Punish the responsible and reward the irresponsible
One of the biggest reasons that we are in the economic mess that we find ourselves in today is the passage of the Gramm-Leach-Bliley Act in late 1999. This act, co-sponsored by the idiotic Mr. "America is a nation of whiners and we're only in a mental recession" Phil Gramm essentially repealed the provision in the Glass-Steagall Act that kept bank holding companies from becoming too large by prohibiting them from engaging in other financial operations, like investment banking, etc...
We hear all of this talk railing against banks that are "too big to fail" lately, yet the more things change, the more they remain the same. The government is doing nothing but rewarding the biggest banks with gobs and gobs of taxpayer dollars and essentially punish smaller, responsible banks that have been managing their risk properly.
The Big Picture blog brought the latest example of this to my attention this morning. The irresponsible banks that have gone bankrupt and the increased threat of bankruptcy at many others have driven up the cost of FDIC insurance for smaller, responsible lending institutions.
Here's an example:
“At DeMotte [State Bank, an 11-branch operation in the northwest part of Indiana, Bank President] Mr. Goetz is bracing for a steep increase in a crucial overhead cost: the bill from the Federal Deposit Insurance Corporation, which is basically an insurance fund underwritten by banks.
Last year, DeMotte paid $42,000 into the fund. This year, because of failures in other parts of the country and particularly among national banks, that sum will rise to $500,000 or more.
“Isn’t that the American way?” he says, folding his arms. “Whoever is left standing, whoever was prudent, is always the one who has to pick up the pieces.”
Small banks that have real deposits to back up the money that they lend have to pay a much larger percentage for FDIC coverage than large banks who take a lot of risk and lever up very small deposit bases. Ahhhh, hello isn't excessive leverage and risk taking how we got where we find ourselves today?
The same exact thing is happening to small banks all over the country. They're seeing the cost of their FDIC insurance double, triple, or worse even though they have acted responsibly throughout this entire mess.
Not only is the government punishing responsible smaller banks, but it is punishing smaller, responsible savers as well by essentially eliminating any interest that they receive on their savings. Heaven forbid someone wants to save money without taking much risk. Noooooo. We must punish the savers lest they horde their money and protect themselves. I know that low interest rates are necessary to prevent any more economic deterioration than necessary, but still the government never fails to reward the irresponsible and punish the responsible.
Grumble, grumble, grumble. I need to try to find something positive to say later :).