Desperation at the FDIC

By Greg Hunter’s  

The latest plan at the FDIC to replenish its drained insurance fund is to borrow from the people they are supposed to bailout, the banks!  What!?   This smacks of desperation at the FDIC.  You have been hearing since the financial meltdown began that the banks are in trouble and most are severely undercapitalized.   The plan regulators are considering is to have the nation’s healthy banks lend billions of dollars to rescue the FDIC insurance fund that protects bank depositors.

I have some questions about this plan to borrow money from the banks to lend to the FDIC.  Aren’t those the same banks that are supposed to lend money to consumers to help get the economy out of recession?  Aren’t those the same banks that are not lending because it’s too risky and they need capital?   Wouldn’t the FDIC borrowing reduce the pool of money to lend?  Are some of these “healthy” banks lending the government back its TARP money and then collecting interest off bailout funds that were not needed?

I do not know the answers to those questions, but here’s one I do know the answer to.  Guess who is firmly behind this idiotic idea?  If you guessed the bankers and their lobbyists, bing, bing, bing, you are correct!  The reason they like this “plan” is because they don’t want another emergency assessment.  That cuts into their profits.  Bankers also can collect interest that they are guaranteed by the taxpayer to get back.  You got to love that about the banks these days.  They never seem to miss an opportunity to cash a check at the expense of you and me.

The FDIC has a standing 500 billion dollar line of credit at the Treasury.  Why doesn’t Chairman Sheila Bair just tap that money?  It has been rumored that relations with her counterpart at the Treasury, Tim Geithner, are strained because they have butted heads when dealing with the financial crisis.  But that excuse sounds childish to me, almost like a grade school feud.  After all, the 500 billion buck line of credit does not belong to Geithner.  It is taxpayer money appropriated by Congress.  I think the “FDIC’s borrow money from the banks plan” is a way to make it look like the government isn’t going deeper into debt, once again, to bail out bankers who made bad loans.  The “plan” gives the elusion that the banks are solving their own problems this time.  That, of course, is a load of crap!  Taxpayers ultimately will be on the hook again one way or another.

The FDIC now has less than 10 billion dollars to insure about 4.5 trillion dollars in deposits.  Think about that, less than 10 billion to insure 4,500 billion dollars in deposits.  Put the thin insurance fund up against the backdrop of  massive problems with residential and commercial real estate and there is plenty for the FDIC to be very concerned about.  There are still “millions of homes,” according to the Treasury, which will end up in foreclosure.  “The other shoe to drop,”  according to Daniel Tishman, Chairman and CEO of the Tishman Construction Corporation, is commercial real estate.  Tishman says 3.7 trillion dollars in commercial property will need financing in the next several years.  With just those two problems to consider, expect the FDIC insurance fund to continue to be desperate for cash to pay depositors at banks that continue to go bust.

For the entire interview with Mr. Tishman on CNBC, you can check out the video below.

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  1. George

    This FDIC plan is by far the DUMBEST thing I have ever heard. The FDIC obtaining a loan from the banks the Federal Reserve propped up with our money to keep from failing? Have things progressed so close to the tipping point the government is afraid if the FDIC taps their credit line with the US Treasury it will send America over the edge?

    • Greg

      You just can’t make this stuff up. Thank you for your thoughtful comment.

  2. Ralph

    Hi Greg,

    I think it’s useful to remember that the FDIC was originally created merely as a marketing ploy to give the people the ILLUSION that placing their money in a bank was a safe thing to do by providing ‘insurance’ against loss. This was necessary to entice those deposits in the first place. After all, people remembered the lessons of the Great Depression that banks could and DID fail…

    The ‘mechanics’ of insuring those deposits were ‘esoterica’ to most all depositors and, in general, remained ‘behind the curtain” and unexamined. As long as the economy perked along, there were never any problems.

    Today, as the $1.5 Quadrillion dollar Anti-Matter DebtStar goes Super-Nova and implodes — suddenly we HAVE problems! And now, those ‘mechanics’ are being called on to perform. Uh OH!

    In a manner similar to the situation with mortgage-gate, where the bankers never considered that the real-estate market could fall and thus expose their fraud and malfeasance, suddenly ‘mechanics’ are front-and-center. Uh OH!

    People need to start to notice the common thread running through all things financial. The ‘mechanics’ are all the same. Now we hear that Social Security will be $45 Billion short this year… Uh OH!

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