I haven't taken an economics class, but I'm not sure how to refute the popular theory that nobody trusted Banks because of the lack of regulation and fractional reserve banking.
So I was debating with my egotistical friend, who came to me about it because his economics professor tore apart Ron Paul's book in class, and debunked all the libertarian myths about the Depression. FUCK I am pissed.
What, in detail was it that caused it?
Him:try reading a textbook
So let me get this straight.... Your "friend" takes a class, where the professor spews one-sided vitriol that arouses an emotional response from him, and he suddenly thinks that he's the unfalsifiable master of economics and the universe?
I'm guessing he does this every time he looks at a Wikipedia page.
When dealing with people like this, you can't rely on blanket statements like "in truth [blah blah blah]". Establish a set of factual records by which you can both verify or deny the veracity of each others' statements.
Statements like "no one trusted the banks without regulation" are incredibly stupid. First off, American banks have always been both regulated AND protected, if not at the national level, then the state level. American banking history is rife with laws allowing banks to suspend redemption of notes, as well as creating central banks and national banking cartels. Secondly, there has never been a period in history when the banks were blatantly not trusted and subject to constant bank runs.
Larry White and George Selgin have posted some very powerful information about why thousands of American banks failed in 1930-33 vs. 0 in Canada. For one, states were granting banking holidays, which basically froze the banks. Depositors could not withdraw their money, nor could they claim a share of the bank's assets through bankruptcy proceedings. There was rumors FDR would do this nationally. Also, there were rumors that FDR would debase the dollar. This prompted depositors to run on the banks. The rumors proved true, and FDR debased the dollar 44%, a quite substantial amount. And finally, branch banking was outlawed in America. Canada did not make these mistakes and no banks failed, despite a massive deflation of their money supply, a greater drop than in America.
Here's a better explanation:
http://www.richmondfed.org/publications/research/region_focus/2009/winter/full_interview.cfm
So to suggest that a lack of regulation caused the bank runs is false. If anything the opposite is true. The federal reserve DID have regulatory authority over its member banks at the time. It regulated them (and itself) poorly.
And to suggest deposit insurance is both limited to bank profit and effective in creating bank stability is not backed by any evidence. The S&L crisis is the primary example. Depositors put their money in whatever S&L offered the highest rate, independent of risk. At the same time, they were regulated to only hold 30 year mortgages as assets. So when interest rates spiked, they had to pay more to depositors to receive deposits that regulations forced them to hold than their borrowers owed them on outstanding loans.
So just call him a cheerleader for a lie that the government and public schools want him to believe. If he wants to discover the truth, tell him he better look at facts.
Check my blog, if you're a loser
My irony-o-meter was pegged by that guy.
Knight_of_BAAWA: My irony-o-meter was pegged by that guy.
Elaborate on that more, is that aimed at me or him?
Sorry, but where's the argument? All I see is a condescending prick.
To darkness I condemn you...
Jon Irenicus: Sorry, but where's the argument? All I see is a condescending prick.
He's like that with me all the time. No idea why, he doesn't regard me as an intellectual at all.
He isn't much of one either. If he can't talk to you without being derogatory ignore him. Not worth your time.
Democracy for Breakfast: He's like that with me all the time. No idea why, he doesn't regard me as an intellectual at all.
Why would you bother to associate with such a fellow? Also, for such an 'intellectual' his spelling is quite poor.
Anyway, if there were any kind of consistent argument here we could respond. There isn't. For example, he states that banks should be free to fail but then later asserts that if the Fed didn't bail out banks we would be worse off than we were in the Depression.
How is he wrong about that? Other then that the banks were allowed to act on their own during the depression, its just the low interest rates, raising of tariffs, and inflation of the dollar were the reason for their bad investments.
mhamlin: Democracy for Breakfast: He's like that with me all the time. No idea why, he doesn't regard me as an intellectual at all. Why would you bother to associate with such a fellow? Also, for such an 'intellectual' his spelling is quite poor. Anyway, if there were any kind of consistent argument here we could respond. There isn't. For example, he states that banks should be free to fail but then later asserts that if the Fed didn't bail out banks we would be worse off than we were in the Depression.
He didn't say anything about bailing out the banks, he said the Fed is necessary to make sure the banks keep money, so that it doesn't turn into a situation where nobody trusts banks like in the Stock Market Crash.
Democracy for Breakfast:Elaborate on that more, is that aimed at me or him?
You are correct, I misread.
These are just a couple of problems I noted during my cursory read...
Him: the fed requires banks to keep X amount of dollars are all timesHim: to make sure if you want your money back
The Fed obviously does not require banks to keep full reserves, this point is wrong.
Him: no it doesn't our government prints & borrows moneyHim: without the fed
The Fed does buy treasury bonds...it does lend to the federal government.
mhamlin: You are correct, I misread. These are just a couple of problems I noted during my cursory read... Him: the fed requires banks to keep X amount of dollars are all timesHim: to make sure if you want your money back The Fed obviously does not require banks to keep full reserves, this point is wrong. Him: no it doesn't our government prints & borrows moneyHim: without the fed The Fed does buy treasury bonds...it does lend to the federal government. Of course the biggest problem with his argument is that he doesn't actually make one. He seems to assert that without the Fed to "garuntee" deposits no one will trust banks => we will be in "one hell of a depression." I would love to see the actual logic there. Of course, banks existed long before the Federal reserve. Without an external agent "insuring" deposits banks must act with greater caution and demonstrate their trustworthiness. People would not blindly trust banks because they are "insured"--this is actually a good thing.
Then why didn't people trust banks in The Great Depression? Why did the banks spend all of their customer's money?
More
Democracy for Breakfast: Him: and the fed INSURES your money Him: so when fucking dumb banks lose all that money they invested Him: it comes out of their profits Him: & you are still GARUNTEED Him: to get the money back
Really? I had no idea the FDIC was the Federal Reserve. Gee whiz.
And the FDIC(Fed???) comes in to save the day and takes the banks profits when they lose to cover your deposit. And I can't believe I used to think that the FDIC money was already there from taxes on bank transactions.
Democracy for Breakfast: Him: if you get rid of the FED Him: we'll be worse off than in the 1940's no one will trust banks & we'll be in one hell of a depression
These banking panics started in the 40's???
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