the point though they're making is that if they die, then it can massively affect the banks. The knock on effect could be huge.

Oh well, those banks should have had a backup plan </s>

The backup plan is state money.

No. The backup plan is to screw the people. Slash interest rates, eliminate fractional reserve requirements, and buy corporate bonds and securities.

Banks being bailed out has been national policy in the US since the Great Depression. Previous to that there were 3 national panics and bank runs, and banks were considered juicy targets for robbers as well.

The federal insurance program made it so people could trust in banking again.

Now I do think that the policy has gone too far. Bank investments should receive any bailout, those are part and parcel of the normal functioning market.

You don't have to worry about bank runs if you're not a fractional reserve bank. People were right to not trust banks, banks were fraudsters, loaning out money that wasn't theirs, then when people caught wind of it, the system collapsed.

The real laws should have been 'banks shall not loan out money from a depositor's account' and the problem would have been resolved. Investors could have loaned out money. Insurance could have protected against bank robberies, similar to how any kind of insurance works against theft today.

I disagree - their backup plan is getting bailed out. What you listed above is just standard operating procedure for them on a day-to-day.

In a situation like this, capitalism hits its limits. Don’t get me wrong, Im a thorough going capitalist. To me it’s simply a consequence of respecting individual freedoms and individual property rights. The rest of capitalism flows from those two principles.

In this situation though, when there is a threat to society as a whole either military or natural, there’s a legitimate role for society to pull together and coordinate our actions. That’s what government is for. All societies can benefit from consensus and leadership, especially in situations like this.

If their business model really fails, then fine, that’s because there’s enough value in alternative providers that these ones are no longer needed. However in temporary crises it’s possible that the process of dissolving businesses can leave a gap in the provision of valuable or even vital services that the market cannot fill fast enough. Markets are incredibly powerful, but they aren’t omniscient or omnipotent.

This is why although I’m a believing capitalist, I think there is a role for regulation and even bailouts in extraordinary circumstances. I’ll even extend that to individuals, a crisis can hit any of us just as it can hit a business. I don’t see that necessarily as socialism, just good management when done judiciously and proportionately. Ultimately it’s about fairness and good outcomes. I’ve no time for ideologies.

I’m fine with bailing out companies as long as the owners and managers forfeit all their equity.

It's not an easy thing to find out who did what - trying to figure out which managers and owners were purposefully over-inflating equity to secure larger loans (or whatever) from those who were duped by the other managers and were just trying to keep the ship afloat is a really hard problem.

And, in this fun world, you might find a terribly over-leveraged business where no one ever tried to act fraudulently but some vulture capitalist consultant helped "ensure access to liquid assets" and is now in Kiribati watching the world burn.

That’s why the above poster suggests all owners forfeit equity. The company survives but it is nationalized, at least temporarily.

In practice, I think we will see companies being sold off the friends of the sitting president, and powerful senators.

Today, at least they must at least pretend to be equal in their bailouts, which gives non affiliated companies a chance to receive money.

Yes I think that's reasonable. From an economic perspective what matters is the employment, goods and services the enterprise generates. Good management should be rewarded with equity and profits, bad management or poorly exercised ownership loses out. Nobody is owed a profit, but if they get the job right they are entitled to it.

If you are the owner or manager, it’s your job to ensure your business is appropriately funded. It doesn’t matters if you commit fraud, you also get to lose your equity for incompetence.