Jack is correct there is no reason to suspect an economic collapse will have an adverse effect on paper trading profits. Paper traders should be be immune.
To be fair to the fed the money printed is put back into the economy. The only unfair thing is who receives it, it is mainly banks and insurance companies that received the proceeds of quantitative easing, perhaps a more distributed method or investment into new business would be better in the future. Saying that they did put a load into eco stuff.
I should also add that the Federal Reserve refused to bail out a few selected banks in the 1929 run on the banks and the net effect was that the banks that did get bailed out bought out the smaller banks. Similar to what is happening these days. So much justification in economics for this central banking. I'd prefer if they all just jumped off a cliff. This is not capitalism. This is cronyism.
Fractional reserve banking, known to the normal as banking, has been part and parcel of business in the Western world since the 1200's. From the time business life began to revive after the Dark Ages down to the present day, where there is business to be done, there have been banks. If what you said had any truth in it at all, which it doesn't, Western capitalism would have died a long time ago.
You should quote the opinion you are responding to. You are slightly incorrect about the history of fractional reserve banking. I believe the Arabs began the practice with more or less honest intentions. That it is a part of history does not legitimize it. What is important, however, is that those who were insolvent were made to fail and their assets used to cover debt. This was an important part of the system. I could live with that. The central bank now not only prevents banks from failing, they now enable anointed banks to gain more wealth with each passing crisis. In my world of rainbow-coloured unicorns, if the public understood what is really going on, they would revolt. But then they would miss their shows. "Western" capitalism is alive and well. Unfortunately, that is defined as capitalism for those who are more equal than others.
You're right about that, but really all that needed to happen was to let the FDIC do its usual job, even if it meant on a really big bank, and if the FDIC's fund couldn't cover the cost, fund it so it could and then afterwards charge the remaining banks more for their insurance. I still can't figure out why that didn't happen. The Fed's job is only to provide funds in the case of a run, not to fold up an institution that's failed. Given that we had a number of institutions that failed by anyone's definition, the FDIC should have been allowed to roll the deposits over into another bank and then do an orderly shutdown of the remaining stuff with the help of whoever would have had the expertise to shut down stuff like the derivatives the failed bank held or was counterparty to. There would have been a lot of disruption, but it would in the end have been a lot better than what we have now. Once all that was over, reinstate Glass-Steagall, and you're done. The point is the combination of Glass-Steagall and the FDIC kept everything running smoothly right up to 2008. There were no huge banking crises during the Glass-Steagall era, regardless of the existence of the Fed. That proves it is possible to have a stable banking system side by side with central banking, and of course a stable fractional reserve system. All it takes is the political will to face down the banking lobby.
You asked the question. History will bear out the right answer. My money is on old boy networks. The FDIC is closing down *some* companies, after all. You may be right about GS but I think the S&L crises point to the fact that no matter what, they will find a way to f*ck up big and still get bailed out. If memory serves, it was something like 200 billion the last go around. That's some serious dough. As for involvement of the Fed. In fact, it is involved every single day of every single year. When people are withdrawing too much money, say at Christmas time, the Fed creates that money. You just don't notice it because it is not broadcast. I wonder why they want to move to solely digital money...
You have to distinguish between savings banks and investment banks. Savings banks are handled by the FDIC. Investment banks cannot be handled by the FDIC. They have products that are not insured by it. These institutions must be handled by the FED directly if their portfolio has a structure that can impact other institutions in case of failure and create a chain reaction. Someone wrote that QE was a gift to wall street, large institutions and rich people or something like that. Although it was abused by some companies the truth is that most of it went to purchase toxic assets that impacted directly and in a positive way the balance sheet of commercial banks, pension funds and companies in the real economy. That in turn had a positive impact on the average worker and consumer.