The Market Ticker
Commentary on The Capital Markets- Category [Bank Reform]

Let's cut the crap, shall we?

There is a common but intentionally false statement peddled around when it comes to banks in the general sense -- they are always unable to meet withdrawals should everyone show up and want their money.

That is, they inherently "insolvent" and thus require confidence at all times so that the depositors won't do that.

This is a lie.

A solvent bank can always sell it's assets (loans) for more than it has in liabilities (deposits.)

Always.

It therefore is in no danger of failing no matter how many people want their money.

Now it may well be true that if lots of people withdraw their money the bank will get a lot smaller, and therefore if it's a publicly-traded company the stock price may go down (a lot) due to the shrinkage in size, but there is no danger of the bank "running out of money" because it can always sell assets off in order to meet depositor demand for funds.

The only way this is not true is if the bank is lying about the value of its assets (loans); that is, it is claiming that it has loans valued at $X, and that $X plus the cash on hand is greater than the amount of deposits it has taken in, while in fact the sum of cash plus $X is lower than the amount of deposits taken in by the institution.

In that case we don't just have an insolvent bank we in fact have an act of theft from the citizens as a whole because the bank has in fact undertaken an act exactly identical in effect to counterfeiting.

That's not a mistake, it's not insolvency, it's theft.

In a just society you don't bail thieves out -- you imprison them.

Now about all those banks in Europe that everyone is "worried" about......

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