Why Does Bloomberg Keep Getting the FDIC Story WRONG?
Barry emailed me this AM to ask about the commentary last week by Jonathan Weil of Bloomberg News regarding the FDIC:
FDIC Is Broke, Taxpayers at Risk, Bair Muses: Jonathan Weil
http://www.bloomberg.com/apps/news?pid=20601039&sid=aEKc7Yh8ogXw
The thrust of the piece is that “FDIC’s insurance fund is going broke, and Sheila Bair is wondering aloud about how to replenish it. This means one thing for taxpayers: Watch your wallets.”
This makes for sensational and salacious copy. Unfortunately, the entire thesis of the article is wrong.
I have gotten used to the media butchering stories about the FDIC’s deposit insurance fund, but this piece from a writer an intelligent and thoughtful as Weil demands rebuke. As Barry said to me, we all expect Bloomberg to get stories right. When they miss something as basic as this, it makes both of us scratch our heads.
Let’s first look at the lead of the comment quoted above. Last week, in an open blast to the media taking Bloomberg to task, I said the following:
“Repeat after me: The FDIC does not run out of cash. The FDIC does not run out of cash. FDIC can confiscate all of the net assets and earnings of all FDIC insured banks. That is trillions in total liquidity. FDIC can borrow from Treasury, the Fed and even from FDIC insured banks. They can also issue notes.”
I then reminded Weil et al that the BANKING INDUSTRY pays for not only the operations of the FDIC, but for the deposit insurance fund (“DIF”) as well. So Weil’s comment that taxpayers should reach for their wallets is just scare mongering.
I continued to spank Weil: “Our worst case loss to the FDIC fund is $300-400bn THROUGH THE CYCLE. Where is the problem? It is in your minds and the minds of your editors. If you can’t get your collective minds at Bloomberg News around the nuances of federal finance and the workings of the FDIC, THEN STOP WRITING ABOUT IT.”
As we wrote in a research note on 9/1/09: “An important point in the analysis is that estimated losses for failed bank resolutions by the FDIC are running around quarter of failed bank assets, a level much higher than between 1980 and 1995, when failures cost an average 11 per cent. Our firm’s long held view of the likely loss rate peak for the US banks in this credit cycle is 2x 1990 loss rates or, as noted by the IMF, around 4 percent of total loans.1 Since total loans and leases held by all FDIC insured banks was some $7.7 trillion as of Q2 2009, the IMF estimate implies a cumulative loss of over $300 billion.”
BTW, I have a long article in the next issue of The Bank Credit Analyst that goes through all of this in detail.
So the bottom line of all this is that, yes, the number of bank failures and the cost of cleaning up this mess will be much higher than the 1990s. But because the FDIC is industry funded and because the industry DOES NOT WANT TO BE SEEN BORROWING FROM THE TREASURY, the entire point of Weil’s piece is off the mark. In fact, my sources tell me that the banking industry is supporting a proposal at FDIC to prepay DIF assessments for several years in order to raise cash and reduce the need for borrowing from the UST.
Now that is a story worthy of Jon Weil’s time and talent.
-Chris Whalen
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September 28th, 2009 at 3:36 pm
“I continued to spank Weil”
Stop smiling when you say that, Chris…
September 28th, 2009 at 3:36 pm
People have an increadible affinity for “Oh my good the government is going to rape me again” stories. That type of story gets a lot of readers whether they are true or false. I guess Bloomberg is just faling pray to the market forces.
September 28th, 2009 at 3:39 pm
My gut says that Jon Weil is right and Chris Whalen is wrong.
There are 700,000,000,000.00 reasons to think that taxpayers better watch their wallets.
Banks don’t want to bail out banks, they have taxpayers for that unpleasant task, using the government as a proxy.
September 28th, 2009 at 3:40 pm
“The FDIC can confiscate all of the net assets and earnings of all FDIC insured banks.”
If the FDIC ever needed to confiscate all of the net assets and earnings of all FDIC insured banks, then I guarantee you that the Congress would pass a bailout of the FDIC before they would ever even considered doing that. This is painfully obvious, so you’re being a just a tad disingenuous yourself.
