Absolutely true, and I would be happy if we didn't have it. But we do have it, and because we do, there are numerous responsibilities. Government must regulate the banks (to assure adequate reserves, monitor the quality of the loans banks make, etc). In this responsibility, the government has failed (partly by negligence, partly by design. There's no need to re-hash the disgrace of Fannie, Freddy, and the Community Reinvestment Act, all of which contributed significantly to the present mortgage meltdown).Deposit insurance is a corruption of the free market
Again, I wouldn't have been in favor of the increase in FDIC deposit coverage. Still, the government assessed a fee to banks for the coverage, and those fees will rise along with the new cap. To the degree there are shortfalls, all taxpayers will foot the bill. This part isn't priced into the product, but at least it is keeping faith with the iron-clad guarantee made to depositors by the government. In many of these discussions people reference depositors, stockholders, bondholders, and "the financial institutions" as all being somehow equally deserving of a government safety net--I resist this notion.Priced into the product? At what price? Didn't I just get a $150K increase in my insurance without doing anything or paying for that?
"Institution" was your term, not mine. Investors have hundreds of choices as to where to put their money. Does commercial paper generally pay more or less interest than an FDIC insured bank account? And the reason the FDIC account can pay less is because of the government guarantee.You also mean we consumers really have a choice to go to an uninsured institution for deposits;
It is clear that "Too Big To Fail" is just shorthand for: "We don't want to think about it or even discuss it. No. Don't even consider it. Must preserve. Really. No matter what the cost. Only idiots talk about folding this tent. I'm serious. We're bigger than God. Put down the telephone."
The truth is, if a failing institution really IS so big that it's failure would demand immediate government propping up in perpetuity, then that is, in itself, sufficient reason for the government to nationalize it (because the government is effectively underwriting it anyway) and rapidly splt it up into "not too big to fail" parts as a means of mitigating risk to the entire financial system.