a) deposits are insured to a certain amount.
b) there’s a stronger case for the depositors to recover their money than the investors.
We, the American public, have now paid more than the GE payroll in lost yields, subsidies and back-door bailouts through the NY Fed.
The prospect of failure is necessary in capitalism. For banks to understand the real hazards of risk, they have to have failures to remind them that there’s a price.
a) Yeah, $250K. That won’t do a corporation with $100 million on deposit much good.
b) Yeah, eventually. But if large corporations can’t meet their obligations when they are due, then they are forced out of business. It would have been a catastrophic collapse of the economic system, with the entire Fortune 500 having to shut down.
The guys at the Fed understood what they were doing. They didn’t like to have to do it, but they did what was necessary to keep the financial system afloat.
Their mistake was not punishing egregious wrongdoers as individuals after it was over.