Don't we keep our entire life's savings in companies aka banks that we don’t run, don’t control, don’t buy, don’t administrate, and don’t really understand.
The reason they are is because of their intrinsic propensity to destabilization, vis-a-vis Minsky and the Financial Instability Hypothesis.
Of course, how you structure your regulatory framework can have adverse consequences, as well (i.e. implicit guarantees by GSEs on mortgage-backed securities). It is further arguable whether or not fractional reserve exacerbates these effects.
I was just talking to my pals at Digital Equipment Corporation and Sun Microsystems about how stable the technology industry is.
Then, I read an article in Google Reader discussing how we don't even have to worry about arbitrary and capricious market behavior from our cloud partners, since we all have long term contracts and are protected against upward price swings from our cloud partners or material changes to the services they deliver.
Our life's savings are not unique, and can be replenished from a different source. Our childhood pictures and personal correspondence are, and generally can not.
Besides, banks are subject to rather a lot of external control, through regulation (oh noes!). Here in NL the government actually guarantees your savings (but not investments) should a bank go belly-up. I believe the US did something similar, although I didn't bother to follow the specifics about who bailed out who for whom.
> Our life's savings are not unique, and can be replenished from a different source.
In absolute terms, they can, but no one I know of has a solid backup plan for life savings. Life savings come from saving over a lifetime. You can't really replenish them without replenishing someone's life and ability to save.
By the way, as far as I know all the banks from the European Union guarantees savings up to 50,000 euros, some even more. And if you have more money, you can split them between multiple banks.
In the US, deposits are guaranteed up to $250K per ownership type, per customer, per bank. Ownership types include individual ownership, some retirement accounts, joint accounts, trust accounts, etc.
I think most people have more of there savings in stuff than banks. (Clothes, PC, car, House etc.) At scale cash is a proxy for wealth not actual wealth.
PS: A home loan might seem like the bank owns your house, but they can't say no when you sell it.
> If you have the cash to pay them off, then they don't get to say no even if it's a short sale.
If you actually pay them off, then they don't get to say no, because paying them off is, essentially, buying out their interest in the property, under the terms of an existing contract. That doesn't negate the fact that they have legally-enforceable rights in the property until and unless you do that.
> Alternatively, you can generally walk away and sell it to them for the value of the loan.
Only if the mortgage is governed by the law of a jurisdiction where pursuit of mortgage deficiency isn't allowed (either in general or for mortgages in the specific conditions yours has.)
