How do folks think this could have gone down otherwise? The assets that backed these deposits didn't disappear, they were lowered in value. As such, they got sold to someone else that can afford to hold on to them to maturity and wait for them to possibly even go up in value.
Assuming the world doesn't go to zero, that means a, by definition, very rich entity would get even richer by holding on to these.
Worse, it would have created a race to get your funds out before you couldn't. At which case, it would have certainly screwed up other fundamentals.
Worse still, if you do start auction devaluing of treasury bonds, that will reach so far into the economy that it is hard to really state.
> Assuming the world doesn't go to zero, that means a, by definition, very rich entity would get even richer by holding on to these.
And the very rich entity that once held them but lacked the liquidity to keep them would get a lot poorer. I'm pretty sure that's how capitalism is supposed to work. They're being rewarded for how well they handled risk. If banks, or any other investor/depositor aren't supposed to be rewarded in return for dealing with risks that the government doesn't want to or isn't equipped to take on, what exactly are they being rewarded for?
Government backstops are a license to print money for the people positioned to take advantage of them. Insurance on accounts <$250K is required in order to protect boring deposit banking from runs. If the lack of insurance on accounts >$250K is a bluff, and the state is always going to save them anyway, pricing this in amounts to a direct wealth transfer.
The idea that the degree to which this wealth transfer is necessary should be directly proportional to how wealthy the recipients are (the more to be lost, the more "systemic risk"), is perverse.
But that happened? The very rich entity that held the assets was literally dissolved. With all shareholders in SVB wiped out.
The depositors, to be clear, NEVER held the assets under question. They deposited money into the bank that let the bank purchase the assets. At that point, the depositors are not assets of the bank, but liabilities.
Now, the bank's assets dropped in value so that they could not cover their obligations to their depositors. The bank was dissolved accordingly, with their assets sold to another bank. You are wanting to also have their liabilities dissolved, such that the depositors are also somehow punished?
> The depositors, to be clear, NEVER held the assets under question. They deposited money into the bank that let the bank purchase the assets. At that point, the depositors are not assets of the bank, but liabilities.
You're saying two opposing things here. The depositors put money into the bank in return for interest payments. They're liabilities to the bank, not to themselves. They hold bank debt.
I'm not following you. I never said they were liabilities to themselves? The depositors are liabilities of the bank, as the bank is obligated to return the money.
I can remove all pronouns from what I wrote. "The depositors, to be clear, NEVER held the assets under question. The depositors deposited money into the bank that let the bank purchase the assets. At that point, the depositors are not assets of the bank, but liabilities.
Now, the bank's assets dropped in value so that the bank could not cover the banks obligations to their depositors. The bank was dissolved accordingly, with the banks assets sold to another bank. You are wanting to also have the banks liabilities dissolved, such that the depositors are also somehow punished?"
Assuming the world doesn't go to zero, that means a, by definition, very rich entity would get even richer by holding on to these.
Worse, it would have created a race to get your funds out before you couldn't. At which case, it would have certainly screwed up other fundamentals.
Worse still, if you do start auction devaluing of treasury bonds, that will reach so far into the economy that it is hard to really state.