Topic: Monetary Policy
Don't Count on the FDIC I just don't see where the Federal Deposit Insurance Corporation (FDIC) has the resources to honor its commitments.by Chuck Angier
(libertarian)
Tuesday, September 23, 2008
An article in the USA Today on September 19, published after the failure of a small bank in West Virginia, stated that the FDIC fund was down to $45.2 billion, below the threshold required by Congress.
Financial reports issued by the FDIC stated that as of September 30, 2007 the fund had $52.4 billion in net assets including $46.5 billion (88.7%) in US Treasury Securities, and that over $4 trillion in deposits were insured by the fund.
In my opinion, a government agency carrying government debt as an asset is just wrong. So, we have liquid assets of only $5.9 billion insuring deposits of $4 trillion an embarrassing ratio of 0.001475:1. Any needs above $5.9 billion must be met by further expanding the money supply with government debt.
I'm anxious to see where the fund stands now, a year after those last reports and after 12 failures in 2008, including IndyMac, the largest bank failure in history. Never mind the fact that Morgan-Stanley and Goldman-Sachs are taking action to become eligible for coverage under FDIC.
Maybe this is why clearly shaken Henry Paulson, Chris Dodd and John Boehner wouldn't publicly admit the gravity of the situation this past weekend. Maybe $1.3 trillion is only a start.
Can we say "duped"?
Angier is self-employed in agri-business and can be contacted at chuckangier@gmail.com.
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Posted By: Walt Thiessen
Date: 2008-09-23 11:18:50
You're right, of course, about the FDIC. What you may not realize is that this isn't the first time the FDIC didn't have enough assets to cover a bank failure. It also happened in the 1980s with Continental Illinois, which suffered the first-ever electronic bank run. It was the 7th largest bank in the country with $42 billion in assets. Griffen estimates that the final cost of the bailout totalled approximately $4.5 billion. The Fed gov't bailed out the bank and thereby prevented FDIC funds from drying up. In other words, the taxpayers footed the bill, as usual. That's where a part of our current national debt comes from. $10+ trillion and growing. Wow!
By the way, Griffen includes a really telling quote from then-President Ronald Reagan, whom conservatives love to claim was a champion of free markets and smaller government. Here's what President Reagan said at that time, as reported in the New York Times, July 29, 1984:
"It was a thing that we should do and we did it. It was the best thing for all concerned."
So much for Reagan being a champion of liberty and small government!
This is a bit off topic but what would you suggest as a secure investment for IRA or 401k funds? As you are probably aware the stock market has been on a pretty wild ride lately, and the same is true for gold and sliver. And there is no such thing as a safe deposit box for IRA or 401k money, where you could simply have currency deposited in your name. Money market funds which used to be thought of as secure may no longer be secure, unless they are FDIC insured. BTW FDIC is backed by the full faith and credit of the US government, so government has a legal obligation to cover it, even if that means running the printing presses.
Posted By: Walt Thiessen
Date: 2008-09-23 14:39:38
For myself, David, I'm considering investing all or part of my meager IRAs in a gold index fund such as StreetTracks Gold Shares (GLD-NYSE) or iShares Comex Gold Trust (IAU-AMEX). These are funds that do nothing but buy and store bullion. It's the closest way to invest in gold without actually buying the metal directly and without buying shares in mining companies.
Some in the gold industry will tell you to buy gold mining company shares because the upside is so much greater. While perhaps true, the downside can also be greater. Mining stocks are always riskier than the metal itself.
Walt Yes I also have some goldshares from Street Tracks, as well as other gold investments. But that's been a roller coaster ride this year. Gold peaked at over $1000 per ounce earlier in the year, and then dropped to about $750. Now its somewhere around $900. And Street Tracks Gold Shares has followed it closely. Gold can be a very volatile investment. Silver is even worse.
If the bottom falls out of our economy, its questionable if gold will hold its value. Afterall, you can't eat it. You can't put it in your gas tank to power your car. It doesn't generate dividends like some stocks do. So its only worth what someone else is willing to give you for it.
If the government declared gold to be legal tender then its value would go through the ceiling. But that isn't likely to happen and its been 75 years since it was legal tender. People may no longer think of it as money.
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