September 28th, 2009 at 3:40 pm
I think you are splitting hairs here. I think that any extra money that the FDIC needs (or will need) will eventually come from tax payers. Would you agree that bailing out AIG with tax payer’s money bailed out GS? On paper the two GSAs are not supported by tax payers but in in reality they are being guarantied by tax payers. What I’m saying is that taxpayer’s money will find its way there directly or indirectly.
September 28th, 2009 at 3:40 pm
“Repeat after me: The FDIC does not run out of cash. The FDIC does not run out of cash. FDIC can confiscate all of the net assets and earnings of all FDIC insured banks. That is trillions in total liquidity. FDIC can borrow from Treasury, the Fed and even from FDIC insured banks. They can also issue notes.”
This is new information to me, thanks for the education, Chris.
Repetition is the key to learning, so you may need to repeat this exercise a few more times before it sinks in.
September 28th, 2009 at 3:51 pm
DeDude@3:36
“People have an increadible affinity for “Oh my good the government is going to rape me again” stories.”
And as if they were on call, the paranoia explodes on this tread with people who takes some kind of perverse pleasure in being able to portray themselves as “victims of government” ;-)
Give it a rest people. Remember the bailout bill last year was not passed until it had first failed and the stock marked reacted to that failure with a 9% drop. The reason the FDIC is not just using its ability to borrow from Fed and treasury (which would make best business sense and not cost the taxpayers a cent) is the fear that the teabaggers in their ignorance would label it a gobinment bailout.
September 28th, 2009 at 3:52 pm
@DeDude: You’re now responding to your OWN posts?
September 28th, 2009 at 4:10 pm
Personally I think the FDIC should issue their own bonds. Considering how safe they are such bonds would probably be no more than 25-50 bp above similar length treasuries. That would avoid political outfall from the Fox noice machine playing our idiocracy. At the same time it would avoid the completely unseemly profit and huge conflict of interest issues if FDIC were to borrow money from large banks.
Mannwich, I know – is that the ultimate pathetic move, or what ;-(
September 28th, 2009 at 4:11 pm
Jeff,
that’s a nice trick, no?
~~
Chris,
at the minimum, the ‘banks’ customers pay those FDIC fees, yes?
but, past that, your point is a good one, Weil should get the nuts & bolts right, if he’s going to build a story worth reading..
September 28th, 2009 at 4:14 pm
DeDude@3:36
“People have an increadible affinity for “Oh my good the government is going to rape me again” stories.”
And as if they were on call, the paranoia explodes on this tread with people who takes some kind of perverse pleasure in being able to portray themselves as “victims of government”
I guess all those trillions added to the deficit and therefore liabilities to the tax payers is all in our heads…
I guess targeting inflations (about %2) by the FED which amounts to confiscations is all in our heads…
So DeDude what IB do you work for?
September 28th, 2009 at 4:27 pm
The FDIC is an insurance company that failed to charge a correct premium. Insurance companies are regulated and would never be allowed to do this. In fact you would go to jail if you did manage to do it. But the FDIC can confiscate all the banks? Lets ignore that idiocy. Ok but they will eventually pay off the loan since they can keep charging the FDIC banks. One – why do the banks have to stay in the program? Who would keep buying insurance from an insolvent insurance company? Two – The FDIC now has 2 liabilities, the risk of further bank failures and a 400 billion dollar loan. Note FDIC’s current premiums are not even enough to pay the interest on that loan. So how is the FDIC going to charge enough to cover the loan and to cover the risk of further bank failures in the next recession?
If the FDIC borrows 400 billion from the treasury where does that money come from? Why the treasury would have to borrow it! But the FDIC is paying us more interest than we are paying out! We’re making money with no risk! Its magic Whalen you just rediscovered the magic of finance that allowed us to get into this problem in the first place. And it only took you a year to forget what the original problem was!
