banks anyway. The reason this is possible is because FRB only holds a very tightly regulated set of securities, so at worst there would only be a small shortfall and that's what the FDIC is there for anyway.

You say that the regulations are harming the system, but crypto gives us a perfect illustration of what happens without these regulations. You don't end up with companies that function better, you don't avoid duration mismatch, your exchanges go tits up and it turns out that the CEO was spending all the cash on his bahamian polycule. And you say FTX goes bust and that's it but that really only works because bitcoin is so tiny that when FTX goes bust it isn't all of our pensions and life savings on the line. And it wasn't just FTX, FTX was the last domino in a whole slew of failures over last summer - half of which it turns out were self-dealing and committing fraud.

The whole point is that the government can step in and backstop a system where it's tightly regulated what these banks are doing, they can't step in and backstop a system where your bank may literally just be taking your deposits and spending it all on bahamian parties.

There's just this massive disconnect between the unregulated world where a bank can be bust and pay back 99 cents on the dollar, and the deregulated world where a crypto exchange can be bust and it turns out it's only going to pay 10cents on the dollar, and it won't even do that because the CEO started siphoning off the remaining funds.

In practice, they just roll back the regulations later.

Bank Failures --> Glass-Steagall --> Repeal --> Bank Failures --> Dodd-Frank --> Repeal --> Bank Failures --> ...

> it would be karmic justice to start wiping out elderly investors because they were the ones with political control ignoring all the problems building over the decades

Are you "ignoring all the problems" of today? Or do you just not have the "political control" to change things? What makes you think that "elderly investors" had more control during their lifetimes?

Millenials hold 4.36% of US wealth.

Boomers hold 53.2%.

Those figures are from 2020 - it's probably gotten worse since.

... And those wealth holders aren't just ignoring the problems of today; they're exacerbating them.

Ageism won't solve our problems - all of this is still very much a class issue.

But let's not pretend that as a generation, the Boomers didn't fail like no generation has ever failed. And let's not pretend they aren't still blaming the victim.

> Those figures are from 2020 - it's probably gotten worse since.

It's gotten better, because boomers are retiring and spending down their assets. …or, of course, dying of covid.

Millenials are pretty much on track actually: https://www.stlouisfed.org/institute-for-economic-equity/the...

Wealth inequality in the US is also down since 2019 because of wage growth at the low end.

https://arc-anglerfish-washpost-prod-washpost.s3.amazonaws.c...

Baby boomers outnumber other generations, and they successfully used their numbers to bend our political systems to benefit themselves at as they progressed through life.

Which I suppose is fine, that's democracy. But as they reach their twilight years and reflect upon the world they're leaving behind, I do hope they take some responsibility for the plights they've created for the younger generations.

This is incredibly stupid. Letting just Lehman fail sparked 08 and bankrupted millions of middle class Americans, and banks are always sold after bank failures.

The Fed had an extremely similar approach to what you propose in the late 20s, it was called liquidationism. It sparked the Great Depression, which was a terrible tragedy that destroyed millions of people’s lives, and through global aftereffects is arguably one of the main causes of Hitler’s rise to power.

Destroying the economy is very bad

> through global aftereffects is arguably one of the main causes of Hitler’s rise to power

By the time of Hitler's rise, hyper inflation was over and German economy was stable and beginning to prosper. Here is one paper covering it

https://blogs.lse.ac.uk/businessreview/2021/10/19/debunking-...

Hyperinflation isn’t the cited issue above - it’s the deflationary period from 1929-1932, which aligns quite well with the rise of the Nazi party. Both the GFC and Great Depression were deflationary.

Yes, it correlates, but deflation is not really the cause behind the rise of the Nazi party. Did you ever wonder why Hitler hated jews so much? Why antisemitism became very popular? Let me give you a hint, it had to do with banks, who ran them, and who owned almost all the wealth, along with a decade of economic woes for most folks.

According to Arthur Bryant the British court historian writing in Unfinished Victory (1940 pp. 136-144):

"even in November 1938, after five years of anti-Semitic legislation and persecution, they still owned, according to the Times correspondent in Berlin, something like a third of the real property in the Reich. Most of it came into their hands during the inflation.."

How could a British journalist know, with any degree of credulity, what share of the national wealth was owned by Jewish people in Nazi Germany in 1938? The same government that massacred millions of Jews a few years later would have happily lied about Jewish wealth to justify their actions.

Anyway, here’s [0] an article that disagrees with Bryant’s stated claim.

[0] https://cepr.org/voxeu/columns/fiscal-destruction-confiscato...

We shouldn't let banks fail and destroy the economy.

A key difference here is that bond and equity holders are wiped out, which helps reduce moral hazard.

The broader concern is the privatization of profits while losses are absorbed by the government/public.

> The broader concern is the privatization of profits while losses are absorbed by the government/public.

It seems like people just say this happened no matter what actually happens?

Equityholders are always wiped out when the government takes over a bank or business. Not sure about bondholders, but the point of backing up a bank is to prevent losses to the public of their bank accounts and payrolls.

For something like covid airline bailouts, equityholders got support but that's because the airlines have unions, not because the government loves airline shareholders.