Banks used to fail all of the time with depositors losing assets. This caused a lot of problems, so we enacted some regulation.

Now banks still fail (several weekly, without much notice), but depositors have mandated insurance.

Are you against that?

If depositors didn't have mandated insurance, they would pay more attention to the credit-worthiness of the bank they work with, and we might have avoided the 2008 debacle.

It seems that the health of the bank is something which is actively obfuscated. Saying "buyer beware" is like telling people that they should be responsible to make sure that the cars they buy are safe enough, or to make sure that the restaurants they eat at have clean enough standards in the kitchens. That's the entire point of regulatory inspections: No one can afford to be attentive to that level of detail or be an expert in everything.

I agree people cannot be attentive to everything.

HOWEVER, people can be a lot more attentive now then they could ten years ago (for example, online reviews of cars/restaurants/etc) and in ten years they will be able to be even more attentive.

If we do things that foster attentiveness, everyone will be better off.

> HOWEVER, people can be a lot more attentive now then they could ten years ago (for example, online reviews of cars/restaurants/etc)

Its a good thing online reviews are reliable sources of information with transparent provenance that neither the company itself nor its competitors spend substantial efforts loading with false-flag propaganda.

Or, at least, that's a good thing in whatever alternate universe it is true in.

The average consumer doesn't understand banking well enough to realise they'd receive a better interest/fee/overdraft/etc structure at half a dozen other banks that actively market their more favourable interest/fee/overdraft structure, never mind well enough to understand the bank's exposure to complex toxic assets that couldn't be grasped by professionals paid orders of magnitude more than them specifically to quantify that risk.

Why not just use a bank that doesn't do any outside investing and keeps all the money inside the bank?

Then you don't need any "experts".

(To answer my own question: These types of banks don't exist because FDIC insurance makes them unprofitable)

If depositors didn't have mandated insurance, they would have magically had the time and inclination to learn about credit default swaps and see the dangers in the system that many people who do that for a living were unaware of?

Sure: If I didn't have mandated insurance, I would bank with the bank that maintained a high fractional reserve- It's obvious to anyone that you'd want to do this.

Banks that handled credit default swaps surprise had the lowest fractional reserves.

Of course. Next time I'm choosing a bank I'll be sure to pay close attention to the part of their brochure where they say what their fractional reserve is.

You don't have to, because of FDIC insurance...

...and now you know why things went to hell in 2008.

That's a completely different take on the financial crisis than anything else I've read. The history of the financial industry is one of the industry finding ways around existing regulation, over-leveraging itself, and then crashing.

Financial panics were a common occurrence before there were regulations. You're saying that less regulation would create a more stable system, but that historically has not been the case.

In other words, for what you're proposing, we tried it and it didn't work.

Actually, we sorta tried this between 1850 and 1920, which is pretty much the highest GDP growth time period in the history of the US.

Which also included a financial crisis and recession roughly every 10 years and ended with the Great Depression. How much faster would the economy have grown if it hadn't been plunged into recession once a decade?

http://en.wikipedia.org/wiki/Financial_crisis#History

Growth might have been faster or slower, who can say.

Its pretty clear that whatever not having mandatory insurance does, it doesn't suddenly imbue consumers with the insight and skill to manage their deposits in a way that avoids widespread catastrophic bank failures and attendant losses. This has been tested in the real world.

> If depositors didn't have mandated insurance, they would pay more attention to the credit-worthiness of the bank they work with, and we might have avoided the 2008 debacle.

Or, more likely, the 2008 debacle (a consequence, in large parts, of removing regulations that addressed contributing causes of the 1929 debacle) would have looked more like the 1929 debacle (since you then would have also removed a regulation designed to mitigate the effect of events like the 1929 debacle).

The absence of regulation of credit-worthiness of banks doesn't give the average depositor either the time, inclination, or skill to evaluate the credit-worthiness of banks, especially when, as was actually the case in the 2008 debacle, information relevant to that is actively being concealed under many layers of obfuscation.

The fact that people still kept funds in Mt. Gox is proof enough of the absurdity of this position.

I didn't keep my funds in Mt. Gox, due to the risks involved.

It's hard for me to judge from my position whether others who did used bad judgement or simply were unlucky while taking a calculated risk.

The bond holders and shareholders didn't have insurance nor did the counter parties (mostly other banks)[0] but didn't effectively assess the risks despite thousands of analysts between them. How could/should a retail investor with a few hundred or thousand dollars assessed the bank's creditworthiness? A few analysts, economists and traders saw it coming but most did not.

