[This article is featured in chapter 78 of Making Economic Sense by Murray Rothbard and originally appeared in the March, 1991 edition of The Free Market]
There has been a veritable revolution in the attitude of the nation's economists, as well as the public, toward our banking system. Ever since 1933, it was a stern dogma--a virtual article of faith--among economic textbook authors, financial writers, and all establishment economists from Keynesians to Friedmanites, that our commercial banking system was super-safe. Because of the wise establishment of the Federal Deposit Insurance Corporation in 1933, that dread scourge--the bank run--was a thing of the reactionary past. Depositors are now safe because the FDIC "insures," that is, guarantees, all bank deposits. Those of us who kept warning that the banking system was inherently unsound and even insolvent were considered nuts and crackpots, not in tune with the new dispensation.But since the collapse of the S&Ls, a catastrophe destined to cost the taxpayers between a half-trillion and a trillion-and-a-half dollars, this Pollyanna attitude has changed. It is true that by liquidating the Federal Savings and Loan Insurance Corporation into the FDIC, the Establishment has fallen back on the FDIC, its last line of defense, but the old assurance is gone. All the pundits and moguls are clearly whistling past the graveyard.....To Read More....
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