Senator Richard Shelby of Alabama has proven that he is criminally ill-informed and/or insane. On "This Week" with George Stephanopoulos, he said he wanted to force banks to just close down. Not nationalize them through FDIC receivership, just close them. I'm shocked that his statement has not received more coverage. His plan is not just crazy, it is also potentially illegal.
There is an argument to treat big banks the same way we treat small banks, but there is no logic to what Senator Shelby is advocating. Banks don't just close in the United States. They can't just close. If they are insolvent, the FDIC takes them over-- i.e., nationalizes them, and sells off their assets to recover funds for depositors and creditors. Temporary nationalization is how we “bury the small banks.”
By law the federal government insures up to $250,000 of an individual's deposits. You can't just allow a bank to close, wiping out millions of bank accounts. At the very least, they need to be nationalized long enough to allow millions of average Americans get their money out.
Senator Shelby's remarks are so out of the mainstream it is impossible to tell if he is just horribly ill-informed or if he is advocating an insane form of economic nihilism. Does he not know that when banks fail they are nationalized by the FDIC? If he does, is he then advocating eliminating the FDIC and FDIC insurance? What does “close them down” even mean? Would people wake up one morning and find every branch of Citibank permanently shuttered? If that is the case, the result would be a disastrous great depression-style run on the banks. The media should not allow an individual with Senator Shelby's power to make such potentially destructive statements without a complete explanation.
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