I Don’t Have Much to Say about the Recent Bank Failures, but They Give Me an Opportunity to Rant a Little

It’s funny, when I first heard about Silicon Valley Bank’s failure, my initial reaction was, “Good.” Then, when Signature Bank failed, I also thought to myself, “Good.” And, when it looked like Credit Suisse was about to fail, I said, “Good.” Of course, the Swiss arranged for Credit Suisse to be absorbed by UBS creating an even bigger behemoth and I thought, “Bad,” but the bad was the fact that Credit Suisse wasn’t allowed to fail utterly because it was a “systemically important” institution.

One might think, from the previous paragraph, that I’m actively rooting for bank failures. That assumption isn’t wrong, but it needs to be tempered. You see, I’ve become an advocate, when it comes to the financial system, of scrap it and start over. I have the same attitude about our politics (see here, here, here, and here). I recognize that having all the banks fail, especially all at once, would be catastrophic. It needs to be a controlled demolition. But letting the scummiest of the scum-bag banks fail is a fine place to start.

Don’t I feel for the people whose deposits are wiped out? The short answer is no. That’s partly because, in this case, the government has stepped in to guarantee all deposits (Which they are saying isn’t a bail-out and will not use taxpayer money. I can’t quite figure that out.) I think that’s a bad idea. If risks never go bad, what incentive is there not to get riskier and riskier? But anyway, the answer is no more because of the FDIC. All banks are required to have insurance that covers all deposits up to $250,000 and I have a hard time feeling bad for anyone with more than $250,000 in the bank.

Think about that number for a minute. The vast majority of us don’t have $250,000 period. That’s more than five years’ worth of income for most people. Sitting in the bank. Do you know what we call people with at least $250,000 in the bank? We call them rich. They’ll be fine. I’m not an eat the rich kind of guy, but they can take their quarter of a million dollars and start anew.

Getting back to my main point, I don’t think a controlled demolition is going to happen without the vast majority of people demanding it. And the only way that many people are going to demand it is if they can see first-hand how bad the banking system is. It took the Great Depression to get any kind of meaningful banking reform. I don’t love the idea of another Great Depression, but I think it would be less catastrophic than what we’re heading towards now. Besides, most of us have too close to nothing to lose.