This is the Cato Daily Podcast for Thursday, October 2, 2008. I'm Caleb Brown.

The highly improbable events of the last few weeks in financial markets have revealed that contagion weakening

the entire financial system is likely enough to invest in preventing it.

But how?

Pido Institute Senior Fellow and Editor of Regulation magazine, Peter Van Doren comments.

Many people wonder why bankruptcy in commercial firms, Home Depot, your hospital, whatever, why is that different from bankruptcy

in financial markets? And a hard-headed free market person might say that I've never had a relationship with a particular

bank, I have my money in other banks.

And so just like I don't worry about the bankruptcy of a corporation for which I'm not an employee, I'm

not a vendor, and I'm not a customer, why should I worry about the bankruptcy of something

called banks?

Is bankruptcy and banking different?

And the answer is it is for what we call because of something called the payment system.

The payment system is the technical term for what you and I call checking accounts.

That is, much of many people's money, much of everyone's money is in something called the checking

account and they think of that as cash and they think of that as money that's

available to pay their bills.

But it's in a bank and a bank makes investments.

So if a bank's investments go bad and the bank enters bankruptcy,

then the implication would be that the checking accounts in that institution

would be frozen.

And that in turn wouldn't allow everyone to pay their bills, and in turn all the entities

...