Government borrowing is not a magical riskless source of as much money as you want. You can’t add on an extra 400 billion and tell me but its guaranteed to be paid back so no one loses money! The government borrows money and I hate to break it to you but they do not control the interest rate people are willing to lend them at. The more debt you have the higher the rate you pay. This is what hurts the taxpayer. And guess what? There are a lot less taxpayers with everyone losing their job.
AND IT IS NOT JUST THE INTEREST PAYMENTS TAXPAYERS ARE FORCED TO PAY FOR – if the government keeps playing fast and loose thinking there is no risk to borrowing then when rates rise they will rise on everyone. Your mortgage rates will go up. Your car loan payments. Inflation. The dollar falls and everything in Walmart doubles in price. Why are you willing to take this risk to bail out the people who put us in this mess?
If you think we will only lost 400 billion from FDIC insurance. How about we close all those banks now and create a new bank and give it 400 billion. It can lever up 10 times and now we have 4 trillion in loans. Oh my god! Problem fixed! Lending actually increases instead of shrinking as it has done for 2 years. WHY HAVENT WE DONE THIS 2 YEARS AGO? Because we are protecting the bankers not the people.
September 28th, 2009 at 4:30 pm
Weil is a good writer, if you know nothing about the subject he is writing about. His accounting columns make me cringe at the many inaccuracies.
September 28th, 2009 at 4:32 pm
@DeDude: Now I’ve been known to talk to myself quite a bit (especially in this crazy time period), but that’s a new one! I might just give it a try. Is it satisfying? ;-)
September 28th, 2009 at 4:32 pm
“at the minimum, the ‘banks’ customers pay those FDIC fees, yes?”
The price of a government at sleep ultimately ends up being payed by regular (taxpaying) folks, to the benfit of the rich. But for some reason the “taxes” being payed via $4/gallon gasoline because we allow rich people to speculate in commodities – or the “taxes” being payed in excessive fees and prices when we allow monopolies and colluding trade groups to “be free from government interference and regulations”, are not the focus of corporate media (perhaps because their rich owners and overpaid pundits wouldn’t like folks to hear stories focuessed on that). Similarly our corporate media has ensured that we will end up being the only country in the world who waste over 25% of our health care expenses on private company profits and administrative costs – and again the benficiaries are the rich and the rest of us will pay the price, and some even the ultimate price.
September 28th, 2009 at 4:38 pm
“I guess all those trillions added to the deficit and therefore liabilities to the tax payers is all in our heads… I guess targeting inflations (about %2) by the FED which amounts to confiscations is all in our heads…”
No those things are real.
HOWEVER, the idea that the FDIC would cost you money is a paranoid fairy tale that Fox news and similar bankster slaves have planted in your brain. If you actually cared to read (and speed reading is NOT reading) the above piece you would have to be retarded to think that the national balance sheet is in any way shape or form at risk from the FDIC.
September 28th, 2009 at 4:41 pm
I think this is bordering on retardation. Does money just magically appear in a bank? Any payments to the FDIC from the banks comes from the depositors. Also known as taxpayers. If Bank of America pays money to the FDIC where is that coming from. Oh, TARP. Taxpayer money.
Are you really trying to split hairs and pretend this makes a difference? Our banking system is completely insolvent, only existing because of government theft of taxpayer dollars that were transferred to these banks. Now these same banks are going to float the FDIC money and you try to convince me that it is not the taxpayer money.
It’s all our money. The losses were stolen by the bankers and now the taxpayer is making up for those losses. Whether it comes in the form of a straightforward tax or backdoor makes no difference.
September 28th, 2009 at 4:52 pm
HOWEVER, the idea that the FDIC would cost you money is a paranoid fairy tale that Fox news and similar bankster slaves have planted in your brain.
It’s already costing me money. I earn lower interest on my deposits at safe, liquid banks because they have to pay huge “special assessments” to fund this insane “deposit insurance” scheme of having the healthy banks pay for the mistakes and losses of the sick ones.
Whalen’s writing here reminds me of the “U.S. government can never default because it can print the dollars it owes” line of argument. Okay, yes, they could do that, but let’s not pretend that that will be a painless, loss-free process, or that it somehow makes it inaccurate to describe the government with its current mountain of liabilities — which cannot possibly be funded except through the lie of currency debasement — as “broke.”
