FDIC to get $500B in bailout

[voytechs]

This just gets better and better everyday. :eek:


Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.http://online.wsj.com/article/SB123630125365247061.html

Just one question, if FDIC is forced to borrow $500B at some point, how the hell is it going to pay it back?

[theoakman]

This just gets better and better everyday. :eek:

http://online.wsj.com/article/SB123630125365247061.html

Just one question, if FDIC is forced to borrow $500B at some point, how the hell is it going to pay it back?

but if I create 500 billion dollars and bury it in my backyard...wait never mind....I'll just go spend it.

[ihsv]

$500 billion. They must anticipate a need.

Interesting.

[Nanerbeet]

You're missing the way bigger picture of this announcement-- bank runs. If the FDIC needs $500B you can bet your ass someone big is going to fail and should prompt bank runs TOMORROW. Kids, FDIC friday will probably will be a whopper.


I have less than the FDIC insured deposit but I'm going to withdraw everything tomorrow, too.



GAME OVER

[JordanL]

Whoa... this was the ONE thing Denniger said would cause the end...

As in the end...

[ghengis86]

all the big banks are fine though, right? I mean Citi is ~$1, BoA is not much better at ~$3, and JP just lost another 16% today. there's no big bank failure looming...

[pinkmandy]

But in this article (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alsJZqIFuN3k), posted in two threads here yesterday and dated March 4:


Bair rejected arguments that the agency should use government aid to rebuild the fund. The FDIC has authority to tap a $30 billion line of credit at the Treasury Department and legislation pending in Congress would boost the amount to $100 billion.

“Banks, not taxpayers, are expected to fund the system,” Bair said. Asking for taxpayer support “could paint all banks with the ‘bailout’ brush.”

Yet from the article posted by the OP (http://online.wsj.com/article/SB123630125365247061.html) dated March 6, just 2 days later:


Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.

The Connecticut Democrat's effort -- which comes in response to urging from FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner -- would give the FDIC access to more money to rebuild its fund that insures consumers' deposits, which have been hard hit by a string of bank failures.

[hugolp]

Whoa... this was the ONE thing Denniger said would cause the end...

As in the end...

Denninger also said two months ago that everything would be kind of ok in the US during this year. He even laughed at "mad-max" predictions. Its funny how quick he has changed his predictions.

Hugo

[RSLudlum]

Wow...gives former FDIC Chairman William Isaac's article "The Mythical FDIC Fund" more weight. I remember reading it last year and being skeptical even though it seemed quite plausible. It originally appeared on the Securagroup website, but appears to be unavailable now.



8/27/08
THE MYTHICAL FDIC FUND
By William M. Isaac*

*William Isaac, former Chairman of the Federal Deposit Insurance Corporation,(FDIC) is currently the Chairman of The Secura Group of LECG, a financial services consulting firm headquartered in Washington, D.C.

[Prologue: The FDIC is debating whether to increase deposit insurance premiums in order to restore the deposit insurance "fund" to 1.15% of insured deposits or higher. I wrote a column for this newspaper on this subject the last time it was debated some seventeen years ago.
I believe that column remains relevant to today's public policy debate. So here goes . . . with a few edits and a postscript]:


When I became Chairman of the FDIC in 1981, the FDIC's financial statement showed a balance at the U.S. Treasury of some $11 billion. I decided it would be a real treat to see all of that money, so I placed a call to Treasury Secretary Don Regan:


Isaac: Don, I'd like to come over to look at the money.
Regan: What money?
Isaac: You know . . . the $11 billion the FDIC has in the vault at Treasury.
Regan: Uh, well you see Bill, ah, that's a bit of a problem.
Isaac: I know you're busy. I don't need to do it right away.
Regan: Well . . . it's not a question of timing . . . I don't know quite how to put this, but we don't have the money.
Isaac: Right . . . ha ha.
Regan: No, really. The banks have been paying money to the FDIC, the FDIC has been turning the money over to the Treasury, and the Treasury has been spending it on missiles, school lunches, water projects, and the like. The money's gone.
Isaac: But it says right here on this financial statement that we have over $11 billion at the Treasury.
Regan: In a sense, you do. You see, we owe that money to the FDIC, and we pay interest on it.
- 2 -
Isaac: I know this might sound pretty far-fetched, but what would happen if we should need a few billion to handle a bank failure?
Regan: That's easy - we'd go right out and borrow it. You'd have the money in no time . . . same day service most days.
Isaac: Let me see if I've got this straight. The money the banks thought they were storing up for the past half century - sort of saving it for a rainy day - is gone.
If a storm begins brewing and we need the money, Treasury will have to borrow it. Is that about it?
Regan: Yep.
Isaac: Just one more thing, while I've got you. Why do we bother pretending there's a fund?
Regan: I'm sorry, Bill, but the President's on the other line. I'll have to get back to you on that.
Once upon a time, there was indeed a segregated FDIC fund. During the Johnson Administration, someone had the bright idea to put the FDIC into the federal budget as a way to reduce the deficit.

This was in the good old days when the FDIC always produced a surplus.

read the entire article here (http://localism.com/blog/ut/posts/730500/Raising-the-FDIC-cap)

[Josh_LA]

at least St Patrick's Day is almost here.

[ihsv]

I doubt anything major will happen this weekend.

