Bank Failures on Record Pace, FDIC Asking for $500 Billion

Lost amidst the stimulus plans and bailout packages is another important indicator of the depth of the depression we are currently experiencing - bank failures.

What started out as a trickle in early 2008 has turned into a major flood. As a result, there is a bill being developed by the Senate Banking Committee that would allow the FDIC to restock their depleted insurance fund with loans up to $500 billion from the Treasury Department. This is the fund that the FDIC uses to refund depositors when a bank fails. While I understand the need to maintain the integrity of this program, I think it is also important to understand that the premiums for this insurance fund are usually paid for by the banks, just like you pay premiums on your car insurance or health insurance.

The problem is that there were so many claims in 2008 and so far this year that the fund has been seriously depleted. When the FDIC tried to raise the premiums, the banks objected. So, guess who is going to be paying this bill? That's right - you and me, the American citizens - in the form of more taxes and inflationary pressures (the hidden tax) - once again. While this is currently only proposed to be a loan to the FDIC, there are risks if the loan can't be paid back. And it's not like Treasury has a bunch of money sitting around to lend out. That means another $500 billion in Treasury Notes (aka - debt) that we will have to pay interest on.

How does this happen? Could you imagine getting a bill from the company that issues your car insurance or health insurance and you can just tell them you aren't willing to pay the increased premiums? It just doesn't work that way. What makes Congress, Treasury, FDIC and Federal Reserve think it can work for them? The answer is actually quite simple - they aren't worrying about paying the bill. They are content to just keep piling it on the backs of the American citizens.

Where do we draw the line? How much is enough? The FDIC is looking for $500 billion right now. What stops them from coming back for another dose in 3-6 months just like we have seen with all of the other "fixes" that have been implemented lately? Last month (February 2009) there were 10 bank failures - 40% of the total for the whole of last year. Have we put the worst behind us or is it still yet to come?

As I keep reading about the new bailout/stimulus/recovery plan of the week, my conviction that government is more a part of the problem rather than the solution continues to grow stronger and stronger. I saw a poll on Lou Dobbs tonight that asked, "Do you have any faith in Treasury Secretary Timothy Geithner to handle our nation's economic crisis?"An overwhelming 84% said "No". I took a picture of it just to have it available in case the site changes. You can see the image here.

Personally, I think the question we should all contemplate is whether or not the Federal government or it's agencies should be expected to solve the problems in the first place. I saw a poll this evening on Fox News that asked the question, "Overall, would you say you generally trust the federal government, or not?" What was so interesting is how much the responses have changed since June 2002, which was also in the midst of a recession by the way. Take a look at these numbers.

Date
 Yes
 No
 Don't Know
Feb. 2009
 41%
 54%
 5%
June 2002
 54%
 36%
 10%


This is not a Democrat or Republic issue. This is a Federal government issue. My hope and desire is that the leadership in our Federal government finally gets the message that they are not expected to, and are not capable of, fixing every problem that pops up in this country - or any other country. If you don't agree with me, look at where the massive growth is going on in this planet. Go visit kiva.org or microplace.com and see what a huge impact small, local groups are having on the economies in their communities. Or if you still need convicing, check out wht is going on at grameenamerica.com.

Sources:
http://www.fdic.gov/bank/individual/failed/banklist.html
http://online.wsj.com/article/SB123630125365247061.html
http://www.foxnews.com/projects/pdf/021909_FNCPoll.pdf

Tagged economy recession