September 28th, 2009 at 5:05 pm
Grasshopa;
You seem to forget that the people insurred by FDIC is actually the little savers (>$250K) not the banksters. So if the federal government were to simply default on it’s promise from that insurance company, those losing money are the little savers. The banksters and their fat bonuses from the past decade are long gone and they would lose little if anything.
With the total national debt being about 50 trillion an added 0.4 trillion is not going to drive the interest rates anywhere.
Another megabank with 400 billion is not going to start the lending again. We have a huge credit contraction not for a lack of money to levarage up, but for a lack of healthy consumers and businesses with the appetite to borrow and spend. The current banks have been loaded with money from the Fed, but they refuse to use it on anything except for bying treauries. Now if that megabank (government owned and controlled I presume) were to start lending to consumers and businesses that are not healthy (and shouldn’t get to borrow and spend in the first place) then it may make a difference – but I presume that you are not advocating such a thing.
September 28th, 2009 at 5:17 pm
You don’t default on the FDIC guarantee, but you certainly can’t argue that that money isn’t coming out of the taxpayers pocket as the article does.
I disagree on the bank lending. The current banks cannot lend – they have simply been given enough money such that they are not technically insolvent anymore. What gets you out of a natural and healthy recession is the creation of business, taking advantage of the holes created by the destruction of older entrenched failed businesses. If I could get a 100k loan right now I’d start a business and be able to pay it back at a 10% rate easy. My customers in this case are Chinese and the workers are American. However I can’t get the loan and while I have the money I’m not willing to risk it at this point. A friend of mine is trying to get a loan from Wells Fargo, and the bank is now paying penalties to the builder because it guaranteed the loan and is delaying the funding. The friend has been working for 5 years and put 20% down. I have a feeling WFC can’t fund anything, not that they can’t find creditworthy borrowers.
September 28th, 2009 at 5:21 pm
Can’t we just put the FDIC on the bonus pool list of GS?
September 28th, 2009 at 5:22 pm
Graphite; the main reason you (and I) are payed such small interest rates on savings is that the Fed is providing banks with all the money they ask for at an interest rate of 0-0.25%. Why would they want to pay you any more for your money. We all get our stuff where it is the cheapest, and they are to broke to afford overpaying.
Those “huge” special assessments are quite small if you look at the total expenses that a bank has. I do think that those insurance fees should be restructured and especially after we made the IB’s into banks we need to let the fees reflect the specific risk that each bank is exposing itself to, rather than a similar fee for all banks regardless of the risk they take.
September 28th, 2009 at 5:23 pm
“Repeat after me: The FDIC does not run out of cash. The FDIC does not run out of cash. FDIC can confiscate all of the net assets and earnings of all FDIC insured banks. That is trillions in total liquidity. FDIC can borrow from Treasury, the Fed and even from FDIC insured banks. They can also issue notes.”
First of all let us be clear as to what the FDIC is for. It was created in 1933 to prevent bank runs. If we had bank runs on the scale of the 1930s the FDIC couldn’t confiscate the net assets and earnings, because they would be needed to pay the consumers withdrawals. Borrowing from the Fed would also not be possible as it would cause massive inflation to the point of currency destruction. Same goes to them issuing notes. As for the Treasury, FDIC is limited to borrowing $500 billion.
Saxo Bank Research reported that after Aug 7th 2009 further bank failures had reduced the DIF(Deposit Insurance Fund) balance to $648.1 million. FDIC reported days later that the estimated costs of more bank failures exceeded that amount which makes the DIF effectively bankrupt. As of August the FDIC only has what’s in the DIF, $22 billion in cash and Treasuries, and the $500 billion it can borrow. There is no way the FDIC can handle many more bank failures or bank runs. Roughly 50 banks collapsed July ’08 to March ’09 and that dropped the DIFs reserves from $45.2 billion to the current $648.1 million. Just 50 of the 8,246 institutions it says it would cover.
