Re: [Pen-l] Re: financial melt-down

["Jim Devine" <jdevine03@xxxxxxxxx>]

Sabri Oncu wrote:
me:
>> There's no ideological content in calling -- or not calling -- GMAC a
>> "bank."

> There is! If you call it a bank, then you will regulate it accordingly!

It's not what you or I call GMAC that counts. It's what the legal
system and regulators call it. Banks and finance companies are
creatures of government rules and regulations.

A bank (a depository institution) is defined by its legal charter.
Because of their special charters, banks have the right to take
deposits, which are much more short-term than any bills. (There's no
way to stagger inflows and outflows of deposits the way you can with
incomes short-term paper.) Because of their special charter, banks'
deposits are insured (up to a point, of course). Because of that
insurance, banks have to jump through the FDIC's and other regulators'
hoops.

On the other hand, a finance company or a "non-bank bank" like GMAC
does not receive deposits and thus has no deposit insurance.
-- 
Jim Devine / "Nobody told me there'd be days like these / Strange days
indeed -- most peculiar, mama." -- JL.
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