(but mostly the rough)
If we’re going to accept fractional reserve banking as our ‘system’ of money, don’t we also have to accept banks, and the people who invested money to support them, losing everything?
It sounds draconian, but the almost complete (Lehman… but you’ll note that none of them went to jail) lack of moral hazard results in some truly tortured situations. The feeding frenzy around the Euro is undoubtedly making some large profits, and making the real problem (massive imbalances in the distribution of wealth) much worse. At some point the politicians are going to have to face up to reality and stiff their benefactors. If they bring the whole edifice of western capitalism down on our heads, just to protect a minority, they’re going to be dealing with chaos for a generation.
How? Let the banks go bust, let the derivatives unwind, let all hell break loose in the investor class: be ruthless in telling them that they took the risk, and there were no guarantees. Then, recapitalise banks with printed money (won’t cause inflation, just think of how much money will have been removed from the money supply in the previous step), and make ordinary savings / savers whole again.
Needless to say, it won’t happen but the consequences for almost everyone involved are going to be long term and dire. The only ones that stand to gain from the current situation are those that are profiting from the chaos and, to a large degree, built the massively unstable system with which we find ourselves.