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It is different though. The FDIC would force the bank into receivership and return the insured money to account holders. That doesn’t exist for tether.
by phdp 7y ago
It is different though. The FDIC would force the bank into receivership and return the insured money to account holders. That doesn’t exist for tether.
- firekvz 7y agoWouldn't this just be the gov giving free money to the banks so they can pay?
- empath75 7y agoThey pay for insurance in case this happens.
- lugg 7y agoNo.. this only happens if the bank is bust.
- Scoundreller 7y agoGovernments have a long history of bailing out banks and other corps without zeroing their shareholders first.
- lugg 7y agoYes but these guarantees are only accessable in receivership.
- matt4077 7y agoNo. The money would come from the federal deposit insurance program, which is funded by the banks, not the government. The money would also be recovered over time, when the bank’s loans become due and other assets are liquidated.
- notahacker 7y agoIn general the money would come long before the FDIC get involved, because the role of the Fed (and other country equivalents) is ensuring that commercial banks can always borrow enough money to meet short term withdrawal requests if their loans aren't defaulting. Lending at n+x% because it can always borrow at currency at n% is a modern bank's business model. Needless to say this is quite different from having a business model where you don't have any right to borrow money and claim to be backing it 1:1 with actual dollars, but it turns out that the bulk of the not-necessarily matching amount of actual dollars you have is lent out to some other shady operation...
- nickelcitymario 7y ago> The FDIC would force the bank into receivership and return the insured money to account holders. Fair point. If a run-on-the-bank only occured at a single bank, that would work. And that's probably a more fair comparison to my example of everyone taking out their money at all the banks. But for clarity, my statement was that the money to cover everyone's deposits at all the banks simply doesn't exist. The FDIC can only cover so much insured money before they just plain run out.
- joshfraser 7y agoAnd if the FDIC didn't have enough money, the government would start printing it like crazy and the US would start looking more like Venezuela in a very short period of time.
- nickelcitymario 7y agoThank you. I shoulda just said "Venezuela", because it's the perfect modern example.
- bluquark 7y agoBank collapses happen during times of deflation. In that environment, printing money like crazy just returns the financial system to normal, low levels of inflation.
- shkkmo 7y agoVenezuela has more significant issues than "printing money like crazy"
- gamblor956 7y agoSmall amounts of inflation are a good thing. Deflation in a currency is almost always bad, and this is why limited-issue crypo like bitcoin will never replace real currencies.
- jellicle 7y agoThe USA can print as many dollar bills as needed, right? But Tether cannot.