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[Adder]

Originally Posted by sebastian_dangerfield

You're mixing two issues. Banks are unique in terms of risk. But in terms of judging how banks are run, you judge them just like any other business. If a bank is well run, it is a success. If it is poorly run and requires a bailout, it has been run to some extent by losers, fools, incompetents. It is a failed business.

But you are correct that there is a justified "heads I win, tails you lose" element to banking. The Feds (or state if so chartered) will have to run in and save any bank going under. So unlike the guy who owns a business and can't make payroll, a bank will never crash and burn. At worst, it'll be forced to sell itself to some other bank or in an extreme situation it will be run off through a receivership. The same applies to insurers.

Adder was arguing that the banks in 2008 weren't failed businesses. That they were holding assets which actually had value. He's wrong. If the assets had value, the banks could have received loans in exchange for collateral positions, or even received unsecured loans based on balance sheet strength. But we know that wasn't true. We know that the banks in 2008 were loaded up with overvalued securities and collateral. They suffered a cash crunch. Just like a business that has tons of receivables which become delinquent, cash flow to these banks was outstripped by their obligations. And in that moment where a business doesn't have enough cash to keep going, that business has failed.

What is a bank run, even??