My blog post on Chase and Citibank dropping out of the Federal Deposit Insurance Company (FDIC) Transaction Account Guarantee program seems to have ruffled some feathers. It received a numerous comments and write ups in several blogs, including the dailypaul.com. Most of the comments on the post indicated (at lease to me) confusion over the significance of Chase and Citibank dropping out of the program.
Under the FDIC “regular” Guarantee program, all depositor funds are covered up to $250,000. However, If funds are covered under the Transaction Account Guarantee Program, funds exceeding $250,000 are still covered. A lot of the commentators made light of the fact that very few people had more than $250,000 in a bank account and therefore assumed the banks’ dropping out of this program did not apply to them. I think they missed the point.
The Real Problem
By dropping out of the program, the bank are now less subject to regulations on how they can invest their money. The banks can invest in the depositor’s funds in any kind of company, secure or not, or any kind of security, secure or not.
Deregulation of how the banks could “invest” is what took down the Savings and Loan industry in the early 1990’s, according to Wikipedia. Savings and Loans gained a wide range of new investment powers with the passage of the Depository Institutions Deregulation and Monetary Control Act and the Garn-St. Germain Depository Institutions Act. A number of states also passed legislation that similarly increased investment options. These introduced new risks and speculative opportunities which were difficult to administer. In many instances management lacked the ability or experience to evaluate them, or to administer large volumes of nonresidential construction loans.
FDIC Already in Trouble
You should care that the FDIC is alive and healthy – without it, bank failure has less of a safety net. The FDIC is already in trouble and operating in the red. Coincidentally, the last time the FDIC was in the red was when the S & Ls were deregulated. If a bank fails, the fund will have to hit up the Federal Government, which guarantees the FDIC. With the U.S. government already running into huge deficits, this is not going to help the economy.
Most of the big bank failures have already happened, but there are plenty of little banks still failing, and each one that fails taps the FDIC guarantee fund. The FDIC took the unprecedented step in October of having the banking industry prepay $45 billion in fees by the end of the year to give the government more breathing room to handle future bank failures.
Are you also concerned about Chase and Citibank dropping out of the FDIC Transaction Account Guarantee program? Tell us about it by leaving a comment!
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What the American people are in dire need of at this point in time is a comprehensive history lesson. At the moment the Republicans within Congress and without (and more-than-a-few Democrats) are in the process of trying to sell us on the idea that the re-regulatory direction in which the Left wishes to take us will ultimately be a bad thing for the economy – that it will cost jobs, punish honest brokers, strangle America’s entrepreneurial spirit, force our daughters to become lesbians, blah, blah, blah….
The regulations put into place in the nineteen thirties by Franklin D. Roosevelt and his “Brain Trust” guided the marketplace for nearly fifty years. Since the dawn of the Industrial Revolution in the late nineteenth century, unregulated, out-of-control capitalism was known to periodically wreck havoc on the American economy. Every decade would experience at least one serious meltdown of the Stock Market and more than a few financial depressions. In that era it was widely accepted that in a robust and healthy economy these periodic calamities were inevitable and unavoidable.
Along came FDR. As far as anyone could tell there did not seem to be a hell of a lot of substance to the guy. The journalist Walter Lippman described him as a man in possession of a first class temperament and a second class intellect. His distant cousin, Alice Roosevelt Longworth (Teddy’s daughter) publicly dismissed him as a “feather duster”. The nation and the world would learn in due course, however, that there was more to this pampered squire of Dutchess County than met the skeptical eye.
Although it has become almost a cliche it is undeniable: Roosevelt saved capitalism by tempering its excesses. While it was not perfectly flawless, the rules put into place by by the New Dealers worked pretty well for almost fifty years – until the nineteen-eighties, that is. That was when the American voters (for reasons I still can’t figure out) overwhelmingly decided that sending Ronald Reagan to the White House would be a really neat idea. Reagan was a feeble-minded, failed “B” movie actor at the dawn of senility who should have been in an assisted living program somewhere, being spoon-fed oatmeal. Instead, January 20, 1981 saw him taking the oath of office as the fortieth president of the United States. Life is kind of funny that way, ya know?
Reagan and his team were hellbent on dismantling the legacy of FDR and the New Deal. “No!”, they told us. “The unprecedented economic expansion of the post World War Two era is not because of regulation, but in spite of it”, they assured us. “Let the market regulate itself and all will be well! There will be dancing in the street! It will be morning in America again!”
Nearly three decades later that philosophy has been forever exposed as the scam it obviously was to anyone who bothered to pay attention in the first place. The chickens have come home to roost with a vengeance. The economic carnage that we have experienced in the last year was bound to happen and had been predicted for years (including on my blog: December 31, 2007 and June 9, 2008 – TOOT! TOOT!). It was as inevitable as the sun setting in the west. Twenty-nine years ago, the fortieth president put his country in jalopy without a steering wheel. This is the road he sent us hurling down.
Here’s a promise, America: One day very soon you will wake up and realize what a complete fool Reagan was.
http://www.tomdegan.blogspot.com
Tom Degan