To make a long story short; Bloomberg was mostly right in saying the FDIC was bankrupt.
September 28th, 2009 at 5:36 pm
Grashopa; Unless we are a socialist country where the banks are owned by the government then you cannot equal a cost to “taxpayers” (government) with a cost to “costumers” of a Bank. Yes it is the same person that pays, but I pay excessive prices to private businesses every day including banks. That is the price of capitalism and free unregulated markets.
The reason you and your friend cannot get your businesses funded at this time is that the definition of acceptable risk has changed. So projects that would have been funded without problems 2 years ago are simply not considered viable today. The banks have decided that borrowing money from the Fed at about 0% and lending it to you at 10%, might produce a bigger profit than lending it to the Federal government at 1-4%, but that extra profit is not worth the risk. The Fed has been flooding the banks with money, so it is not for lack of money that banks refuse to lend.
September 28th, 2009 at 5:36 pm
Grashopa; Unless we are a soci@list country where the banks are owned by the government then you cannot equal a cost to “taxpayers” (government) with a cost to “costumers” of a Bank. Yes it is the same person that pays, but I pay excessive prices to private businesses every day including banks. That is the price of capitalism and free unregulated markets.
The reason you and your friend cannot get your businesses funded at this time is that the definition of acceptable risk has changed. So projects that would have been funded without problems 2 years ago are simply not considered viable today. The banks have decided that borrowing money from the Fed at about 0% and lending it to you at 10%, might produce a bigger profit than lending it to the Federal government at 1-4%, but that extra profit is not worth the risk. The Fed has been flooding the banks with money, so it is not for lack of money that banks refuse to lend.
September 28th, 2009 at 5:47 pm
please see http://www.zerohedge.com/article/biz-booming-geithners-private-bank regarding the Federal Financing Bank (FFB).
Includes a line item of “Agency debt” “Federal Deposit Insurance Corp”.
September 28th, 2009 at 5:49 pm
The FDIC is obviously broke, but there’s no way that the FDIC won’t get as much money as they need. But the real problem is if we loose 1,000 more banks, as many people predict, and the rest of the banks have to mark to market in any serious way. You have total losses at 300B, but you can make a pretty good case for 1.5T in bank losses, far more than their capitalization.
Banks will not be able to come up with a fraction of those funds. Short term maybe banks make a political gesture and pay some future premiums. But if this debt deflation reaches its potential, those funds won’t last a week. At that point the only option is to get funding from the Treasury ,AKA you and me.
September 28th, 2009 at 5:50 pm
Thanks to Chris for clarifying his position here (I had asked previously…)
September 28th, 2009 at 6:28 pm
Sheila Bair will pay you two hamburgers tomorrow for just one hamburger today. But, today’s burger is from Hamburger Hamlet and tomorrow’s are from White Castle’s.
September 28th, 2009 at 6:39 pm
The banks are insolvent, the US is insolvent, bonds (I assume that’s what you mean by “notes”) are fraudulent, the Fed and the Treasury are already passing phony money between themselves (like it’s not really fucking someone over, if they’re in the family).
WE. ARE. BROKE.
The taxpayer is the mark and whipping boy in all of this.
ALL of it.
It amazes me that we talk about not remembering the lessons of the GD when we can’t even remember the lessons of last year.
September 28th, 2009 at 6:45 pm
Dedude – its the government forcing the insurance cost upon all of us not the banks. Its because we have capitalism that that cost to the banks goes straight to the consumer. In China they have the same costs put on the businesses, but they then tell the business what to charge the consumer. This causes insane volatility in private profits as the government manages prices. See Chinese coal companies in 2003.
I do not want the FDIC. I am quite capable of realizing that C is insolvent and not putting my money there. Thats capitalism. I would much prefer prudent lending at 8 to 1 and less volatile booms and busts then what we have. This is called reasonable regulation of an institution – since it is our money that is being lent out we have the right to stipulate terms to the banks. Unfortunately the brightest minds of our times were making banking regulation in order to ALLOW our banks to gamble with our money – see the BASEL accords. The goal is to allow banks to increase their lending when things are good and to force them to restrict when its bad. That does not protect the depositor or taxpayer money.
