Oct 03 2008
FDIC Up to $250,000
Oct. 3 (Bloomberg) – The temporary increase on bank deposit insurance signed into law by President George W. Bush today may simplify savers’ lives even if it doesn’t fatten their account balances.
Bank customers will receive $250,000 in Federal Deposit Insurance Corp. protection per depositor through Dec. 31, 2009, under legislation the House of Representatives passed today.
The bill makes it easier for customers to keep their money at a single institution, financial experts said. That will mean fewer maneuvers to keep cash protected. The current $100,000 limit on deposit insurance was set in 1980.
If you thought people didn’t give two hoots about bank financials with the old $100,000 FDIC insured guarantee on their banks, just wait with it upped to $250,000. Recall, the last temporary increase (which this one is billed as) raised the FDIC from $30k to $100k “temporarily” back amid the last major crisis in the 1970s.
This expanded guarantee guarantees two things:
- Expanded moral hazards: Depositors (who are functionally investors) won’t bother to care if their bank is running a poor business model or not, further stunting a crucial element of the free market: accountability. The threat of runs on a bank merely are threats to expose the reality: fractional reserve banks NEVER have enough in their vaults to cover their immediate liabilities; hence they are inherently insolvent in good times and bad — only they’re more insolvent during bad times when they can’t even meet the legal base minimum of reserves and can’t find any more suckers to loan them more money. These problems emerged with lack of oversight at the $100k guarantee. Imagine what we’ll get at $200k!
- More Inflation: Already the FDIC insurance pool was woefully underfunded to cover the problems we’re likely to see going forward at the old $100k limit. $250k limits doubles the trouble.
What they’re hoping here is that people will have confidence that they’ve got no reason to pull their money out of an otherwise insolvent bank, thus exposing the inherent fraud of banking: They’ve loaned out all your demand deposits — your checking and savings accounts that by contract you can get any old time you want via your ATM! They’ve only got a fraction of their obligations in their accounts, and they invested the rest, much of it in crappy investments that are collapsing, leaving them in serious straights by their own poor business planning.
Today’s bailout rewards those too thick-headed in banking to understand the reality of the situation, and it will come at the expense of those who actually have money and those who produce wealth in this nation. That’s a recipe for worse economic times.
