WEBVTT NOTE Deposit "Insurance" 1 00:00:00.000 --> 00:00:03.000 Deposit Insurance 2 00:00:03.000 --> 00:00:10.000 We have not yet examined another important change wrought in the U.S. financial system by the New Deal. 3 00:00:10.000 --> 00:00:19.000 In 1933, it proclaimed assurance against the rash of bank failures that had plagued the country during the Depression. 4 00:00:19.000 --> 00:00:28.000 By the advent of Franklin Roosevelt, the fractional reserve banking system had collapsed, revealing its inherent insolvency. 5 00:00:28.000 --> 00:00:42.000 The time was ripe for total and genuine reform, for cleansing of the American monetary system by putting an end at long last to the mendacities and the seductive evils of fractional reserve banking. 6 00:00:42.000 --> 00:01:03.000 Instead, the Roosevelt administration unsurprisingly went in the opposite direction, plunging into massive fraud upon the American public by claiming to rescue the nation from unsound banking through the new Federal Deposit Insurance Corporation, FDIC. 7 00:01:03.000 --> 00:01:18.000 The FDIC, the administration proclaimed, had now insured all bank depositors against losses, thereby propping up the banking system by a massive bailout guaranteed in advance. 8 00:01:18.000 --> 00:01:33.000 But of course, it's all done with smoke and mirrors. For one thing, the FDIC only has in its assets a tiny fraction, one or two percent, of the deposits it claims to insure. 9 00:01:33.000 --> 00:01:44.000 The validity of such governmental insurance may be quickly gauged by noting the late 1980s catastrophe of the savings and loan industry. 10 00:01:44.000 --> 00:02:01.000 The deposits of those fractional reserve banks had supposedly nestled securely in the insurance provided by another Federal agency, the now defunct once lauded Federal Savings and Loan Insurance Corporation. 11 00:02:01.000 --> 00:02:13.000 One crucial problem of deposit insurance is the fraudulent application of the honorific term insurance to schemes such as deposit guarantees. 12 00:02:13.000 --> 00:02:24.000 Genuine insurance gained its benevolent connotations in the public mind from the fact that, when applied properly, it works very well. 13 00:02:24.000 --> 00:02:40.000 Insurance properly applies to risks of future calamity that are not readily subject to the control of the individual beneficiary and where the incidents can be predicted accurately in advance. 14 00:02:40.000 --> 00:02:50.000 Insurable risks are those where we can predict an incidence of calamities in large numbers but not in individual cases. 15 00:02:50.000 --> 00:02:58.000 That is, we know nothing of the individual case except that he or it is a member of a certain class. 16 00:02:58.000 --> 00:03:06.000 Thus, we may be able to predict accurately how many people aged 65 will die within the next year. 17 00:03:06.000 --> 00:03:13.640 In that case, individuals aged 65 can pool annual premiums, with the pool of premiums 18 00:03:13.640 --> 00:03:19.280 being granted as benefits to the survivors of the unlucky deceased. 19 00:03:19.280 --> 00:03:24.960 The more, however, that may be known about the individual cases, the more these cases 20 00:03:24.960 --> 00:03:28.160 need to be segregated into separate classes. 21 00:03:28.160 --> 00:03:35.800 Thus, if men and women aged 65 have different average death rates, or those with different 22 00:03:35.800 --> 00:04:00.800 When health conditions have varying death rates, they must be divided into separate classes, for if they are not, and say the healthy and the diseased are forced into paying the same premiums in the name of egalitarianism, then what we have is no longer genuine life insurance, but rather a coerced redistribution of income and wealth. 23 00:04:00.800 --> 00:04:06.920 Similarly, to be insurable, the calamity has to be outside the control of the individual 24 00:04:06.920 --> 00:04:07.920 beneficiary. 25 00:04:07.920 --> 00:04:14.720 Otherwise, we encounter the fatal flaw of moral hazard, which again takes the plan out 26 00:04:14.720 --> 00:04:16.480 of genuine insurance. 27 00:04:16.480 --> 00:04:22.840 Thus, if there is fire insurance in a certain city, based on the average incidence of fire 28 00:04:22.840 --> 00:04:29.040 in different kinds of buildings, but the insured are allowed to set the fires to collect the 29 00:04:29.040 --> 00:04:37.040 without discovery or penalty, then again genuine insurance is given away to a redistributive racket. 30 00:04:37.040 --> 00:04:44.040 Similarly, in medicine, specific diseases such as appendicitis may be predictable in large classes 31 00:04:44.040 --> 00:04:53.040 and therefore genuinely insurable, but simply going to the doctor for a checkup or for vague ills is not insurable 32 00:04:53.040 --> 00:05:03.040 are not insurable since this action is totally under the control of the insured and therefore cannot be predicted by insurance firms. 33 00:05:03.040 --> 00:05:15.040 There are many reasons why business firms on the market can in no way be insured and why the very concept applied to a firm is absurd and fraudulent. 34 00:05:15.040 --> 00:05:20.800 The very essence of the risks or uncertainty faced by the business entrepreneur is the 35 00:05:20.800 --> 00:05:27.720 precise opposite of the measurable risk that can be alleviated by insurance. Insurable 36 00:05:27.720 --> 00:05:37.720 risks such as death, fire, if not set by the insured, accident or appendicitis are homogeneous, 37 00:05:37.720 --> 00:05:44.500 replicable, random events that can therefore be grouped into homogeneous classes which 38 00:05:44.500 --> 00:06:09.500 which can be predicted in large numbers, but actions and events on the market, while often similar, are inherently unique, heterogeneous, and are not random, but influencing each other, and are therefore inherently uninsurable, and not subject to grouping into homogeneous classes measurable in advance. 39 00:06:09.500 --> 00:06:14.860 Every event in human action on the market is unique and unmeasurable. 40 00:06:14.860 --> 00:06:22.780 The entrepreneur is precisely the person who faces and bears the inherently uninsurable 41 00:06:22.780 --> 00:06:25.900 risks of the marketplace. 42 00:06:25.900 --> 00:06:31.420 But if no business firm can ever be insured, how much more is this true of a fractional 43 00:06:31.420 --> 00:06:33.300 reserve bank? 44 00:06:33.300 --> 00:06:39.860 Well, the very essence of fractional reserve banking is that the bank is inherently insolvent 45 00:06:39.860 --> 00:06:45.820 and that its insolvency will be revealed as soon as the deluded public realizes what is 46 00:06:45.820 --> 00:06:52.820 going on and insists on repossessing the money which it mistakenly thinks is being safeguarded 47 00:06:53.860 --> 00:07:00.780 in its trusted neighborhood bank. If no business firm can be insured, then an industry consisting 48 00:07:00.780 --> 00:07:06.700 Banking of hundreds of insolvent firms is surely the last institution about which anyone 49 00:07:06.700 --> 00:07:11.180 can mention insurance with a straight face. 50 00:07:11.180 --> 00:07:17.300 Deposit insurance is simply a fraudulent racket and a cruel one at that since it may plunder 51 00:07:17.300 --> 00:07:20.740 Consider the life savings and the money stock of the entire public.