Banks Did Not Pay For Insurance, FDIC Will Have To Borrow

(10 am. – promoted by ek hornbeck)

Unbe-fraking-leavable! Just when you think you know what the hell is going on and have some idea what it will take to get things back in shape, a new shite storm comes sailing along to bring you a new life-time supply of manure. What has the Dog so spun up this afternoon? Well, are you sitting down, gentle reader (duh of course you are, you’re on the internet)? The FDIC is going asking to be able to borrow $500 billion (as in five hundred thousand million) dollars, because it is does not have enough money to do the heavy lifting of taking over a bank like Citi or B of A.  

That is not really that big of a surprise, right? We know that this is huge mess and taking over huge banks, even ones that whose stock value is in the $2.00 range is expensive. You have to pay all the depositors when they very reasonably ask for their money after the FDIC eats up the bank. That one thing absolutely must happen. You can decide to wipe out the share holders, you can tell the senior bond holders that they made a crappy bet and will only get $.30 on the dollar or less, but you can’t screw the depositors because if you do that even once, then confidence in the banking system is shot and the whole world economy is going to be circling the bowl in very short order.

This insurance is an out-growth of this very situation in the Great Depression. Runs on banks have happened as long as there have been banks, they even happened back in the Roman Empire. It is something so devastating that government’s fall because of it. This is why until recently all accounts were insured up to $100,000 dollars. When the current banking crisis hit, one of the confidence building measures that Congress enacted was to raise the insurance up to $250,000, this was specifically done to prevent any kind of worry that your bank account is safe (it is not like the Dog knows anyone with that kind of money, but everyone should be pretty secure).

Now we come to the fun part. Today in the Boston Globe there is a report that explains that the FDIC needs more cash for two reasons. First off, in the last 18 months 42 banks have failed. That is a lot and their reserves are being drawn down. But the reason they do not have the kind of money they need to address this crisis is that from 1996  to 2006 the FDIC was not getting paid the insurance premiums that they use to fund the take over’s by the banks they were insuring. It is not really the FDIC’s fault. They asked Congress every year to pass laws that would allow them to collect these premiums, but the Congress said no.

Now, note that time frame. 1996 to 2006, now class, what party was in control of the Congress during that time? That’s right! The Republican Party! Instead of making sure that there would be the safety net that the banking system of the biggest economy on the planet, and by extension the planet itself, depends on had enough money to weather a problem, they just let the banks ignore their responsibilities. It is not like this is surprising to the Dog, after all the Republicans don’t believe in any kind of safety net, whether it is for citizens or for banks.

The fact is that it was the Banking lobby that pushed for this non-collection. It cut into their profits too much so they did not care that they were exposing everyone that trusted them with their money to complete loss, the bottom line is all that mattered. These are the same geniuses that came up with unregulated derivatives better known as CDO’s and CDS’s. What really chaps the Dog’s hide about this is that we really have no choice; the FDIC has got to be able to insure deposits so we will have to let them borrow this money. It is a factor that is going to prevent us from doing what needs to be done in terms of taking over failing banks, because the reality is that they do not have the depositor’s money.

So, there is you have it Kiddies, just another late afternoon factoid that proves that no one in the Financial Industry can be trusted to have any interest other than greed when they act.

The floor is yours