"A few generations ago, savers responded to financial panics with runs on banks, and even healthy institutions could fail if they could not raise enough cash quickly enough. For a long time, that all seemed to be safely relegated to the past. But now the runs are back — and this time the targets are not banks but the securities that have replaced them as the prime generators of credit in the new financial system.Thus, the recent turmoils due to the subprime-crises is “the 21st-century equivalent of a run on a bank.” By doing so Norris fails to see the crucial difference between credit generated by banks and credit transfers due to the issue of securities. Lawrence H. White, a famous free-banker and a real expert on financial innovations, has a perfect reply:
… a new financial architecture emerged in the last decade — one that relied more on securities and less on banks as intermediaries. With the worth of those securities now being questioned — and no equivalent of deposit insurance — some who financed the securities want their money out, a fact that has created the 21st-century equivalent of a run on a bank."
In the same post White turns against Thoma and makes clear that hedge funds are also no modern analogue to classical bank runs. Good stuff."There is a very basic flaw in Norris’s comparison. A bank depositor has a claim against the bank for redemption on demand into a fixed number of dollars. He runs on the bank out of fear that the last in line to demand redemption will get less than par value. A security holder has no such claim to redemption on demand. If he wants immediate cash, he can sell his security in the market at the currently prevailing price. Security prices are marked to market every day, so the seller has no incentive to run. There is no expected gain from being first rather than last in line to sell. There is no equivalent of a run."
