Quote:
Originally Posted by MysticCat
No, I don't. Feel free to explain, but please also include an explanation of how banks would always do the right (as in economically right) thing and the economy would be better off if there was no regulation.
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Let's see.
First off, banks are allowed fractional reserve banking. Do you know what fractional reserve banking is? That's when banks are allowed to only keep a certain percentage of your money reserved. I believe it's around 10% (I know it was in the 60's, I doubt it's changed much). So, if everyone went to the bank right now, the bank would only be able to give back 10% of your money. Well, this amounts to a Ponzi scheme. This is the sort of stuff that Madoff was convicted for. Now, that doesn't mean that the free-market would necessarily have prevented it. But this is the sort of crap the government does not apply to banks even though it does to humans. That said, in a true free-market system with no fiat money (this is from the Austrian theory, Chicagoans can disagree), the banks would no longer be able to lend money which they do not have.
Now, much of the argument against all what the Fed has done (because an Austrian would argue that the Fed shouldn't exist) lies in the previous statements. But even then, we can do a few critiques of the system. The Federal Reserve creates the boom-bust cycle (and is bad for the poor and the old, specifically).
The Federal Reserve (an anti-free market entity, as it is the regulation of our monetary system) kept interest rates artificially low (especially in order to aid government lending and Bush's economy). Well, when you keep interest rates artificially low (against the market rate), it makes it real easy for one to lend haphazardly without any cares in order to gain more money (problems with the fractional reserve, among other things).
Furthermore, the creation of a Federal Reserve in of itself (along with a willing federal government) has compounded the problems of the banks giving out willingly. Since the banks all pay into the FDIC, they're under the impression that they will be saved if they make crazy choices, no matter what happens.
I can go on, but the beer and melatonin is kicking in.
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