Why FDIC's Shrinking Cushion Is Bigger Than It Looks

Proofread your article. 4.8 billion guaranteed deposits, or 4.8 trilion? 48 instead of 36 is a difference of 33%,not 50%.

"Granted, tose fees..."

Granted, the editors of this article should have put this article through a basic spell check program, but that probably would have been asking for too much from *those* guys.

Um, the FDIC insures $4 TRILLION in deposits. Kindof a big difference.

this comment is only accurate as of june 30th:

"You get it by taking the FDIC's assets -- $21.6 billion in cash or equivalents and another $43.2 billion in other assets, largely accumulated by taking over failed banks -- and subtracting $22.4 billion in liabilities and another $32 billion for a "contingent loss reserve for expected failures."

the contingent loss reserve is actually only about $21 billion. see there have been numerous and large failures during july and august that were charged off to the reserve after they closed the books. also, the fdic knew this at the time of the press release. in reality, the cushion is 25% smaller that they let on. i suspect if this was a publicly traded firm making those comments at a press conference fully aware of subsequent events, the sec would come a calling.

How ironic the FDIC is under funded, when it's bringing down good banks because they are underfunded. And no one has stopped to ask the banks FDIC has to put up for private auction why they were underfunded.

So many times we see good banks with no sub prime exposure, yet FDIC has to give them notice they are under capitalized.

I contend that IF a bank is undercapitalized by majority share through 'fair' non sub prime real estate loans ? and are down merely because real estate is temporarily down ? Then mark to market is innappropriate in times of crisis like this.

We need criminal investigation into why Countywide would all of a sudden in 2002 just say "hey, come on in, we don't care if you don't have any equity to put into the mortgage, we don't even care if you have a job, we just want to rack up as many mortgages as possible, we've got Wall Street on standby with Moody's all ready to triple A them, we've got Fox News running people scared and in between the terror spook ? They can see our Countrywide ads, AND we've got the alleged President of the US promoting everyone should just go buy a home, now, forget the down payment or equity".

Once we can show the housing market was hosed with intent ? Then banks, the GOOD banks being brought down MERELY because they had mortgage products (non sub prime at that) on their books ? can get a free pass until the central banks 0% interest rates can bring housing back to life.

Until this - we're breaking the China in the house swatting at flies.

FDIC needs to step up to plate here and say - ok banks - you're under capitalized, IF you can prove to us it's not through sub prime ? then we'll look the other way, and besides, we've got you covered, 250k per deposit account worst case scenario. Unless of course, FDIC just did the 250k from 100k ONLY to instill confidence and they never had means or intent to actually pay out.

I suppose at the least AIG didn't insure the banks OR the FDIC. Seems AIG just insured the investment banks that took zero equity products, passed them on, and when everyone opened their lunch bags to see them empty ? AIG insured Goldman, and US Citizens HARD EARNED tax money insured AIG.

AIG was the FDIC for the investment banks. Different subject really, but can't help mentioning that observation.

This article loses credibility with me when the author did not even bother to run a computer spell check on it, much less had it proof read by a third party. 'tose' ... really?
What about this, "$10.4 billion doesn't look like much measured against the more than $4.8 billion in deposits guaranteed by the agency." Is that supposed to be 4.8 trillion?
Sigh. How many ad clicks do I need to get BusinessWeek to hire a proof and copy editor?
Sorry Theo for making you out to be the scapegoat. This has become an endemic problem throughout the print media unfortunately.

While AIG ran ads prior to it's likely internally known collapse ?

"My parents went with AIG " ?

While AIG insured the investment banks that laundered Countrywide's zero equity mortgage products (really, who in their right mind would underwrite a mortgage with zero equity, really - you HAVE to ask - was it criminal intent or complete incompetence missed at every stop along the way it could have been picked up) ?

The FDIC insures the US citizens deposit accounts.

Now, I've joked in the past - instead of "My parents went with AIG" of making t-shirts to sell on ebay that say "My parents REALLY went with AIG" or "My Nation state went with AIG" ?

I now have to ask what goes with the FDIC.

I guess we can say - "My bank went with the FDIC" as in WENT DOWN, cut up in private auction, best gems picked up for pennies on the dollar. Buyers ? often pristinely restored by the tax payers through TARP.

If we had abuse with Countrywide - and then we just dole out 350 billion to these very investment banks and their insurers ? (AIG) ? How can we expect any less abuse ? Not to mention, no strings attached on that money to which I observe Elizabeth Warren going "that can't be right".

I raise this question:

IF when AIG failed ? the US citizens bailed out the corporate insurance unit that irresponsibily backed the investment banks ? and also ran a global derivatives casino on the side WITH insurance premium money ?

If the FDIC fails - who is going to bail the FDIC out ?

And won't it be bizarre when we say- ah HA - Citizens bail out the corporations, but when the FDIC fails ? or goes bust ? Well, that's just it - we're so strapped now, we're into the 20+ trillions all added up on bailout approaches, what's left for the good ole FDIC ?

I see change comin' alright !

Not sure exactly what - but FDIC can't bear the brunt of the fallout from the investment banks - we dun spent all the money on Goldman, and Goldman's AIG insurer - and left the FDIC to hang out to dry.

And now what ? All the FDIC can do right now is charge more premiums to the banks to beef up the money pool they have to dole out in the case of a bank failure - LIKELY caused BY the deflation of real estate, as I see with so many good banks that have gone bust.

HeyTheo........borrowing on theire line of credity at the Treasury is not a good thing and it DOES shown had bad of shape the FDIC is in. Where do you think the TSY is going to get the $100 billion????? under Turbo Timmy's chair??? And remember the assets they have taken back.......are you confident that the marks are correct......I'm not.

