"Don't want to sound like a fanboy, but I am with you. I'll buy it for sure, it's just a matter of for how long I will be playing it..."
- Silvast, Battle.net forums
Banks get together and say 'hrm, no one will put money in any of our banks because we might go bankrupt and not be able to give them their money back.' They all agree this sucks and that they should do something about it. So they set up an insurance company to insure their accounts. Banks sign onto this totally awesome idea to protect peoples money and charge people's account for the right to insure, say 1% APR. Then when one bank falters there is this giant insurance company that pays people for any lost assets because that's what the banks created it to do.
Hey look. Free market.
"Don't want to sound like a fanboy, but I am with you. I'll buy it for sure, it's just a matter of for how long I will be playing it..."
- Silvast, Battle.net forums
Blindy. fucked around with this message on 02-23-2009 at 12:33 PM.
quote:
Verily, Blindy. doth proclaim:
Do you yahoos realize that the FDIC is an insurance company that the banks have to buy into, the fees of which are either absorbed or passed onto the customers? Someone describe for the the functional difference between the FDIC being a for-profit corporation or it being a not-for-profit corporation underwritten and backed by the government in case something catastrophic and unforeseen happens.
Easy! One isn't the filthy socialist nanny state government meddling in affairs it shouldn't. 
At least admit these are purely ideological complaints rather than pragmatic
Btw 1% per year is an insanely high rate Noxhil2 fucked around with this message on 02-23-2009 at 06:56 PM.
Why should the government be in the business of insuring anything simply because they can't go broke? Why then don't all Floridians buy hurricane insurance from the Feds? Why doesn't the Fed do car insurance? Medical? Or to take the 'they can't go bankrupt' fallacy to an absurdity, run airlines because those might go broke as well.
Avoiding risk should cost something, and that cost made clear to the consumer. I'm required to have car insurance but the state doesn't pay for it. I know how much my insurance costs me and I behave accordingly. When you get FDIC coverage the cost is invisible. You don't know what that risk avoidance costs you. Instead because every bank pretty much has it, and you don't pay for it, you don't care what risks the bank takes. The government has your back after all. They can't go broke!
Note: I know that you pay for the FDIC costs in other ways. But it's hidden. Out of sight out of mind. Same way consumers pay corporate income taxes but don't care. It isn't a line item so it doesn't matter.
Also fdic accounts generally do cost something. You look at the difference in return between a money market account and a savings account and you can see it. Obviously the main hidden cost is the holding/inflation cost but I agree there's no particular reason to delve into that.
Edit: I'd also like to add that to some degree the federal government does insure against those things too except the cost is implicit. In a large enough disaster (see Katrina) the federal government steps in to mitigate the cost to those people and the private insurers which obviously can't handle such a massive event.
We use the federal government as an insurer like that because it truly is too large to fail. Private companies simply can't handle the strain of something like a financial system failure or an entire city being destroyed. The government may also be ill equipped to handle it but it can do something. Noxhil2 fucked around with this message on 02-23-2009 at 07:27 PM.
The reason fire departments are public is because when someone's house burns down it endangers more than just that person.
quote:
Blindy. had this to say about Pirotess:
If the fire department was privatized, people would realize the true cost of having a fire department, and people could choose to either have a fire department or not have a fire department.The reason fire departments are public is because when someone's house burns down it endangers more than just that person.
Here in Victoria, 80% of the CFA's funding is privately provided by insurance companies. It's good for their balance sheets in the long run.
If it is, as I suspect it would be, then the only difference is that in one case you're paying for your fire department via your local taxes, while in the other case you're paying for your fire department via your house insurance premium.
But in all cases, everyone who has a house has fire protection thrust upon them- why? Blindy. fucked around with this message on 02-24-2009 at 10:06 AM.
Now realize that financial meltdowns hurt more people than just those who caused or participated in them. Also realize that the modern financial system is so interconnected that you cannot completely isolate the failings of a single actor from others.