[0] I know they were largely bailed out but there was no promise in advance (and we probably agree that they shouldn't have been bailed out to the extent that they were.

Simple: You go to a bank that isn't taking these risks to begin with. (Such banks don't exist now because FDIC insurance means there's no money in creating such a bank.)

Even in such a case how do you evaluate the quality of the loans leant?

There is no way I have enough time in my life to fully understand how the banking system works to judge their worth. And I suspect those in power prefer that the masses don't have that understanding either.

I barely understand how my Honda Civic works.

You can't look online and find info from more knowledgeable people on whether the Honda Civic is a good car?

Sure I could do that. That's how I ended up with a Honda Civic. I can also ask my friends if they like Bank Of America or CitiBank or whatever; but to truly understand the health of a bank... I'd need a degree or something.

No, you just go to a bank that maintains 100% fractional reserves (if you don't wan't to take on additional risk)

No degree required.

Easier said that done apparently... http://www.ronpaulforums.com/showthread.php?148961-Any-Full-...

I'm having trouble understanding how such a bank would be profitable; assuming banks need to be profitable to justify their existence.

They're not profitable because of the existence of fdic insurance.

> They're not profitable because of the existence of fdic insurance.

Even without FDIC insurance a bank with 100% fractional reserve couldn't be profitable (or even operate), unless accounts had negative interest rates, as it couldn't loan money out from deposits to earn revenue.

Yes I'm against mandated insurance. Some enterprising group of young people will be able to make a decent living evaluating the viability of bitcoin (and dogecoin, etc) exchanges and selling the information in a monthly email. So much win. So little compulsion.

The implicit corollaries to this are a) that anyone who wasn't capable of recognizing the exchange as poorly run (eg anyone who isn't a programmer and can't see past the friendly corporate graphics on the landing page) deserves to lose whatever funds they were stupid enough to trust to that institution, and b) if the (alleged) 6% of all extant BTC that went missing turns up in hands of some unknown actor later, well that's nobody's business.

> "anyone who wasn't capable of recognizing the exchange as poorly run (eg anyone who isn't a programmer and can't see past the friendly corporate graphics on the landing page)"

I don't think that being a programmer was necessary to be wary of MtGox.

MtGox was being called out in strong terms as long as 3 years ago on HN and bitcoin forums (https://news.ycombinator.com/item?id=2676263). This sort of knowledge certainly should have found it's way to "non-programmers" at least in the past year.

Trusting MtGox during the past year wasn't a matter of not being a programmer. It was a matter of being an idiot.

Do idiots deserve to lose their money? No. I agree with the rest of your comment.

>I'd love to see the entire financial system operate under a meritocracy such as this.

It does. Banks fail every day. Hundreds of banks since 2008.

Oh, I'll bet you're talking about the TBTF banks, that were kept afloat with some interesting finance to prevent the global system from collapsing.

I laugh every time someone says they should have all failed. I don't think people realize who, exactly, loses when banks go out of business. Hint: It isn't Jamie Dimon or Lloyd Blankfein (though they would temporarily lose their jobs). It's everyone who owns shares in the bank, everyone who owns bonds of the bank, everyone who works at the bank, everyone who banks at the bank (yes, FDIC covers some, but that itself is a bailout), pension funds, pensioners, insurance users, and on and on. These aren't some rich "banksters", they're your friends and neighbors.

> I'd love to see the entire financial system operate under a meritocracy such as this.

You might think you would, but I suspect you would not.

In other words, "I disagree with you."

Could you add something to the discussion? A real argument, perhaps? Nobody called for a hand-raising of who was for or against economic regulation.

Actually, I'd say it's more snarky than "I disagree with you", it's "you haven't thought this through or you would disagree with you".

If you like analogies, consider the difference between using an old, creaky, but battle-tested codebase that handles mission-critical tasks, and saying "we should just throw it all away, build a quick and dirty open source replacement, and let people fork the heck out of it". Old crufty code contains lots of horrible crap, but a lot of it is there because it's necessary. Replacing the financial system with some kind of anarchy -- meritocratic or not -- is going to have the same effect, and we can't afford for something as critical to everyone's wellbeing as the financial system turn into an unstable Darwinian mess.

In any event, I was going to write an essay, but a one-liner was funnier.

So you're saying that Bitcoin is so volatile and risky that only a fool use it?

Noted, thanks for the warning.