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Paracelsus
2008-Sep-18, 02:15 PM
I just saw this on Yahoo! News: http://news.yahoo.com/s/ap/bank_deposits_safety;_ylt=Aj74.j2EMDo1U4UJCtCfnZ5v 24cA


The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday....Eleven federally insured banks and thrifts have failed this year, including Pasadena, Calif.-based IndyMac Bank, by far the largest shut down by regulators.

Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC's insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight.



Bad memories of rampant bank failures during the Depression, and the concomitant financial ruin faced by people who had entrusted banks with their money, are what caused a lot of older Americans who lived through the Great Depression to store their money in their walls or under mattresses instead of depositing it in banks.

I don't know about you guys, but this story scares the crap out of me. Failure of banks AND FDIC would precipitate a financial crisis on the scale of the Great Depression, I fear.

sarongsong
2008-Sep-18, 02:28 PM
ToSeeked (http://www.bautforum.com/off-topic-babbling/78866-today-black-monday-2.html#post1325662)

NEOWatcher
2008-Sep-18, 02:31 PM
ToSeeked (http://www.bautforum.com/off-topic-babbling/78866-today-black-monday-2.html#post1325662)
With an asterisk...It was mentioned in passing and not discussed.

So; I do agree that it isn't worth a thread since nobody responded.

Paracelsus
2008-Sep-18, 02:41 PM
With an asterisk...It was mentioned in passing and not discussed.

So; I do agree that it isn't worth a thread since nobody responded.

They may feel differently if their bank fails and they lose all their money because FDIC can no longer insure banks. Stocks go up and down all the time, and a large drop in the Dow does not necessarily bode catastrophe.

However, if people can no longer trust that the money they deposit in a bank is assured of being there when they go to withdraw it, the entire economy will fall apart.

Fazor
2008-Sep-18, 03:03 PM
However, if people can no longer trust that the money they deposit in a bank is assured of being there when they go to withdraw it, the entire economy will fall apart.

I think we've experienced that once before. Well, I don't think many of *us* did, but... well, you know.

Thing is, perception can be as big of a problem as actual lack of funding. There's never enough money to cover a run on the bank--that's just not how banks work. The FDIC, even when strong, can cover a bank or a chain of banks or a couple chains of banks... but not all banks simultaniously.

My biggest concern would be the media hyping the problem to be worse than it is, and being the catalyst for another nation-wide bank run. But the media would love another crash--that's more news to report!

Bear in mind that I know less about the economy than I do about... well, pretty much any other subject. But banks were once private industry, that ended up getting government intervention for the protection of the public. I'm not a fan of government interference with private industry...but at the same time, there's certian places its necessary. Those situations require a very tricky balance of free-market and government resource. Is the US banking system at a good Private v. Government balance? I don't know...but with all that's going on, I'd say 'no'.

Are we looking at another complete market crash? I couldn't tell you.

EricM407
2008-Sep-18, 03:05 PM
How could the FDIC fail? If they're short of money, they get it from the treasury and throw another IOU on the big pile.

NEOWatcher
2008-Sep-18, 03:16 PM
They may feel differently if their bank fails and they lose all their money because FDIC can no longer insure banks.
But; it's quite a ways from that. We are talking about underfunded based on short term fund limits set by congress, ignoring long term backing options, and not even reaching into short term options.

Sure; this makes people stand up and notice, but the situation needs to get very deep before there is an issue, and I'm pretty sure there would be some emergency funding from the Feds if levels get this far.

It's a low water mark reached as recently as 4 years ago. It's being made worse with hype. Now; I do think that there's concern, but I don't think we are in that bad of a situation yet.

What I would like to know is the dollar amount that's actually insured. They keep stating numbers of bank assets, but I've never got a feel for how much of those assets really falls under FDIC insurability and at risk.


However, if people can no longer trust that the money they deposit in a bank is assured of being there when they go to withdraw it, the entire economy will fall apart.
I'd like to know what percentage of the economy relies on individual savings accounts of this type.
Sure; people would be withdrawing in droves, and bank failures would be in a spiral, but overall spending goes on (at a very small pace).

In other words, I see this as very bad, but not a time to panic, or read too much into it.

Paracelsus
2008-Sep-18, 03:48 PM
But; it's quite a ways from that. We are talking about underfunded based on short term fund limits set by congress, ignoring long term backing options, and not even reaching into short term options.

Sure; this makes people stand up and notice, but the situation needs to get very deep before there is an issue, and I'm pretty sure there would be some emergency funding from the Feds if levels get this far.

It's a low water mark reached as recently as 4 years ago. It's being made worse with hype. Now; I do think that there's concern, but I don't think we are in that bad of a situation yet.

What I would like to know is the dollar amount that's actually insured. They keep stating numbers of bank assets, but I've never got a feel for how much of those assets really falls under FDIC insurability and at risk.


I'd like to know what percentage of the economy relies on individual savings accounts of this type.
Sure; people would be withdrawing in droves, and bank failures would be in a spiral, but overall spending goes on (at a very small pace).

In other words, I see this as very bad, but not a time to panic, or read too much into it.

I hope you are right. I am certainly not an expert on how these things work. I just hope that the aggregate of all of this bad financial news does not cause the type of panic you are talking about. That is the real danger here.

geonuc
2008-Sep-18, 04:11 PM
How could the FDIC fail? If they're short of money, they get it from the treasury and throw another IOU on the big pile.
Exactly. Deposits insured by the FDIC would only be lost if the US government fails.

If that happens, worry about more than your bank account.

novaderrik
2008-Sep-18, 06:27 PM
makes me glad i don't have enough money to make it worth my time to open a bank account of any kind.