collapse. But it didn’t last. By the 1960s the FDIC was up to its old tricks.

A mid-1980s review of the

fifty largest bank failures to that point found that in forty-six of the fifty cases—including every one
of the twenty largest— the FDIC had either bailed out the bank or arranged a subsidized merger,
thus providing, in practice, 100 percent deposit insurance to every depositor, large or small. Another
study discovered that between 1979 and 1989, 99.7 percent of all deposits (not just the small
deposits the FDIC was supposed to be insuring) had been protected from loss by FDIC actions.
Moreover, from the 1960s on, the FDIC’s deposit insurance fund was taken into the national budget,
suggesting that U.S. bank deposits might well be backed by the full faith and credit of the
government. This was very interesting. It is a popular misconception that the banking industry is
unique in attracting risk-crazed maniacs who seek, largely successfully, to bankrupt their own
companies in pursuit of a quick profit. In actual fact, all right-thinking corporate executives in all
industries should behave in this manner, if they are allowed to do so. If someone has entrusted you
with his money, you should immediately gamble it on ultrahigh-risk ventures that may get you a
quick return—it’s not your money, after all. Or you should use the money to add to your fortune at
the shareholders’ expense, as with the endemic conflict-of-interest deals of Pierpont Morgan’s day.
But for most executives, such strategies are frustratingly difficult to execute. If you start stealing
money, or losing money, people stop giving it to you. Rating agencies, accountancies, and boards of
directors all monitor this kind of thing, albeit imperfectly. You may get away with it for a little while
(think Enron, or Bernie Madoff). But if they catch you, you will go to jail. But what if, for some
reason, the government decided to guarantee all the money invested in your company, so that no
investor who gave you money could ever lose? Would anyone care what you did with the cash? The
answer, of course, is no. After a brief hiatus in the 1950s, this magical scenario had come to pass in
the banking sector, at least as far as depositor funds were concerned. All funds in insured banks had,
in effect, an FDIC guarantee. Hence nobody cared what bankers did with their money. Not small
depositors (who might have had limited ability to police a bank’s actions anyway). Nor, more
crucially, wealthy depositors, or other banks, which might have been