Why do governments fund banks?

[Kreeshak]

In 2012 the greek government funded several private banks that had liquidity problems. It was on the news, the political opposition was against it and demanded the "help" to have exchanges like the state owning a share of the bank's stocks.

Isn't state funding a private business highly immoral?
Shouldn't banks suffer the consequences of their poor choices?
What makes banks special opposed to any other business that made poor choices or is suffering?

I must be missing something to this story. This can't be right.

[Stir]

Because it's better (in the short run) than to let the entire economy fall into chaos.

The alternative is a government take-over, and you're not going to live that one down in today's societies (even though I'm personally in favour).

[Lazy Gecko]

Upholding the status quo generally tends to benefit people in power, whoever they may be.

[NPEC]

Im sure that the goverment havent had this in mind when they saved the banques, but if a bank falls all the clientes that have they Money there will probably go near, if not total, bankrupt you really wanted that to happen?

Btw im not tottaly sure that it works like this since nowadays there are security mesures for this cases.

[Elegiac]

In 2012 the greek government funded several private banks that had liquidity problems. It was on the news, the political opposition was against it and demanded the "help" to have exchanges like the state owning a share of the bank's stocks.

Isn't state funding a private business highly immoral?

No, considering "morality" is extraordinarily subjective.

Shouldn't banks suffer the consequences of their poor choices?

Sure. Just not when a lot of them are threatening to go under at once.

What makes banks special opposed to any other business that made poor choices or is suffering?

Banks tend to be vastly more central to economic health than a lot of other businesses, and when they go under it echoes throughout the rest of the economy.

I must be missing something to this story. This can't be right.

What you're missing is that, again, letting a lot of them go under at once is -bad-. There is a difference between banks failing due to attrition and them failing due to recession.

[Gheld]

Math.

Let's just take a 'murican example here.

Say there's 100 million people with an average of 100,000 in federally insurable assets in the bank. And every major bank were to simultaneously lose liquidity

The government would then have to pay out the federal deposit insurance. For a total of 10 trillion dollars.

This is before you consider things like the inflation caused by suddenly dropping 10 trillion dollars into the economy (Diablo 3 coming true) or the fact that if most of the mortgages suddenly found themselves under the control of bankruptcy trustees who don't give a shit about keeping customers it would be a complete disaster.

I'd assume Greece also has it's own equivalent of the FDIC. But the bottom line is, the potential cost of having to make a deposit insurance payout is monumental and far reaching. On the other hand I think there should have been more people going to jail in 2008.

[Kreeshak]

I understand about the deposits and the chaos it would cause if banks lose liquidity.

What annoys me is that the managers, or directors or owners of banks earn tons of money for failing (they did lose liquidity). They live a glamorous lifestyle, they probably have enough assets and money for their grand-grand-grand children. As opposed to the poor tax payer (at least in Greece or Cyprus) who comes to their business rescue and suffers austerity measures and unemployment.

Right/Wrong? (I am posting to be corrected)