If depositors didn't have mandated insurance, they would have magically had the time and inclination to learn about credit default swaps and see the dangers in the system that many people who do that for a living were unaware of?
Sure: If I didn't have mandated insurance, I would bank with the bank that maintained a high fractional reserve- It's obvious to anyone that you'd want to do this.
Banks that handled credit default swaps surprise had the lowest fractional reserves.
Of course. Next time I'm choosing a bank I'll be sure to pay close attention to the part of their brochure where they say what their fractional reserve is.
That's a completely different take on the financial crisis than anything else I've read. The history of the financial industry is one of the industry finding ways around existing regulation, over-leveraging itself, and then crashing.
Financial panics were a common occurrence before there were regulations. You're saying that less regulation would create a more stable system, but that historically has not been the case.
In other words, for what you're proposing, we tried it and it didn't work.
Which also included a financial crisis and recession roughly every 10 years and ended with the Great Depression. How much faster would the economy have grown if it hadn't been plunged into recession once a decade?
Its pretty clear that whatever not having mandatory insurance does, it doesn't suddenly imbue consumers with the insight and skill to manage their deposits in a way that avoids widespread catastrophic bank failures and attendant losses. This has been tested in the real world.