It makes me sick to read idiocy like this on BRs blog. Its like reading William Buiter only to hit the we should have negative interest rates post. Please stop telling people they are not being screwed. Its for your own good. We’re the adults see. You are the children. If you would just stop complaining everything would be fixed.
Bank runs were not the problem in the 30s. The insolvent banks were. Same today. Lets stop lying and tell everyone what the problem is. Then find a solution and tell people what the costs are.
September 28th, 2009 at 6:47 pm
wunsacon-
thanks a lot- now i want a bag of white castles- and the closest place is Jersey- and I live in DC
MA-
pretty much it- i wonder when it will be acknowledged by anyone
September 28th, 2009 at 6:49 pm
MA – AMEN
September 28th, 2009 at 7:21 pm
“The reason you and your friend cannot get your businesses funded at this time is that the definition of acceptable risk has changed. So projects that would have been funded without problems 2 years ago are simply not considered viable today.”
This is false. Interest rates have fallen to zero and the government has taken the added step of actually giving the banks money. This means that projects 2 years ago were held to a higher standard then today. So we should see more lending, but instead we have a contraction in business lending. Now we need to know why in order to see where we are headed. I believe you are confusing business and personal (home) lending.
You are saying that the problem we have is a lack of able borrowers. I am saying we have a lack of able lenders. The article we are commenting on is arguing the banking system is sound financially even assuming 400 billion in losses to the FDIC. Remember 400 billion is the insured deposits at banks and is not all of the money on deposit at those banks.
I don’t know about you, but if the FDIC seems like it might be losing 400 billion a huge % of our banks are gone and I would no longer have any money kept in an FDIC insured bank. Even if the article argues we pay ourselves back over the next 30 years. You know why? The non FDIC insured bank will be paying a much higher rate on savings. The FDIC bank would be charging you money in your savings account. Thats capitalism, the smart people won’t pay for the bailout. And the solution? Will be to force everyone to pay for it so that the per capita cost is lower. Are you even allowed to have a non FDIC insured bank? I bet they have to pay a fine or tax that strangely enough is the same as the “premiums” the FDIC banks pay.
September 28th, 2009 at 7:30 pm
Grashopa; Any idiot can look at C today and realize they are in trouble, the problem was realizing it two years ago. Many people who had it as a full time job to evaluate the soundness of banks, had absolutely no clue who were good and who were not a year ago when the sh*t hit the fan. That was in spite of the fact that they didn’t have a real job and, therefore, could spend the time reading through the 2000 pages of details from a bank and understand all that gobeldigob accountant talk there. I seriously doubt that anybody not in the banking industry could even figure out what the real leverage level in a bank is unless the FDIC was there to tell them. With a third of the population being challenged beyond their ability by the task of balancing their checkbooks, it is not realistic to think costumers can distinguish a safe from a not-safe bank. Nor is it realistic to think that they would not make a run on their own bank at the first false rumor put out by a competitor.
Without the FDIC and banking regulations the banksters would actually gamble considerably MORE with our money and we would all lose everything we held in the bank at regular intervals. Good luck running an economy without banks and also good luck trying to “stipulate” anything to the banks as an individual. The only stipulations they care about are the once that will put them in jail if they are violated, and those are decided by “we the people” via our democratic process, not by some overconfident individual who think he would be taken serious as a big grashopa.
Try to wake up to the post-Reagan era. A company is an organization owned by a bunch of suckers called stock holders. It is run by and exclusively for the benefit of it’s management. These managers will suck as much out of the company, stock holders, and costumers as they can (in absurd salaries and bonuses). Then they let the company go bankrupt. They will manage information and key votes at the annual meeting in such a way that the truth about the company is not revealed until the last minute. The only thing that can block them is called laws and regulations. Stupid little Wall Street shills help these thieves by dancing to Wall Streets tune about how bad “gobinment and regulations” are.
