If banks aren't allowed to fail then they become some kind of protected entity. Are you saying we should just let it happen?

That’s kind of the opposite of what I’m saying.

We need a secondary class of banks: ones that don’t leverage their deposits into investments, but rather simply keep people’s money safe.

That way you can choose your bank. Do you want a bank that will actually yield return on your deposits and pay you back in kind or do you just want to keep your money safe? It would effectively bring back investment carried savings but also allow people to store their money in safer banks with actual deposit insurance if that was their goal. The problem is that a bank is a bank and we don’t know what their business priorities or risk calculus is in any meaningful terms, so how are we supposed to choose a “safe” one?

There’s a theory that if there was such a bank, all money would flow to it making all of the other ones insolvent, in turn the financial system would collapse, since no bank has enough. The whole industry is just a house of cards.

There was actually a recent case where one bank (Custodia) tried to do this - they wanted to charge fees instead of gambling with their clients money. But the FED denied their application. They say it’s because they wanted to service crypto companies - but how would that even be a problem if they’ve always got all the deposits at hand. It smells fishy.

Why would all the money flow there? Assuming the $250k insurance level remained the majority of Americans could happily keep their money in riskier banks and earning interest instead of paying fees.

Most of the money in the system is well in excess of $250k accounts though. And the FEDs insurance fund is laughably small. Not a lot of people have to move there money to cause a major cascade (see SVB for example).

There are legal changes that could be made to safely support that in different types of accounts without requiring customers to switch banks. In my view anything referred to as a deposit should be insured in any case, but there are other possibilities for making a conservative return.

I've heard this suggestion in lots of places - mainly silicon valley people who didn't really think about banking a lot until the collapse of SVB (the All-In podcast had a monstrously bad segment on this for example).

The problem is that those suggesting this aren't really engaging with how our finance system works. What they're saying is "I don't want my money at risk" but what they're proposing is "I don't want to ever be able to get a mortgage". They're saying "I'd be happy with an account that doesn't pay interest" but actually, if this product was offered, you'll likely find people still opt for the interest paying accounts that have risk because they aren't really capable judging that risk.

It's also just quite a difficult thing to imagine happening, can you imagine it - out comes this product from a bank "100% backed, guaranteed not to default, 20bps charge, 0 interest", and let's imagine it really is popular and capital flees to it. You've just caused the single biggest run on the US banking system in history. How do you mechanically actually make this work?

If you decide to give someone else money, you have a responsibility to think about whether you are likely to get it back.

These bankers are dangerous idiots who are destroying millions to billions of value. It is a terrible idea to start handing out free passes to the people who enable them - ie, depositors. It is easy to imagine a bank that doesn't have bank runs - 100% reserves. If a person is going to put their money in banks well known to be a house of cards then they have some responsibility to pay for when the cards collapse.

We cannot sustain a system were people just donate money to Joseph Gentile again, and again, and again. They have to stop doing that. And losing money is the only way to make that happen, anything else will let too many cockroaches through the screen. Instead, the proof in the pudding right now is that he is one of the safest people in the world to give money to!

We don't give anyone a free pass, we have a regulator tasked with ensuring banks don't fail on behalf of depositors.

The emergency-interest-rates-for-10-years regulator? The ones who just set the big interest leaver from "free money for idiots" to "drive the economy into the ground" to trigger all the excitement this year? Or is it a different regulator for banks?

These regulators are the ones driving the market to take these stupid risks, they slowly drive out anyone who tries to make sane decisions by giving handouts to people who insist on setting their own money on fire. They're systemically removing the major incentives for people to think before acting.

There is an easy, sustainable path to a robust system here that creates wealth - stop making prudent investors pay for the reckless risk takers. That means we don't just pay out people who give no thought at all to what their money is funding.

Adorable. You know it's regulators that are declining banks with 100% backed deposits?

Regulatory capture is more dangerous than no regulations because of naive people who dont see the graft despite it getting worse every year, decade after decade.

> Can we all just agree

> 2) it’s not ok for people who put their money in banks to lose their money.

No, we can't agree. It's absolutely OK for the people who lent their money to banks to lose everything too. They shouldn't get bailed out at all.

> Why don’t we just have nationalized banking? I mean, seriously?

Yeah, governments with absolute visibility into and complete control of every single financial transaction. What could go wrong?

It is not good to make "keeping money in a bank" a dangerous operation with information overhead. That imposes both information and administrative costs on everyone just trying to do business in the entire economy. This is a deadweight loss.

It's not good to bail out the very people who enable these bankers and their "safe investments" either.

There is no such thing as "keeping money at the bank". People lend their money out to bankers so that it can be "efficiently allocated" and generate interest. If they don't realize this, that's their problem. If you want it to be a risk free operation, then say so. Say that you want fractional reserve banking to be outlawed. I'll agree with you.

> Say that you want fractional reserve banking to be outlawed. I'll agree with you.

Irrelevant what you and I think, forcing a system which will charge people rather than pay interest is unlikely to be popular with either customers or voters. As is causing random mom-and-pop depositors to lose money.

Popularity is irrelevant. This is what is right and how things should be. Obviously nobody wants to be held responsible for anything but that's not how society works. People must be held responsible for their actions and lending money to a bank is one such action. Anything else means everyone's paying paying the bill every single time some banker's "safe investments" cause an economic crisis.

Why the hell doesn't the government come running to bail us out when we lose money? I want special banker privileges too. Maybe the government should bail out Tether as well and put an end to those "unbacked" concerns. It's for the best, right?

> 2) it’s not ok for people who put their money in banks to lose their money.

The only way to fix this is to ban fractional reserve banking (FTR: we have now something even worse than fractional reserve banking because now the deposit guarantee required is 0%, which means it's not even a fraction anymore). Good luck with that.