If you've been listening to the political economic talk in the last couple of weeks then you know that financial experts are telling the public not to worry about the possibility bank-runs. A bank run, in the old days of the depression, was cascading effect where in which many customers withdrew money in fear of the banks failure.
Since then the federal government has taken measures to insure bank customers up to 100,00 dollars so that people can feel confident in their financial institutions. Without that capital banks can't lend to businesses and take out mortgages.
An article written in The Disciplined Investor has risen a few good points about federally backed banks and banks that aren't completely insured. The jist of the problem is basically in the fact that individuals will spread out their assets to cover the amount of money the federal government will repay in the event of a catastrophe.
Recently the government has increased the amount of insured dollars to 250,000 dollars. It should be noted that this article was written about a month ago and the increase was only done a few weeks ago. Still the problem remains. People will still attempt to game the system and millionaires will spread out their assets to insure financial security, especially in these times.
Not every single bank is insured by the federal government. One of the biggest problems that poor people have is getting access to credit and homeless people rarely have bank accounts. The banking industry has used sub prime loans to bring in those lower paying people into the market.
My question is this: now that the financial market is in turmoil does the new 250,000 dollar insurance and 700 billion dollar bailout only ensure financial security for the well to do?
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I don't see how it would only ensure financial security for the wealthy and not the poor. If people don't have their money in the banks they don't have to worry about it being secured because no one has to pay it back to them. The only thing they are losing out on is the interest rates. Also, one of the benefits of millionaires spreading out their money is that it is helping more than just one back to be able to function easier. If they had it in one back that back would be fine for lending, but maybe other banks would be suffering. With it spread out, while it does decrease the willingness of that one back to loan a lot more money, it will increase the ability of a few banks to loan slightly more money.
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