Posts Tagged ‘FDIC’

GE, BofA sell $18B in FDIC debt

Monday, March 9th, 2009

Bloomberg Story

Just a day after the FDIC announced it may be insolvent this year – and with responsible smaller banks crying foul (We’re paying for the mistakes of the reckless banks), GE Capital (which was NOT a bank) has issued $8B in bonds guaranteed by the FDIC and BofA (which recently said it was a mistake to accept TARP funds) has issued $8.5B in FDIC backed loans because Credit Default Swaps on their own lending is getting too expensive (because people selling the swaps believe the chance of default is going up).

If CitiGroup is allowed to fail, there is really no doubt the FDIC goes with it.  All the cards are on the table now, and the United States is holding a pair of 3s and bluffing – and the other people at the table know the cards we are holding.

FDIC to borrow its way to solvency

Friday, March 6th, 2009

The “solution” to the FDIC being insolvent is for the US Treasury to loan the FDIC $500 billion (It currently insures around $4 trillion sitting in bank accounts – probably more by now)

The problem with this?  The total revenue the FDIC raises by assessing a fee to banks on their insured deposit accounts is $2 billion a year.  It takes a long time to pay back $500 billion at $2 billion a year.

To dig the hole deeper, part of the mortgage cram-down bill’s language (probably to blackmail the American Banker’s Association into supporting it) is making the “temporary” insurance limit raise from $100k to $250k per account permanent.

The stupidity and unintended consequences continue.

FDIC to raise insurance rates to banks

Friday, February 27th, 2009

Story here

At a time when banks have no place to earn even meager interest safely, the FDIC has announced it needs an “emergency” increase in the insurance rate charged to insure your deposits.

The one time assessment with be 20 basis points ($.20 for each $100 on deposit), expected to generate $15 billion

The ongoing fee will be raised from $.14 to $.16 per $100 on deposit.

This was a completely predictable outcome of the Congressional mandate to increase the FDIC limit to $250k to cover deposits in banks for which no premiums were being paid in the past.  It’s like allowing people to buy house insurance the day after their house burned down.

Thank you John McCain.

How to fix the economy in a week

Saturday, February 21st, 2009

Back at the beginning of this problem, the first thing Hank Paulson proposed (probably at the request of Tim Geithner) was to bump up the FDIC coverage limit to $250,000 per account.  George Bush and John McCain quickly jumped on board.  This was exactly the WRONG thing to do and was a horrible mistake.

The result was an immediate outflow of money from the stock market which led to its immediate freefall – and then to make things worse they started adding in FDIC insurance to non-bank accounts like mutual fund money market accounts.   This is like writing insurance policies after the hurricane has already destroyed New Orleans, and with the same outcome.

They believed we are all cowards, and maybe the new Attorney General has a point.

My proposed solution:

“90 days from today, your FDIC coverage will drop to $20,000 per person (not per account) and that is a lifetime limit.  Once your money has been “saved” by the FDIC, that amount is deducted from your remaining $20k.   Amounts in CDs with a maturity of 1 year or more remain at $100,000 per PERSON coverage.”

Right now, huge piles of money are sitting in short term deposits.  Because they could vanish at any minute, banks can’t do anything useful with the money.

This would force people to do one of the following:

  • move the money into tangible assets – real estate, gold, cars, inventories
  • put their money back into the stock market – which would likely go up 20% the first week, and group psychology would do the rest
  • move the money into longer term CDs – which would give the banks a comfort zone that they could start buying commercial paper, fund construction loans, etc… and “unlock” the credit market
  • Pay off debt
  • People will question how their bank is investing money, not chase the highest yields from the weakest banks
  • Reduce demand for short term Treasury notes, allowing interest rates to return to a more normal range

This entire mess happened because we encouraged most of the money in the economy to surge into the one place where it does no good – short term safe havens.  We need people betting on the future, not fearing it.