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FDIC broke, now what?

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May 22, 2009 – Comments (7)

Market Ticker's post on bank failures, the last bank failure, BankUnited, is costing the insurance $4.9 billion.

He mentions some of the outrageous things that happened seemingly with regulator knowledge and even encouragement and this is what got my attention:

"And, I might add, those scams cost the taxpayer essentially the entire contents of the FDIC's insurance fund."

I have been watching the deposits left in the FDIC as there is no question in my mind this insurance is as insolvent as many of the banks.  I have said this before, but it seems to me the taxpayer bailout of financial institutions was more about ensuring that when you go to your bank you can get your money  out.  The banks loaned all deposits, and more, to people who are not paying it back and without the bailouts the banks simply did not have any money to keep the banking system operating and the FDIC simply could not cover the losses.

When I realised the degree of this financial crisis about 2.5 years ago I was wondering what someone like Warren Buffet would do with all his investor's money as such a great deal of it was in cash.  It seemed to me that there simply was no place to keep that amount of cash safe.

I am speculating here, but it seems to me that his investment in Wells Fargo might be about keeping that cash safe.  I have not evaluated the idea, it is just a thought.

7 Comments – Post Your Own

#1) On May 22, 2009 at 10:21 AM, TekLantern (98.11) wrote:

I love you. - Timmy

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#2) On May 22, 2009 at 10:51 AM, Montol (31.22) wrote:

"I am speculating here, but it seems to me that his investment in Wells Fargo might be about keeping that cash safe.  I have not evaluated the idea, it is just a thought."

 That's a heck of a thought, and would be backed up nicely by the fact he keeps pumping his investment in WFC too...

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#3) On May 22, 2009 at 11:17 AM, jahbu (89.66) wrote:

inflation

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#4) On May 22, 2009 at 11:34 AM, devoish (98.58) wrote:

Now what?

Taxpayer funded bailout, of course. The FDIC was supposed to be funded by charging a percentage on deposits from each bank.

Typically... Those charges were never collected.

Suddenly.... The FDIC has a shortfall.

Sadly... It's not our fault claim the small banks, don't charge us. We have no money claim the large banks, don't charge us.

Desperately... The US Gov raises the amount of a lending facility available to the FDIC.

Sadly... The Small Gov't anti-regulatory policies will lead to large Gov't Taxes.

sigh....

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#5) On May 22, 2009 at 12:17 PM, russiangambit (29.23) wrote:

> I have been watching the deposits left in the FDIC as there is no question in my mind this insurance is as insolvent as many of the banks.  I have said this before, but it seems to me the taxpayer bailout of financial institutions was more about ensuring that when you go to your bank you can get your money  out.

------------------------------------------

That is my understanding too. Those banks were supposed to be taken over by FDIC, but FDIC didn't enough money (as we discussed on Financial Modeler blog), so the government went ahead with the bailouts. But bailouts are such a huge moral hazard, and they are only getting bigger. Actually, I think they are probably illegal.

If FDIC didn't have enough money to unwind the banks, then the proper/ legal thing to do was to nationalize them and thus they would be backed by the taxpayer. Currently, through bailouts, they are still backed  by the taxpayer but the benefits go to bond holders and shareholders. It is a robbery in broad daylight.

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#6) On May 22, 2009 at 3:41 PM, alstry (35.41) wrote:

BINGO russian!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Now wait until the world deals with a nation fiscally run by bunch of thieves....................................................

Prepare!!!!!!!!!!!!!!!!!!!!!!!!!

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#7) On May 23, 2009 at 5:50 PM, edbbear (< 20) wrote:

FDIC Insurance makes absolutely no sense.  It was used as a tool by fools and crooks to take risk on the taxpayer's dime.  It is abundantly clear to me that the federal government has absolutely no clue as to how to price the insurance it is providing. 

Maybe we need a system whereby only demand deposits are guaranteed--and where banks can only make safe loans against those demand deposits. 

We certainly need to abolish government intervention into the mortgage and automotive industries.  Their presence in managing and manipulating these industries is just bizarrely without good purpose (except the corrupt need for politicians to funnel taxpayer money to their supporters). 

The world will start making a lot more sense to me when the stock market heads south of S&P 6,000.

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