The Banks Are (Still) In Trouble

Sheila Bair FDIC

By Greg Hunter’s USAWatchdog.com

The 94th bank of the year was taken over by regulators on Friday.  Irwin Financial Corporation in Kentucky and Indiana cost the FDIC, or you the taxpayer, 850 million dollars.  That is  a lot of money for just one Midwest bank, considering the insurance fund had just 10.4 billion dollars.  Maybe that’s why FDIC Chairman Sheila Bair said, on the same day as the bank failure, she was considering borrowing from a 500 billion dollar line of credit at the Treasury.   Bair said at a global finance summit in Washington, “We are carefully considering all our options, including borrowing from Treasury.”

That is a huge flip flop from just  2 weeks ago when Chairman Bair said, “…We can tap up to 500 billion in a line of credit if we needed to, I can’t imagine that would ever be necessary…” Bair’s denial of ever needing to borrow from the 1/2 trillion dollar line of credit was not a single offhanded comment but an exhaustive rejection of any serious thought of using it.  Bair went on to say, “If we have to go to the Treasury borrowing, I never say never, but I think that would be a pretty profound decision…we don’t need it right now and I am not sure we will, ever…”  You can watch the entire video on my September 2 post called, “Second Wave of Bank Failures? You Bet!”  The FDIC, back in late August, estimated there were 416 “problem” banks on a “watch list.”  Does that mean that there are 322 additional failures likely before the end of 2009?  

There is no telling what is coming, but the thought of tapping a half a trillion dollar line of credit to take over insolvent banks is not good news for taxpayers, the economy, or bank depositors.   Some outside experts say the FDIC needs about 70 billion to get through this “tsunami” of bank failures.  I say, if that’s the case, then why does the FDIC need a 500 billion dollar line of credit?  Wouldn’t  just a 100 billion dollar line of credit cover the banking meltdown?   The only sure thing I can report is the FDIC insurance fund has been significantly drained by a sharp increase in bank failures.   Taking steps to do what you can to protect your assets would  be prudent.  You should be sure your accounts are at or below the 250 thousand dollar FDIC insurance limit.  It might also be a good idea to check your bank’s rating.     I like to use The Street.com or Bankrate.com.  These two are free for the public to use.   I do not get paid to promote these companies.

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