No. of Recommendations: 14
The system was working as it should.
Really? What do you think would have happened if the Fed had done nothing? Or, as before the emergence of the Fed a hundred years ago? I'm thinking 'the system' would have seen a contagion of runs on many banks, whether they were sketchy or not, since people don't really know how their bank is run, what the annual report says, or if they did, what it means.
The system requires trust. Trust can be easily shattered, as we have seen with just a few individuals on the inside cashing out quickly, a few others (Thiel) advising clients to exit, and everyone else left holding the bag.
[I would like to see, as mentioned upthread, a minor haircut for those with supra-large deposits who 'should have known better', say on the order of 3%-5%, but even that I suppose would cause everyone to engage in a flight to safety - so it would produce the same eventual result, perhaps just more slowly and/or to diminished degree.]
Anyway, back to 'trust'. It's the same thing that lets airline companies proper: not every passenger has to talk a walk around the aircraft before every flight, we trust that someone else is watching (and even if we didn't, we wouldn't know what we're looking for anyway, to complete the 'walk around your bank's annual report' analogy.)
I'm glad they moved to contain the problem. Moral hazard, for sure. I don't know what else I would have done, were I one of those with the financial levers.
