Think Your Money is Safe in an Insured Bank Account? Think Again - Ellen Brown

Who should bear the loss in the event of systemic collapse? The choices currently on the table are limited to taxpayers and bank creditors, including the largest class of creditor, the depositors. Imposing the losses on the profligate banks themselves would be more equitable , but if they have gambled away the money, they simply won't have the funds. The rules need to be changed so that they cannot gamble the money away.

As usual with an Ellen Brown article, many good points are made, but then the grand finale is "we should just nationalize the banks more completely" (turning them into public utilities -- in America!) , and, for good measure, "the central bank should just write off the bad debts" (as if there are no consequences to this, like destroying the currency all that much more thoroughly).

Around here, we think it is pretty blindingly evident that (a) there should be consequences for depositors for putting their money in a bad bank (this is really the ultimate market discipline, after all); (b) there should be consequences for the bad banks themselves (namely, not being bailed out), and (c) hard money should be the basis of all, so that the perpetually out-of-the-loop Average Joe actually has a fighting chance to build up durable savings that aren't anyone else's liability.

This isn't to say that Brown's idea for public banks is a bad one per se, or that Sweden didn't have a better model for how it handled its early 90s systemic banking crisis, but it seems far more likely to us that further "nationalizing" the US banking system is likely to simple kick the problem down the road, and for good measure, allow it to snowball in size (especially given the extreme regulatory capture in the US).

Amusingly, Brown et al. seem to perpetually miss the point and fail to connect the lack of practical risks for depositors to the need to provide endless, growing support to banks writ large (at the national level). Banks can only truly be "secure" if they evolve through a process of market discipline (fear of depositor flight) to become so. Even then, of course, they are not perfectly risk-free. But a state that runs the whole banking system is not risk-free either... though it may convert statistical risks into taxes that everyone always has to pay.

If there is any doubt that "nationalization" cannot magically sweep the problems under the rug, remember that the Landesbanks in Germany (state-sponsored, regional banks) virtually all had to be bailed out in the wake of the 2007/2008 crisis.