Saturday, March 07, 2009

17th US bank nationalized this year - yesterday

There is such a lot of noise about whether or not banks in trouble should be nationalized. Yet it happens every day. Any bank which is truly on the brink of failure, in the normal course of events is taken over by the Federal Government so that depositors can be repaid. It occasions no outcry - in fact only approval. So it is clearly not nationalization itself which is the issue, but the size of the bank alone.


Jonathan said...

As a libertarian, and in principle an anarchist, perhaps I should comment on this.

I think most people assume that, if their bank collapses, the government should "do something" so that they don't lose money. If the government wasn't there or refused to do anything, people would be more wary of putting money into banks, and presumably more inclined to keep it under the mattress.

The way forward without government backing is that banks could enter into agreements amongst themselves to safeguard customers in the event of disaster. Such agreements are of course optional, but they would tend to make a bank more attractive to customers.

Or banks could buy insurance; that would be another similar mechanism.

My point is that it's not actually essential for the government to be there and to step in. But because the government is there, and people have the mental habit of expecting it to deal with things, no-one else bothers to do so.

Jonathan said...

P.S. If the whole financial system went under, then maybe the lesson people would and should learn is that that, contrary to received wisdom, you really are better off keeping your money under the mattress.

If these highly-paid financial wizards can't keep things going without government intervention, then what are we paying them for?