September 28th, 2009 at 7:38 pm
some things should be read twice:
“The banks are insolvent, the US is insolvent, bonds (I assume that’s what you mean by “notes”) are fraudulent, the Fed and the Treasury are already passing phony money between themselves (like it’s not really fucking someone over, if they’re in the family).
WE. ARE. BROKE.
The taxpayer is the mark and whipping boy in all of this.
ALL of it.
It amazes me that we talk about not remembering the lessons of the GD when we can’t even remember the lessons of last year.”
MA,
Peep have a grand way of ignoring the Obvious, no?
~~
DeDude,
Central Programming called, they wanted to remind you that it’s time for a new Tape ASAFP.
September 28th, 2009 at 8:36 pm
I seriously doubt that anybody not in the banking industry could even figure out what the real leverage level in a bank is unless the FDIC was there to tell them. With a third of the population being challenged beyond their ability by the task of balancing their checkbooks, it is not realistic to think costumers can distinguish a safe from a not-safe bank. Nor is it realistic to think that they would not make a run on their own bank at the first false rumor put out by a competitor.
Except for the inconvenient little detail that the FDIC didn’t tell anyone that Citigroup was dangerously leveraged or insolvent, and let them simply go on their merry way until they had made their bank into a monetary black hole. Unfortunately, the FDIC appears to have been just as incompetent as that “third” of the U.S. which is allegedly too dumb to evaluate the soundness of its banks. At least when individuals are responsible for ensuring the soundness of their own depository institutions, they bear the costs for their own errors in judgment … as opposed to the current system, which centralizes responsibility for the task with a bunch of (apparently completely chowderheaded) examiners at the FDIC.
But in fact, people are NOT “too dumb” to evaluate whether their banks are sound, it’s just that they’ve had absolutely no reason to ever bother with the question when they had the FDIC logo on the teller window promising them that Uncle Sam was good for it. If there is widespread ignorance of banking practice amongst today’s depositors it is largely because that ignorance is cultivated and encouraged by the presence of federal deposit insurance.
Without the FDIC and banking regulations the banksters would actually gamble considerably MORE with our money and we would all lose everything we held in the bank at regular intervals.
This bald assertion is certainly not supported by the history of pre-FDIC vs. post-FDIC banking practice. Jim Grant’s Money of the Mind is an especially lucid (and even, occasionally, entertaining) history on the topic.
September 28th, 2009 at 9:07 pm
And if the banks were to pay higher fees, might this not eat into their automatic bonus plans? Perish the thought.
September 28th, 2009 at 9:09 pm
Just remember that the bankers don’t want FDIC bailed out. They would like to pay for the clean-up themselves. The trouble is the hole is just too big.
September 28th, 2009 at 9:56 pm
@CW
Wouldn’t $30 billion earmarked for bonus payments go a long ways towards filling this hole? The banks got us into this mess and it is the responsibility of the banks to get out of this mess.
Automatic bonus compensation policies (sorry BR, but that is exactly what they are) need to be suspended until the banking mess is cleaned up.
How are we going to ever have a long term solution to our economic woes when income and wages keep declining in real terms and access to credit is cut off until this banking mess is resolved?
Isn’t there just a bit of hypocrisy involved when the investment bankers support liberal politicians yet insist on outrageous compensation packages and abhor any talk of tax increases upon the wealthy?
How long will it take until the general population says enough is enough? And once they have had enough, in what form will their repulsion and anger take? I think we are in for some scary times ahead.
September 28th, 2009 at 10:40 pm
bsneath:
A nit to pick w/your comment:
“The banks got us into this mess and it is the responsibility of the banks to get out of this mess.”
That would entail self-policing, a conscience, or functional law enforcement. The bankers don’t have either of the first two. and we don’t have the last.
September 28th, 2009 at 10:42 pm
Chris Whalen Says:
September 28th, 2009 at 9:09 pm
“Just remember that the bankers don’t want FDIC bailed out. They would like to pay for the clean-up themselves.”
_____________
There’s nothing stopping them from giving until they’re broke, and letting us handle the remainder.
