Deferring Risk and Taking Names by Justin Williams

The article of the Day is from a website I contribute to called Liberty Movement HQ:

Deferring risk is attempting to take a risky action that may bring a big benefit and putting the costs upon others. Those who may read this site are probably thinking about our current government bailouts, but I would like to look deeper into this problem. In particular, regulations that defers costs. One example of this is the Federal Deposit Insurance Corporation (FDIC), which insures a certain amount of a bank holder’s account. This is what I call the consumer bailout of 1933 as their website says that they were created because of thousands of bank failures during this time. Regardless of why you think the banks failed, this was a bailout for consumers in order to defer the costs upon the taxpayers.

This one regulation changed the way that people looked at banking forever. Like the way Medicaid recipients think of health care, people now think of their checking and savings accounts as a right. They believe that the bank should always be a safe place for them to put their money because they are insured. When you go to a barber, you exchange money for a haircut. You are exchanging your property (money) for a service (haircut). This should be no different than a bank. There may be chance that when you get your haircut, that they could do it wrong or cut you. This will not happen 99% of the time, but there is still a chance just like there is a chance the bank will fail. One way you avoid this is by developing a relationship with your bank and your barber. The other way is people like lawyers offer their services to prosecute in case of problem and there are insurance companies that offer insurance to the barber at a fee. All voluntary but important functions. This goes to show you that even without the FDIC there will probably be an insurance system, but banks will not be forced to join and the risk will not be deferred to the taxpayer.

Taking names is the after effect. It is when you feel harmed and you try to find who was responsible. When the barber cuts your ear, you know who is responsible. When your bank fails, it seems to the public that it is more than just the bank responsibility. They blame Capitalism, not the bank but they should. Banks are businesses! They are not some sacred invincible being that you park your money at. Now with the FDIC’s “protection” nobody cares about the business practices of their bank. If you knew that your barber cut off every other persons ear, you would not go. If you knew that your bank was making bad loans and losing money, you would not go.

So now who is to blame? The people who gave the first government bailout, also known as the New Deal. They distorted the market and reduced the incentive for consumers to check what their bank is doing. They basically gave out $100,000 dollar blank checks for every account to every bank and expected prudence. This is like handing a teenager a new car and expecting him/her to not drive it.

People will never see this because they would rather blame the “unknown,” Capitalism.

Published in: on April 7, 2009 at 6:23 pm  Comments (1)  
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One CommentLeave a comment

  1. It’s the first time I commented here and I must say you share us genuine, and quality information for bloggers! Good job.
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