Part 9/13:
This arrangement perpetuates the moral hazard problem: banks are encouraged to take reckless risks because they believe the government will bail them out if trouble arises. The explicit insurance scheme fosters a cycle where risky lending becomes the norm, as the costs are subsidized by the taxpayers, not the banks themselves.
The Illusion of Safety and the Reality of Systemic Risk
Griffin warns that the entire system is built on a fragile foundation. The FDIC’s reserves are insufficient to cover potential bank failures—often only covering a tiny percentage of actual deposits. When multiple large banks fail simultaneously, the resulting chaos could force the government to print endless amounts of money, diluting the dollar’s value and causing inflation.