The truly scary number
Times are tough all around. It's not just commercial banks, and investment banks, and Fannie and Freddie lining up for a handout. According to the Wall Street Journal, "Federal Deposit Insurance Corp. Chairman Sheila Bair said Tuesday her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures."
The last time the FDIC did this was during the savings-and-loan crisis of the early 90s — when it was first granted the authority to do so.
"I would not rule out the possibility that at some point we may need to tap into [short-term] lines of credit with the Treasury for working capital, not to cover our losses, but just for short-term liquidity purposes," Ms. Bair said in an interview…
The FDIC's deposit insurance fund reimburses depositors who lost money in a bank failure, typically up to $100,000. The fund's balance fell in the second quarter to $45.2 billion. That is just 1.01% of all insured deposits, low by historical standards.
That's a scary enough figure. But the really scary number is one the Journal's reporters overlook — and it should have occurred to them to ask someone. Fortunately, Bloomberg did earlier this month. "The failure of IndyMac Bancorp Inc. and seven other banks this year may erase as much as 17 percent of a government insurance fund."
Yup, 17% of the FDIC's fund is already spoken for. No wonder the FDIC's looking at raising the premiums its member banks kick into the fund — assuming the increase doesn't crater the banks' finances any more than they've already been by bad loans, of course.
How sure is Ms. Bair that the purpose of this handout is just to keep enough cash in the drawer day-to-day and not to actually keep the FDIC afloat? Oh, excuse me, I'd better watch myself posing such an impertinent question. "We're very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it," Ms. Bair remarked last month. I'm assuming by "misinformation" she doesn't mean false statements — but rather true statements that might undermine confidence in the system.
You do keep your accounts under $100,000, don't you? Good. Here are some other things you can do to keep your head above water.
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I have heard that this will mainly affect business accounts (few personal bank accounts have over 100K in them). Many companies need to maintain over 100K in their primary business account in order to meet payroll. Yet another reason this banking crisis is going to lead to lots of layoffs even in non-financial sectors.
Comment on August 27, 2008 @ 10:25 am
of course,
when the bullshit short-term freebies are ended (TAF’s, TSLF, “alphabet soup”, then the next phase of the credit crunch begins. this will force more banks to go down, and then FDIC itself. Then this will morph into a real economic threat, because of the business lines, as you most astutely noted.
of course, its possible the fdic won’t make until the fed auctions are over, in which case the fed is the lender of last resort to the following.
Commercial Banks
Investment Banks
Select Hedge Funds
Freddy
Fannie
FDIC
Sounds like the master planners have thought this out thoroughly.
I just hope to see some heads on some pikes when this is all said and done.
Comment on August 27, 2008 @ 4:54 pm
Tom, I do, and do not, agree with you. I think it will affect more than just business accounts. Hasn’t the FDIC stated that they will insure UP TO $100K, but even if you have, say, $75K in your account, they might not insure all of it? Isn’t it a percentage? Someone help me out.
Comment on August 27, 2008 @ 5:10 pm
The FDIC[K] “insures” over $13 trillion in deposits. That’s 13,000 billions of dollars. $45 billion is NOT 1% insured money. Not anywhere near 1 percent! One percent of $13,000 Billions is $130 billion. So, half a percent would be $65 billion. $32 billion would be one-quarter of one percent of $13,000 Billions (or $13 trillion) in Americans’ FDIC[K]-insured deposits in over 8500 U.S. Banks.
Thus the FDIC only has the equivalent of a little bit more than one-quarter of one percent deposits insured.
When the U.S. banking system collapses, the FDIC will go down with the Titanic also, and the U.S. Treasury will also go down, because they couldn’t print that much money in a hundred years when all the depositors panic and demand their money back.
This could all unravel by as early as October and very probably by mid-December, by all logical indications.
Comment on August 27, 2008 @ 6:31 pm
ps There’s rumour out that one of Florida’s biggest lenders will be toast by friday after the Dow closes. This will also be on the same magnitude as Indymac, which, OBVIOUSLY, is why Ms. (get me a Bayer!) Bair has sounded Defcon 4 alarm and hinted that FDIC[K] needs the Treas. to bail em out. By Monday, when Floridians are on the streets scrambling for their money, we may see talk of ‘FDIC Nationalization’ . . .
Comment on August 27, 2008 @ 6:37 pm
So what if FDIC is undercaptialized. If they get into trouble, and I have a feeling they will, the FEDS will bail them out. If the Fed Res balks when the Tresury asks for loans then Congress just makes the hint of taking their gold back and nationalizing the FedRes, guarantee you they’ll play ball. Was it Ben Franklin who said “nothing clarifies thought as the prospect of ones imminent hanging”, millions of voters stiffed by FDIC would be just that for Congress.
Comment on August 28, 2008 @ 12:25 am
Geez, thanks for the reassurance, Jeff! I sure hope you’re right, because i’m on the verge of selling my home to a cash buyer, and these developments make me wonder if the banking industry can stay glued long enuf for the deal to go thru in late September . . .not that i don’t care about the other millions of potential victims, but i just want my monet sos i can purchase that farm out in the country . . .
Comment on August 28, 2008 @ 7:32 am
Gee, I do so hope that somebody kept some of those ice-sculptures peeing vodka that set the proper tone at Kozlowski’s wife’s Birthday in Sardinia a few years back. After all, they were the opening salvo of this tanking of an economy by the Grandee Set and their helpmates in Government. The problem with the Free Market is not the Free Market itself, it is more a matter of the brazen rubes who jump into it and lose all brains in the excitement of the moment to an extent that they think themselves somehow impervious to cause and effect.
Now we shall watch the Populists muck things up royally.
Comment on August 28, 2008 @ 1:19 pm
planing to ‘buy the farm’ (spelling?)
they do what with the cash you receive
from selling a house etc. comments
seem to be saying watch out for
perfect storm, or who dun it
Malteseanistic Falcons wise
Comment on August 28, 2008 @ 1:45 pm
[...] 1000 banks (Wilbur Ross's estimate) or 4500 banks (Ken Lewis). Seeing as the FDIC has already blown through 17% of its reserves just with Indymac and about a dozen podunk banks, we're talking about the [...]
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