FDIC responds to a Youtube video – they are so annoyed at the claims about the handling of the sale of IndyMac’s assets and the claims about its pending insolvency that they created a response.
I found this copy of it:
http://www.youtube.com/watch?v=pbRrYmuBqyg
Look to see if the FDIC has issued “take down” orders to censor youtube….
They seem most concerned that the video says the bank bailouts are being paid for by taxpayers – the FDIC is staying nominally solvent by taxing the banks, which will likely then mean lower interest rates on money taxpayers deposit, so that’s technically not a “tax”. People with no money are not paying anything.
The other point in dispute is the FDIC is borrowing money from the Treasury. While that is probably technically true, they do admit their fund is $8 billion in the red. The two strategies they have used so far are spending the cash now that they set aside to pay the ultimate costs of earlier bank failures – essentially pledging the same money twice – like taking out two mortgages on the same house. The other strategy is entering loss sharing agreements where the acquiring bank’s future losses on acquired loans will be compensated by the FDIC in the future, backed by the US government’s promise to pay.
This slow drawn out process of closing a few banks a week is going to kill us eventually. The FDIC approach is rewarding inaction by banks in trouble and creating moral hazards all over the place to encourage bad behaviour – A bank holding a loss sharing agreement becomes motivated to cause more loss in that portfolio and leverage that into profit for the bank. (in fact, that’s the exact point of this video – that the FDIC bailout encourages the acquiring bank to make huge profits by accepting short sales – the lower the sales price, the more profit.)
What is needed is a market based approach to encourage banks to voluntarily buy up each other, not more FDIC SWAT teams showing up on Friday afternoons doing emergency rescues on banks that have already lost half their assets while waiting in line to be seized.