September 29th, 2009 at 2:29 am
new york times ran this and I put it on the site
Dow in distance to strike 10k
Fresbee
September 29th, 2009 at 2:32 am
The total cost may just be 300-400 but if all those banks go out of money, what you are looking at is a potential bank run on other average to mediocre banks. That will trigger a chain reaction and can bring down the system within hours. It will be far worse than the money market run that happened in Feb.
Thats why I think Bloomberg may be right about running the warning.
I will post an article on the banks in US that are set to close by March 2010. They 1800 in number and are rated to close by GS.
Fresbee
Investing Contrarian
September 29th, 2009 at 2:57 am
Is DeDude parroting pro-establishment BS because he really believes it, or is he just trolling?
September 29th, 2009 at 3:00 am
“Is DeDude parroting pro-establishment BS because he really believes it, or is he just trolling?”
Good question, clawback. I think he’s probably just trolling, but then again he has an obvious dislike for the “teabaggers.” And on other threads he’s been very weak on the bailouts in general. Most likely, he’s also an Obama supporter who senses that Obama/Geithner now “own” the bailouts and that this is very bad politically. Better to call people “paranoid” (a favorite lefty epithet) than to acknowledge the legitimacy of their grievances.
September 29th, 2009 at 7:35 am
DeDude .. 1st thanks for your time (but let em get eaten*) – I like the thought of FDIC being a first line borrower from the FED but also borrow from small banks with interest paid out .. but not a fee/tax.
MA MEH ChrisW- thanks too
Graphite grashopa severne clawback..
keep playing monopoly with the big fish and see who gets eaten .. government is our union
http://www.ritholtz.com/blog/2009/09/obama-rally/#comment-220373
* sorry all – loosing my care .. no kids and past 50yo
September 29th, 2009 at 9:18 am
You can forget about Bair asking Geithner for money. You may infer the reason by the wording of the previous sentence. If you can’t, you know enough people; find out why.
September 29th, 2009 at 9:20 am
easy solution to FDIC’s “cash shortage”.
The banks continue their internal hedge fund trading and profits game (much to the chagrin of Volcker) and funnel the profits to the FDIC.
Now if only we could fund health care and social security the same way :-(
September 29th, 2009 at 11:16 am
[...] as Barry Ritholtz at The Big Picture has repeated at high volume, “The FDIC does not run out of [...]
September 29th, 2009 at 1:08 pm
Graphite; if you seriously think that any meaningful fraction of the US population would be capable of evaluating the soundness of a bank, you are obviously not from this planet or this dimension.
September 29th, 2009 at 3:16 pm
keep playing monopoly with the big fish and see who gets eaten .. government is our union
There is hardly an institution that is *more* in the tank for the big banks than the federal government.
Graphite; if you seriously think that any meaningful fraction of the US population would be capable of evaluating the soundness of a bank, you are obviously not from this planet or this dimension.
Obviously I don’t think that they’d be poring over bank balance sheets and running analysis of their assets. But there are plenty of private companies who do provide that service — witness, for instance, the bank safety ratings on thestreet.com. (Personally, I refuse to keep my deposits at any bank that is not rated ‘A’ or higher there.) Most Americans have no idea how to individually evaluate whether a car is well built or reliable either, and yet they manage to get a pretty good sense of that information from various sources. Almost everyone who goes to buy a car does a lot of reading of third party research and publications to make sure they aren’t buying a piece of crap. Almost no one does the same thing with their banks, and why should they? And since the FDIC obviously cannot be trusted to police the soundness of the banks either, who exactly will be doing that job?
Yes, some people still buy lemons and in a non-FDIC world some people would still lose their money in shaky banks. But trying to solve that with federal deposit insurance is like establishing a “federal lemon insurance fund” to make sure no one who screws up and buys a crappy car ever bears the cost of their own bad decision.
September 29th, 2009 at 4:29 pm
FDIC Proposes Banks Prepay Deposit Fees Through 2012
http://www.bloomberg.com/apps/news?pid=20601087&sid=aidlDq7Z4Yyk
…supports Chris Walen’s take over Bloomberg’s Weil (Weil did not pen this Bloomberg piece.)