'course, I could be wrong.

[Pauls' Revere]

futures are off - 6 pts
http://www.bloomberg.com/markets/stocks/futures.html

[voytechs]

Jobs report is coming out in 2 hrs. If its worse then expected there may be a black friday, a major drop in the stock. On the other hand it may trigger a bear rally if its even just a little bit better.

Bank runs? I doubt that would be the trigger for it, unless something is already in the works. The 500B may be to cover loss of Citi may be, if they are closed down? But definately something is up and we are not being told.

[Johnnybags]

Small banks are being assessed huge fees that can wipe out a large portion of their earnings. They are rebelling against the scam banks who caused the problem to begin with. They are starting to speak publicly on the lies about TARP and that the money was supposed to be given to strong banks but instead most went to the same idiots who caused the fees to soar in the first place. I see a bankers civil war brewing.

[ryanduff]

$500 billion. They must anticipate a need.

Interesting.

On March 4th, and the FDIC said he had fears of insolvency and was calling for aid.

http://www.chron.com/disp/story.mpl/business/6294662.html

That means they know there will be a ton more bank failures before this is all over.

[bobbyw24]

Bankers are apparently shocked (literally "SHOCKED" I tell you) to find out that the FDIC Insurance Fund is nothing more than an "accounting fiction"!
How did they finally "discover" this? Well, apparently it was recently (8/27/08) admitted in a document by Bill Isaac, the former FDIC chairman, in a TRUE piece of comedy {you HAVE to read it} which he entitled "The Mythical FDIC Fund" (see link to PDF below -- also linked in article.)
The money quote is right at the start of the article:
http://seekingalpha.com/a...
FDIC Insurance Fund - It Doesn't Actually Exist
posted on September 12, 2008
by Vernon Hill
When FDIC head Shelia Bair says her agency might have to bolster the FDIC's insurance fund with Treasury borrowings to pay for the new spate of bank failures, a lot of us, this 40-year banking veteran included, assumed there's an actual FDIC fund in need of bolstering.
We were wrong. As a former FDIC chairman, Bill Isaac, points out here, the FDIC Insurance Fund is an accounting fiction. It takes in premiums from banks, then turns those premiums over to the Treasury, which adds the money to the government's general coffers for "spending . . . on missiles, school lunches, water projects, and the like."
The insurance premiums aren't really premiums at all, therefore. They're a tax by another name.

[voytechs]

But in this article (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alsJZqIFuN3k), posted in two threads here yesterday and dated March 4:



Yet from the article posted by the OP (http://online.wsj.com/article/SB123630125365247061.html) dated March 6, just 2 days later:

The banks pushed back since they don't want to pay for this (of course). It may also be too big for them to handle. Who better to pay the bills then the taxpayer :mad:

[LibForestPaul]

“Banks, not taxpayers, are expected to fund the system,” Bair said

revised

The remaining corporations involved in finance which now have a substaintial federal equity share, which may in the future be fully nationalize, are expected to fund the system, not the taxpayers.:p

[smithtg]

“Banks, not taxpayers, are expected to fund the system,” Bair said

revised

The remaining corporations involved in finance which now have a substaintial federal equity share, which may in the future be fully nationalize, are expected to fund the system, not the taxpayers.:p


Lets see; you have 20K in a bank that fails; FDIC insures that 20K with money from treasury; Treasury collects taxes from you to pay for FDIC loan. You get your 20K back after you pay your taxes of 30K, 10K of which goes to china.

bank = no loss
china = gain
treasury - im the middle man
you = 10K lost even though you got your 20K back

Backyard - hole sounds more appealing right now



clusterstocks take - too funny

http://www.businessinsider.com/now-the-fdic-is-getting-bailed-out-too-2009-3

There's been quite a lot of talk lately that the Federal Deposit Insurance Corp might need a bailout itself. Now it looks like it is going to get it.

Senate Banking Committee Chairman Christopher Dodd wants to allow the FDIC to borrow as much as $500 billion from (The People's Republic of China) err I mean the Treasury Department.

The FDIC is supposed to be a self-funded deposit insurance fund. At the end of 2008, it had $19 billion on hand. That reserve may not be enough, however, to deal with two pressures bearing down on the FDIC. On one side, the size of deposits that are insured has grown from $100,000 to $250,000, in an effort to stop big depositors from withdrawing cash. On the other side, many more banks are in danger of failing and needing to draw on the insurance to provide funds to depositors. The FDIC's "Problem List" grew during the fourth quarter of last year from 171 to 252 institutions, the largest number since the middle of 1995. Total assets of problem institutions increased from $115.6 billion to $159 billion.

The FDIC wanted to raise fees on banks to build up the insurance fund but this may not be possible. The banks are already on lifelines from the Treasury's TARP. Higher FDIC fees could just have them scampering back to the Treasury for more money. In a sense, this would be a bit ridiculous. The government (Treasury) hands banks money, which then give it back to the government (FDIC), which then gives it back to failing banks.

Dodd's bill cuts out a step in the process. It is, nonetheless, another bailout of banks, which would ordinarily have to pay for the increased demands on the FDIC's insurance fund. Ben Bernanke, Sheila Bair and Tim Geithner have all urged this move.

Twenty five banks failed in 2008. In the first two months of this year, 16 banks failed