Anatomy of the Bank Run

The case of IndyMac, the largest regulated thrift institution to fail in U.S. history, shows just how fundamentally unsound our government supported banking system is. The fractional reserve banking swindle can only continue so long and I hope the IndyMac failure will open some people's eyes.

Of course Murray Rothbard wrote it best in his article "Anatomy of the Bank Run": "But in what sense is a bank "sound" when one whisper of doom, one faltering of public confidence, should quickly bring the bank down? In what other industry does a mere rumor or hint of doubt swiftly bring down a mighty and seemingly solid firm? What is there about banking that public confidence should play such a decisive and overwhelmingly important role?"

Unfortunately, government bureaucrats are playing the same tune now, blaming Sen. Chuck Schumer for the run on IndyMac. He wrote a letter that "expressed concerns about IndyMac's viability." Schumer is correct to deny that he had any part in this, for as Rothbard noted, how can any business be sound if a mere rumor sparks a total collapse?

But Schumer is wrong to blame this on IndyMac and those "greedy capitalists." The fault lies with the government; without the Federal Reserve and the FDIC the fractional reserve banking scheme couldn't continue. We will only see sound banking and real money when the Fed, the FDIC and all those other bureaucracies are abolished.