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Comment by senectus1 | Hacker News Reader

with what money will they guarantee all deposits? Governments dont have much money, they have taxes. when they can't tax their current voters they tax future voters by printing money.

If you told the banks that you will protect their business regardless of what corrupt, stupid or greedy behavior's they practice... what do you think they'll do?

this is so very screwed up.

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> If you told the banks that you will protect their business regardless of what corrupt, stupid or greedy behavior's they practice... what do you think they'll do?

That's not what the FED is doing though. They are protecting the depositors not the business. The equity holders are getting completely wiped out and most of the employees at First Republic Bank are probably going to lose their jobs so the business is definitely getting screwed.

But people don't really understand the nuance between "let First Republic fail and let the FDIC step in to protect the depositors" versus "let's sell First Republic to Wells Fargo under orders of USGov to protect the depositors." Why not the former?

I agree that in both of the above cases, First Republic shareholders and staffing suffer. But the latter introduces the conspiratorial angle and the unjust-ness.

The government controls the amount of dollars. It's not paying back out of coffers, just print the money. But if you really want to, you could cover the deposits from FDIC which is insurance paid by that bank. Secondly we're not bailing out banks. We'd be bailing out the depositors. The banks and their stock is free to go to zero, everyone is fired, etc. I think you've conflated two different things.

So you're suggesting we should let commercial banks run as risky a business as they like, pocket the profits if it works out, and pay for the deficits using newly printed central bank money if it doesn't?

> The banks and their stock is free to go to zero,

Sure, but what about the dividends and bonuses already paid out from the times it worked out in the risky banks' favor? You're suggesting a government/central bank subsidized casino.

Well maybe we can claw back the bonuses. You're right and I did think a bit on that after writing the comment. But there should be a clear incentive still to not go bankrupt and make their shares they hold worthless. With or without making depositors whole via ramping up the printer, your scenario still would make sense since even without the Fed backing, they could still just walk away couldn't they. The depositors would be left to sue to return the funds no? I've seen some good arguments to cover 100% of the deposits, but actually _regulate_ the banks instead of allowing their yolo fest.

> But there should be a clear incentive still to not go bankrupt and make their shares they hold worthless.

Absolutely. I just can't think of a good mechanism to implement it in the current framework. Maybe bonus payouts should be held in escrow/be otherwise claw-back-able for some time?

The only instance of clawing back dividends that I'm aware of is, ironically, Wirecard – I believe there is an ongoing lawsuit to claw back dividend payments from investors. (The irony is that the German government/regulator were actively prosecuting journalists and short sellers back when the line was trending up, yet now German courts are effectively holding long investors liable for Wirecard's fraud.)

Did you read my last sentence? Make the law such that bank failures can only occur in situations of outright fraud/criminal behavior. Most failures occur because of bank runs or stupid/risky bets, unlimited FDIC takes care of runs and stricter rules would stop bad risk management.

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