Quad Cities Watchdog Sniffing out government's lack of common sense

FDIC Looks To Borrow Money From… Banks?

Our Federal government has been bailing out banks left and right over the last year or so.  In fact, they've been doing it so often that most major news media are no longer covering the story because it has become so tedious.  Here's the kicker though:  Regulators are now saying that they want to have healthy banks lend billions of dollars to the FDIC.  Who is the FDIC?

The Federal Deposit Insurance Corporation was established in 1933 to allow people who deposited money into bank accounts to feel confident that they were secure, even in cases where the bank itself is insolvent. "Runs on the bank" can be catastrophic for the economy as a whole, so this insurance is provided to make the public more confident in the institutions. The organization charges the banks insurance premiums to cover the costs of “bailing them out” in cases where they fail. The FDIC is backed by the full faith and credit of the US government, so even if the insurance charged is insufficient, the FDIC will still cover any losses.

- courtesy of Secure Saving

Here is a video explaining what the FDIC does (disclaimer:  This video was created by the FDIC so viewer beware the bull$hit included):

The loans from healthy banks will enable the fund, which is blowing through cash like crazy due to the huge amount of bank failures, will be used to rescue the continuing number of failing banks to come.  The FDIC, and banks, are requesting this option rather than the FDIC borrowing from the Treasury, which it is authorized to do by law.  Just a note, the FDIC already has a $100 BILLION dollar line of credit with the Treasury!

So why not use the Treasury instead of borrowing from the banks?  Wouldn't that be yet another corporation being bailed out by tax payer dollars and cause even more of an uproar?  You bet it would.  The other option is that the FDIC could push a special fee onto the banks to help pay for the shortfall.  Note:  In case you didn't know, banks and credit unions must pay fees to be a member of the FDIC and "protect" their depositor's funds.  So it would be an increase on that fee of which we speak.  Of course this is exactly what the banks do NOT want to happen.

So, their next best option is to literally borrow money from the banks that they themselves are supposed to be protecting!

Since January 2009 the FDIC has seized more than 94 failed banks and that is the reason for the shortage of funds.  Oh, and remember when I said that they were thinking about maybe implementing a special fee to help fund themselves?  Yeah, they've already had done that just a few months ago to bolster their funds to about $10 billion which is 1/3 of the fund's original size since the beginning of the year.  FDIC officials have already set aside more than $32 billion dollars because they believe many more failures are coming.

By the way, ever wonder what it actually looked like when the FDIC seized a bank?

Want to see the FDIC actually seize a bank? 60 Minutes did a 13 minute segment following the FDIC as they seize and close down the five branches of Heritage Community Bank, a Chicago bank that failed on February 27th, 2009, and was acquired by MB Financial Bank. Closed on a Friday, all branches were open on Saturday. If you want to skip the talking head you can go about 5 minutes into it (people do go crazy a bit later on in the video!):

You might ask, can the FDIC do that?  Can they really borrow from the very same banks they are supposed to be backing up?  Yes, a very tiny section of a 1991 law adopted during the savings and loan crisis of the time lets banks receive bonds from the government at a rate set by the Treasury Secretary.  That interest would be paid by, you guessed it, future payments by other member banks.

Here is one last video summing up the issue in an interesting way:

So let's sum up the story here in terms everyone can understand: The FDIC is yet ANOTHER government program failed.  Lets all go out and vote on the healthcare industry now, shall we?  Common sense just isn't as common as its name implies.

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