Lots of pointless fingerpointing about the bank failures. R blames D for the ESG crap, D blames R for a deregulation during Trump.

The ultimate cause is a total lack of discipline when money is free. Banks are supposed to be highly disciplined and controlled companies, regardless of external regulation.

Danielle DiMartino, one of the sanest commentators, makes two strong points. First, these tech-tyrant banks didn’t have any internal COMPTROLLERS. Second, she notes that most Euro countries have only a few capital-providing banks, so each bank has a much larger mass. More mass means more resilience, both physically and psychologically. When people feel that the bank or store can handle the situation, they’re not driven to grab ALL the money or ALL the toilet paper right now.

I’ll go the next step. The Soviet system had it exactly right. Gosbank was the ONLY source of loans and capital for business. No speculative banks, no stock market, no hedge funds. Gosbank didn’t ‘create money’ and it didn’t use fractional reserves. It had the entire national treasury available for emergencies, but it didn’t need the national treasury because it was operating with REAL ARITHMETIC.

When a bank operates with REAL NUMBERS, treating money as if it’s physical coins, the bank can’t incur a loss by definition. It gathers up a big pile of deposits, and makes loans from its EXCESS above the amount needed to satisfy all depositors. Each loan is taken out of the EXCESS pile and then returned with interest, expanding the pile. Gosbank also expanded the excess from the ordinary running of businesses. Every increase of real value generated a VAT, and Gosbank took part of the VAT. This helped to align Gosbank’s priorities toward increasing real value. Unlike tech tyrants, it was not inclined to capitalize a business with no chance of profit.

The Soviet system also had a single postal savings bank, which provided checking and small savings accounts for ordinary people. This bank ALSO operated strictly with real arithmetic.

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Later: Jim Bianco is one economist who understands the point. He draws the line between Full Reserve and Fractional Reserve, and says accurately that all Euro/US banks have been Fractional Reserve for hundreds of years. It’s an obvious problem that nobody has ever tried to solve. “Every fractional reserve bank is either failing or on the verge of failing.” But Bianco doesn’t compare western banks with Soviet and Sharia banks, which are Full Reserve by his terminology. Hawala is also necessarily Full Reserve, but isn’t an ‘open to all customers’ bank, so it doesn’t belong in the comparison.