The real issue is not that we "allow" fractional reserve lending. The government should not be involved in banking at all.
Banks would not take such stupid risks if they were not back by the federal reserve's ability to print money. If you make stupid decisions you fail. The government bailout addiction makes it easy for banks to make stupid decisions and the hyper regulation after such a bailout leads to the demise of small banks which compounds the original issue by further centralizing the banking system and increasing the risk of systemic shocks. These newly merged frankenbanks are then even more likely to be bailed out for bad decision making. The bailouts come from you and me in the form of tax dollars and devalued currency. Rinse and repeat ad nauseam.
Banks would not take such stupid risks if they were not back by the federal reserve's ability to print money. If you make stupid decisions you fail. The government bailout addiction makes it easy for banks to make stupid decisions and the hyper regulation after such a bailout leads to the demise of small banks which compounds the original issue by further centralizing the banking system and increasing the risk of systemic shocks. These newly merged frankenbanks are then even more likely to be bailed out for bad decision making. The bailouts come from you and me in the form of tax dollars and devalued currency. Rinse and repeat ad nauseam.
Agree with this. But let's not forget the human propensity to be greedy, especially when they are not personally taking on risk themselves.
Banks are run by managers who are paid bonuses. When losses occur, it is the shareholders that get hit. I don't recall any banker going to prison since the GFC. Maybe in Iceland.
And if those risks make profits and stockholders make money?
Bankers make money in the short term (possible 5 to 10 year period), get paid bonuses. The debt bubble eventually collapses leaving shareholders and taxpayers with the bill.
