22 Sep 2009

We Told You FDIC Wasn’t Really "Insurance"

All Posts No Comments

I could never work for the government. Besides my feelings of guilt, I would simply lack the creativity to come up with stuff like this:

FDIC May Ask Banks for a Bailout

Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.

Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

“Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”

Bankers worry that a special assessment of $5 billion to $10 billion over the next six months would crimp their profits and could push a handful of banks into deeper financial trouble or even receivership. And any new borrowing from the Treasury would be construed as a taxpayer bailout that could open the industry to a political reaction, resulting in a wave of restrictions like fresh limits on executive pay.

Any populist furor could be avoided, the thinking goes, if the government borrows instead from the banks.

So when you step back and look at it, what’s happening is that the healthiest banks are pooling their money into a common fund to rescue their weaker peers, in order to keep the public happy with the industry as a whole.

Kind of like what used to happen before the Fed was created.

Comments are closed.