Liberal to a Degree

"

Here’s a clever idea.

Let’s start a bank. It will take deposits, promising to pay them back on demand. It will use the money to make short-term loans to borrowers it thinks are safe. If too many depositors want their money back quickly, it will sell the loans to somebody else, for face value.

Our bank will not keep reserves on hand to deal with what would happen if any of our borrowers failed to repay their loans. Keeping such reserves, you see, would be far too costly, and reduce the rates we could pay to our depositors.

Nor would we be willing to tell our depositors that they might not have instant access to their funds. That might scare the depositors away. We won’t pay fees for deposit insurance, but we hope our customers will assume that the government will protect them anyway if we fail.

That whole idea sounds crazy, but in fact we already have such banks. They are called money market funds, and they have $2.5 trillion in assets.

"

from this New York Times article on the major problems with money markets. (via govtoversight)

(via silas216)