This made my head hurt: FDIC/Banks

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WASHINGTON - 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.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.
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A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks.

'Least worst options'
“It’s a nice irony,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting company. “Like so much of this crisis, this is an issue that involves the least worst options.”

Bankers and their lobbyists like the idea because it is more attractive than the alternatives: yet another across-the-board emergency assessment on them, or tapping an existing $100 billion credit line to the Treasury.

The Federal Deposit Insurance Corporation, which oversees the fund, is said to be reluctant to use its authority to borrow from the Treasury.

Under the law, the F.D.I.C. would not need permission from the Treasury to tap into a credit line of up to $100 billion. But such a step is said to be unpalatable to Sheila C. Bair, the agency chairwoman whose relations with the Treasury secretary, Timothy F. Geithner, have been strained.

“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.

“Borrowing from healthy banks, instead of the Treasury, has the advantage of keeping this in the family,” said Karen M. Thomas, executive vice president of government relations at the Independent Community Bankers of America, a trade group representing about 5,000 banks. “It is much better for perceptions than having the fund borrow from somewhere else.”

Ultimately, officials say, the deposit insurance corporation could settle on a plan that replenishes the insurance fund by doing some of both: borrowing from healthy banks to shore up the shorter-term liquidity needs of the fund, and imposing a special fee on banks to increase the longer-term capital level of the fund.

Rapid decline
Since January the F.D.I.C. has seized 94 failing banks, causing a rapid decline in the deposit insurance fund. Despite a special assessment imposed on banks a few months ago to keep the fund afloat, its cash balance now stands at about $10 billion, a third of its size at the start of the year. (Another $32 billion has been set aside for failures that officials expect to occur in the coming months.)

The fund, which stands behind $4.8 trillion in insured deposits, could be wiped out by the failure of a single large bank, although the deposit insurance corporation could always seek a taxpayer bailout by borrowing from the Treasury to stay afloat.

Officials say that the F.D.I.C. will issue a proposed plan next week to begin to restore the financial health of the ailing fund.

There is no consensus among the five board members, consisting of Ms. Bair, two other F.D.I.C. officials, and the heads of the Office of Thrift Supervision and the Office of the Comptroller of the Currency. Others may propose novel ways to replenish the fund, for example, by asking the banks to prepay the premiums that they were planning to make next year.

Borrowing from the industry is allowed under an obscure provision of a 1991 law adopted during the savings and loan crisis. The lending banks would receive bonds from the government at an interest rate that would be set by the Treasury secretary and ultimately would be paid by the rest of the industry. The bonds would be listed as an asset on the books of the banks.

http://www.msnbc.msn.com/id/32963393/ns ... york_times

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So.....the government lent out a few billion to the banks...and now the government is going to be taking out interest-bearing loans from those same banks?

I really really don't want to but I'm thinking it's going to get to the point where the Federal Reserve is going to need to be audited. I mean they can't do that and people not notice, huh?

I saw this headline earlier today and I thought it was a joke. Sadly, it's not. My head hurts too!

Let FDIC fail. Let the riots start.

If you have any brains, you've long stopped keeping your money in banks.

I didn't know people still had money

Considering this economy, I suppose there are not too many left.

Hey, never fear! If the FDIC and the banks go completely bankrupt, the government can always print the money and put it back in our bank accounts! Free money for all! We'll all be rich!

That is not how new money is created ex nihilo. The government sells an IOU (bond) to the Fed and the Fed creates a checking account for the government to the amount of the IOU. Then the government can start writing checks. Our monetary system is a vast check kiting and counterfeiting scheme.

ruveyn

Obviously...which is why I honestly don't want the Federal Reserve to ever be audited...and yet I know it'll have to happen.

If not in a bank, then where? Gold?

ruveyn

Anything that will retain "value" when "currency" goes belly up. Keep a given amount in "liquid" currency so if the banks go under, you can access what's yours.

Gold, silver (more stable than gold), other precious metals. Some would say stockpile beans and bullets, if you see a barter economy emerging because.

I find the whole concept of "currency" ironic because its very "virtues" don't exist in reality.

For something to be a usable currency, it needs to have a fixed value and be fungible (freely interchangeable).

If you want to trade beans and bullets, the problem of fixed value is there because how much wheat you would trade for a can of beans or box of bullets depends on how useful it is to the other party and how badly you want that wheat. More so, if people just don't have a need for your beans and bullets and know of nobody who needs it, you won't have anything to trade.

Gold, sliver, etc. have set value (weight and purity standards) and while the amount of gold for some wheat would vary based on supply and demand, certainly, the other party would find someone else who is willing to trade for the gold. Precious metals have value in that they are a FIXED commodity. Yeah, they can pull more gold out of the ground, but that's time and labor intensive. So, it remains very stable. Other items (like bags of wheat) vary because wheat spoils and more wheat can be readily produced.

Today's currency isn't valid currency because it has no fixed value (oil 50 years ago cost as much in gold as it does today, but in "dollars" the price has shot up through the ceiling...not because oil is more valuable but the dollar is worth less). When the US Dollar was based on a unit of gold, it's value was strong and fixed. As they "inflated" the currency by printing more paper certificates but backed it all with the same stockpile of gold, the currency lost its value and prices went up. Decades ago, they went to "fiat currency" (paper money backed by nothing). Since then, currency only has the value that the public consumer believes it to be worth. You by an Xbox for $300. They sell it to you for worthless paper because someone else will accept that worthless paper for something else. The day that "consumer confidence" evaporates, it will be Hell on earth. The owners of the world's largest banks settle accounts between them with gold bullion. They don't deal in any currency of the known world because they know all the printed money of the world has no real value.

When an economic collapse happens, the men who own the water, food, oil, etc. will be the new land barons. You could have $100,000,000 in the bank...it will mean nothing if you don't physically own natural resources people need and the means to defend it.