All -- Thanks for catching my errors; they should be fixed now. Much appreciated, and apologies.

Remember the cushion Goldman and AIG had.

US - the citizens !

How bizarre we all of a sudden put the FDIC into a sterile support mechanism OTHER than the US citizens.

You'd THINK AIG would come SECOND to FDIC when it comes to which one is the more important insurance company.

Clear to me - all the rich use Goldman, protect THOSE assets first, restore Goldman to pristine condition - they have about 30,000 employees, they doled out $10 billion in bonuses- that's the HIGHEST ratio PER employee of anyone on Wall Street, that's AFTER taking the TARP money.

Yes, the bonuses went through - FINE, but AFTER you BORROW from the poor ? the working class tax revenue ? to restore the elite's investment banks ?

We gave AIG 160 Billion, gee, which do you think is more critical when facing - hmm - I got it wrong, I thought it was 200 banks predicted to be on the chopping block this year, FDIC says 400. Whoops - hey, that's only out of what ? 8,000 FFIEC institutions ? I'm not sure if that's tragedy OR comedy.

What could the FDIC 'do' with 160 Billion ?

The happiest I've ever seen Bush OR Paulson is when they were shaking hands after the 700 billion was set aside for TARP - after Paulson extorted the money saying - do this NOW, in 48 hours - or the US economy will go bunk. No proof, when the Treasury was asked why 700 billion ? You know what they said ? They said "Just seemed like a good number" NO KIDDING.

FDIC ? Cushion ? Gold Dust ? Magic Railroad (Thomas the Tank Engine movie - Mr. Conductors line [Alec Baldwin]) ?

AIG had a 160 BILLION cushion - and technically - it was never or formally 'known' or promoted, yet there it was. Paulson had this ALL in play if you ask me. Oh wait, wasn't he CEO of Goldman - gee, awe gee- awe shucks - what ARE the odds.

Oddly out of this ? Elizabeth Warren ? Before becoming Chair of the new Financial Oversight Committee ? Guess what she focussed on - the eradication of the middle class in the US - that the single working mother has it the worst, that the middle class is GONE daddy gone (hmm - that one actually fits there for more advanced humor on single mother ? gone daddy gone ? ). Liz says - hey - forget top down support to Goldman, AIG, SAME as David Castillo says- BOTTOM UP.

Castillo works with trillions - yet he's a real guy - Elizabeth Warren is real too - somewhere in all of this, we've catered to the upper class first, and let the lower class pay for it all.

There is a story in there somewhere.

I still like the realization of who's insuring the FDIC.

The citizens.

I really question the parallel between health insurance:client policy and FDIC:FFIEC institution policy.

Where a health corporation can go "Pre-existing condition, you are exempt from coverage" ?

I wonder - what would be the equivalent of 'pre-existing condition' for the FDIC to tell a bank to get lost. If there is one.

Maybe that 'pre-existing' condition is housing, and maybe the shutdowns of otherwise FINE banks - such as Bank United ? Guaranty ? (CORUS - you folks bought your own properties to jack up the property interest and were sued by your shareholders, shame on you !) IS in a way - an insurance company saying - get lost.

Except the FDIC has PIPP to arrange and broker private backroom plastic surgery on the banks after the FDIC says "Sure we know you're probably under capitalized only due to non-subprime lending". Just imagine what it must be like for a patient ?

Didn't the Joker do that in Batman ? Backroom plastic surgery ?

Either way - if the FDIC is telling banks to get lost- then doing backroom surgery hack jobs on them ?

Do we need bank insurance reform ?

Just like we need health insurance reform ?

With an estimated 400 more to come, we need intervention. It's a crime (where I define crime as simply that which is disadvantageous to ones community) to watch good banks go down only because real estate was tainted temporarily. It's as if the FDIC isn't playing ball WITH the central bank. Central bank is willing to risk inflation on zero percent to rescue housing, I happen to agree with that policy. People use their homes for private credit reservoirs, or when they lose their job - they HELOC if they have to. Homes WERE the cushion for the consumer, with housing down - no cushion for the consumer, no cushion for the banks - I don't see any REAL cushion for the FDIC, but I do say -AIG sure had a fine cushion after insuring all those bad investments at Goldman !

No wonder Paulson and Bush looked so damned happy when they were shaking hands after TARP was approved.

I always cringe when I see I misspell - such as yesterday I put in 'revue' for 'review'. I tolerate it - so long as anyone isn't putting numbers in for letters, 3 for e, I can handle any misspelling. This next generation coming in that has come to develop language skills from facebook or - what's that other one ? MySpace.com (good move for Murdoch to buy - he can run political advertisements to the kids AND he gets access to ALL content of the next generation to exploit for next election !). Last generation some argue was the inconspicuous spender, this next generation will be the inconspicuous speller !

Some online forums accept separate - I STILL prefer seperate - ugh! Anyway- on the Titanic, if someone said 'throw me a life perserver' as to 'preserver' ? I'd still reach for the round thing that's red and white and throw it down - all good.

SO FAR - I have found businessweek to offer up plenty of good things to ponder about. Plus I'd rather be at a website that advertises hard liquor than Exxon oil ads, even IF I gave up drinking finally !

Hey Theo - I'd like to see you read the attached article and refute it,
because I'm guessing that you can't. Good luck!

August 28, 2009
" target="blank">The FDIC's Cupboard Is Very Bare
By Martin Fridson
Once again, Washington's so-called deposit insurance program is faced with the possibility of running out of cash.