We are heading into the holiday season. It's a
Wonderful Life will be on television. And cryptocurrency
bankruptcies will be in the news. Yesterday, BlockFi filed for
bankruptcy. What does a seventy year old Frank Capra movie –
about a bank run in a small town during the Great Depression
– tell us about the latest crypto platform's liquidity
crisis? Will depositors get their money back? Is there any
insurance for the creditors?
During the run on the bank scene, George Bailey – played
by James Stewart – explains the nature of banking to the
small town depositors in Bedford Falls.
The customers engaged in the bank run are acting rationally:
they see lines of customers demanding their money be returned, and
they want to get their own money out before the bank runs out of
money. But they do not understand the mechanics of fractional
reserve banking. As George Bailey explains, the money they
deposited into savings accounts at Building & Loan is literally
not there to
