> The FDIC kicks in and since the "panicked depositers" deposits are insured and as such they quickly return to being normal depositers.
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>It's not a benign guarantee. If the FDIC ever actually kicks in then the FDIC will take over that bank, period.
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>Apart from that, the FDIC allocates each bank a capital ratio based on liquidity/cash reserves. If the capital ratio becomes too low, the FDIC issues a warning. If it doesn't improve then the FDIC is suppose to step in to change management. If it still doesn't improve, the FDIC takes over.

The first step, once the FDIC is determined to step in is to look for a buyer. This occurs prior to the bank even being informed that the FDIC is taking over. From the depositor's POV it is a guarantee as their banking experience will have little change besides the name on the building.

>An "adequately capitalized" bank has 8% cash liquidity. A "significantly undercapitalized" bank has 6% cash liquidity.
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>IOW a good bank only needs withdrawal of 2% of deposits to turn it into a bad bank, after which the slippery slope towards takeover may be inevitable.
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>IOW a bank run can be expected to lead to government takeover one way or another.

>Government *prevented* this sequence by injecting liquidity and by increasing the FDIC guarantee to $250K to increase confidence during this crisis. Not sure how that fits with the suggestion that they're trying to take over. ;-) It's more likely that they're insisting that banks stay well capitalized until government is satisfied that the crisis is actually over.

Assuming it can't be both? If you prevent the weak big banks from failing, they're still around to take over. If you let them fail the stronger banks move in.

>Instead we're now on the hook for trillions, facing the same recession/depression while applying band-aid solutions to the very entities and politicians who got us into the problems in the first place. We're starting down the barrel of massive inflation at best and stagflation at worst. Luckily for us the rest of the developed world followed our lead right into the crapper so the devaluation of the dollar will be pared with the devaluation of other world currencies.
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>All this is true, but to what are you comparing? Seems to me that Government was faced by Hobson's choice: watch the market fail, destroying the wellbeing of millions of families/investors, versus printing $$$$$$$$$$$$ to try to work it through.

I'd argue that the well-being of millions of families/investors have been destroyed and further damage is yet to come in the form of inflation, taxation, nationalization or worse. To say nothing of the debt that's being multiplied upon future generations. I would've preferred to let the financial giants collapse. I understand this would lead to a depression and would be rough, but I also contend that the country would emerge much stronger for the effort. Instead I believe we're limping along until the next crash which is coming in the form of further housing collapse in 2010-2011. We're not at the end, we're at the beginning and it's going to get worse.