Rolls-Royce Radicalism

Good point (albeit not for the reason Nate thinks):

How about just letting the banks fail, as Senator Richard Shelby, the Ranking Republican Member on the Senate banking committee suggested that we do? Bzzt. Banks don’t just disappear in this country when they become insolvent. Instead, the government steps in, protects the depositors up to the $250,000 FDIC limit, sells off what assets it can, and then gives the proceeds from those asset sales away in a particular order … depositors who were over the $250K limit get the rest of their money back first, then creditors do, then debtholders, then, finally, stockholders (see example here). The government, by the way, doesn’t wait for a bank to actually fail before doing this; it steps in almost literally in the dark of night (usually over a weekend) once such a failure appears inevitable or substantially likely. So ‘letting the banks fail’ is tantamount to nationalization anyway … albeit perhaps a more chaotic version of it.

In other words, the US financial system to a large extent encourages and accepts insolvency, in exchange for a half-assed safety net for those affected when the insolvency becomes too obvious for even them to ignore — and an excuse to further concentrate banking.

When a Republican says “let the banks fail”, they’re using pseudo-populism for political benefit, knowing damn well that nothing of significance is changing.  People who question the logic of the current system itself — radical libertarians — should be careful to clarify that this is nowhere near the point: IMO, it’s more accurate to say that the banks have already failed, in more senses of the term than commonly discussed.

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About b-psycho

Left-libertarian blogger & occasional musician.
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