I'd like to add that this is a good practice in the financial industry, and isn't a bad thing at all. It's consumer protection.
And, $500k is actually a pretty low figure for this type of 'bond'.
For example, in Australia I believe you would need a banking license (or a guarantor with a banking license) which requires a deposit of at least $40M in to an escrow account which is managed by the central bank.
I'd like to say this should not be legislated, and people should choose who to do business with on their own. If they offer the government a bond to cover losses, then people might go to that business instead of some startup. OTOH, perhaps I don't care when all I'm investing in my "Silicon Valley Facespacecash" bank is $20.
The problem with the market judging is a bank is worth your money or not is that by the time everybody decides that bank X is going under it's probably too late to get your money out (e.g. a run on the bank). This is why we have the FDIC.
While we're at it, why have contract law? People should be able to figure out on their own who's likely to keep their word, and the market will punish those who break it.
An argument against specific, outrageously expensive regulations for an industry does not equate to an argument against contract law. Your argument is invalid.
That works in theory. But have YOU read all the fine print when opening an account with your bank? I haven't either -- everything we do is based on some common sense and trust. If we had to verify everything we did with everyone we did it, our way of life would end.
> But have YOU read all the fine print when opening an account with your bank?
Yes. Paraphrased:
Bank agent: “You'll also have to sign this.” (Hands over a sheet of paper.)
Me: “Let's see here… […] ‘comply with the Deposit Agreement and Disclosure’. I need to see a copy of the Deposit Agreement and Disclosure, please.”
Agent: “Of course.” (Hands over a booklet.)
Me: “All right. Well, you may have to wait a bit…” (Starts leafing through the booklet. Cut to analog clock, then to clock fifteen minutes later.)
It was the same thing with signing up for public storage. “… ‘agrees to the Privacy Policy, which is incorporated by reference’. I don't seem to have a copy of the Privacy Policy here.” “Here you go,” and another sheaf of paper appears.
Note that in these cases I'm still basing my interpretation on a lot of contextual and cultural information, because while the alternative of trying to get them to lock down all the definitions separately would be amusing, it would fail. In many cases, every one of the relevant providers is in a position to drop me, whereas I'm reliant on at least one of them accepting me, so the power balance is tipped heavily in their favor.
I'd like to add that this is a good practice in the financial industry, and isn't a bad thing at all. It's consumer protection.
And, $500k is actually a pretty low figure for this type of 'bond'.
For example, in Australia I believe you would need a banking license (or a guarantor with a banking license) which requires a deposit of at least $40M in to an escrow account which is managed by the central bank.