So what is the bad thing that would happen if ALL deposits were covered by deposit insurance? Why don't we do it that way?

It's a very bad idea. Why not just guarantee all investments? We could set a 10% minimum return. If you want interest on your account then you need to be the person taking the risk that an investment goes sour. The idea that the Govt should guarantee the principal of your investments doesn't work ... for obvious reasons.

People need banking services ... payroll or savings for example. You just want to pay a fee to the bank to handle these transactions or to hold onto your money. But, the way the system works now you're forced to lend your money to the bank so that they can make investments. I don't want the bank making investments with my money ... I just want them to hold onto it and I'll pay fees to make it worth their while.

We need some 100% reserved banks (they hold your cash in the vault) ... not more investment banks where the Govt is forcing them to buy treasuries and make bad loans to people who will never pay them back.

Also, as a former AIG investor, I worry that derivatives are an unexploded bomb under the whole system.

Berkshire Hathaway FAQ

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