I know what you're all thinking this morning, after hearing news of the collapse of the Silicon Valley Bank, a key "tech" lender. It'll be things like "When America sneezes, NZ catches a cold"; and "the whole financial system is interconnected so when one goes down, they all go down!"; and "all bank runs are bad, we have to have a bailout!"
Free banking expert Lawrence White disagrees with you. On that last, at least. "A run on an insolvent bank," he explains, "has the salutary effect of pulling the plug on a wealth-destroying machine." He continues, explaining the necessity that an insolvent bank dies:An insolvent bank has taken $100 in depositor funds and turned it into <$100 in assets. Hence it has [already] destroyed wealth. If not closed promptly, owners will gamble for recovery by taking risky bets, which will (more likely than not) destroy more wealth.
As a reminder, he points to the Savings and Loan fiasco, which destroyed billions.
A bank run is not necessarily a bad thing. Not when it stops the further destruction of wealth it isn't.
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