I am having a hard time grasping what it means for a bank to be insolvent and its consequences. In principle, I understand insolvency as meaning to owe more than you have but how is this the case with banks and what are the negative consequences?
For example, the owe money to their depositors but deposits up to $250,000 are insured by the FDIC (and I would think that on one would put more money in a bank than was covered by insurance. They "owe" money to their stock holders but whatever loss the stock holders take is their own fault. Sometimes you gamble and win, sometimes you gamble and lose. (Besides, stockholders still have a claim on the physical property of a bank.) They owe money to other people/organizations that they have borrowed money from based on some inflated assets. If a bank can't pay these people back, so what? These people also become insolvent. So what? It is all fictitious in the first place and billions have evaporated from the stockmarket. Why can't the same thing be permitted to happen with banks - a kind of cleansing of the financial system instead of trying to prop it up. I think the only thing that matters is that banks should be able to pay depositors.
But I do not understand these things. CHAD _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
