So the play is to use funds on me as the manager instead of depositors. Then depositors get covered and I, the manager, keep my earnings.
It’s not that we punish the depositors but the scheme is set up that depositors suffer.
Imagine the mob stole all that money. It’s not punishing the depositors to not pay them back. The mob punished the depositors by stealing.
If I don’t buy homeowners insurance and some arsonist burns down my house, I’m out $100k to rebuild. Is it punishing me if the government doesn’t bail me out? The government isn’t punishing me, the arsonist punished me.
If we want government coverage then we should enact laws to cover this kind of thing and raise taxes and fees accordingly. We can’t enjoy the benefits of low regulation when it makes us money and then ask for coverage after the fact. After we’ve reaped the benefits of no regulation.
What I’m saying is that the management are in no way impacted by what happens to depositors, these are separate issues.
If you want to stop mismanagement like this don’t repeal banking regulations and instead regulate banks properly, that has nothing to do with that the fed decides to do for depositors to stop contagion and ripple effects in other industries.
And what I’m saying is that managers knew this and paid themselves with funds that could have went to depositors. Depositors have the same right to be made whole as any other victim of a crime.
The government has fdic and insures up to $250k. That’s what our taxes paid for. If we wanted to insure depositors for greater amounts, we would have paid more taxes.
This was an eyes wide open situation. Depositors could have managed their large sums of cash better. They didn’t, choosing to save money. Now it sucks.
Another analogy would be that if a couple skipped life insurance and leased a Porsche. And now the wage earner has been murdered and the remaining spouse is asking the government to pay for their dead spouses wages, while still driving the Porsche.
This wasn’t a crime, it was a bank run because this bank apparently wasn’t great at managing risk and the risk free assets they bought are not as safe as they used to seem when they bought them now that rates have risen substantially, it could (and probably will this week) happen to other banks like First Republic. If the fed dithers today that seems a lot more likely.
EDIT - seems Signature bank has failed as well today, and the Fed has decided to guarantee deposits at both.
>If I don’t buy homeowners insurance and some arsonist burns down my house, I’m out $100k to rebuild. Is it punishing me if the government doesn’t bail me out? The government isn’t punishing me, the arsonist punished me.
The distinction here is that in this metaphor, the bank managers are both the homeowner and the arsonist.
I didn’t say that? I asked, what’s to disincentivize executives if the Fed backstopped all depositors money, now and perhaps in perpetuity? (Forgive me if I misinterpreted your position here. I have also edited this post for clarity.)
Which plan exactly? Yellen specifically said they have no interest in bailing out the bank itself and only care about depositors.
> “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said on Face the Nation.
> “But we are concerned about depositors, and we’re focused on trying to meet their needs.”
I think there’s confusion in this thread, as some are advocating that depositors be made fully whole, and some are interpreting Yellen’s comments to mean that’s what will happen.
Other laws, which have nothing to do with depositors and how to treat them. I’m confused as to why you think these two issues are linked.
I would hope these execs are prosecuted and any bonuses clawed back but that would be under the purview of a different agency (sec) not fdic, and is not an immediate concern, whereas a massive financial shock and 100s of companies closing due to lack of funds is.
I think the implication is that if you make depositors take some of the risk then they'll be more proactive in their oversight of their banks' executives. I'm not sure how realistic that assumption is in practice though ...
I’m not a lawyer, but it’s unclear to me - a random internet observer - that anyone performed anything illegal. It strikes me more as a bet gone colossally wrong, basic human mismanagement, capitalism in action, etc.
Aren't the execs in this case losing the vast, vast, vast majority of the money they old in the bank? I haven't seen anything that makes it seem like they're getting out of this unharmed, and especially not at anyone else's expense.
I also don't know how refusing to make depositors whole would disincentivize bas behavior by execs, anyway? Seems like two unrelated issues.
The depositors may have been able to borrow money at excessively favorable terms. For example, the bank lending money to businesses that otherwise would not have been lent to, or lent to at a higher interest rate. Or home mortgages for the business’s employees at lower rates, subsidized by the bank’s mismanagement (taking excess risks).
Actually, yes. Absolutely. Maybe with enough punishment these depositors will stop stuffing the accounts of these fat cats full of cash for them to "invest" and lose everything with.
How many global economic meltdowns do we have to go through before people learn that banks are literally the root cause of so many of society's problems? Depositors aren't being punished enough if they're still buying into this system. They keep feeding the beast and complaining when it eats them.
Every bank exec is a fat cat to some extent. People and businesses need banks no matter what, and they shouldn't be required to do exhaustive due diligence on every bank. This is the whole purpose of regulation; everyone benefits from oversight.
> People and businesses need banks no matter what, and they shouldn't be required to do exhaustive due diligence on every bank.
They're already required to do KYC/AML due dilligence on normal human beings. Why shouldn't they be required to do the same for the banks they trust their fortunes with?
