The Fictional Accounting of the FDIC: Revisited
After a JDA reader pointed out to me (thanks, RS, spot on as usual!) via yesterday's The FDIC Is Going to Have to Figure Out Where to Get Some Cash From and Quick, it isn't entirely fair to blame them for that whole didn't collect insurance premiums for 10 full years thing since it was Congress, not the FDIC that dictated those rules. Since the "fund" was apparently well-capitalized by Congressional standards (*cough* 1.5%? My grandma gets better returns on her damn CDs, even with Zimbabwe Ben's ZIRP of Doom), no one thought it might be a good idea to sock a little extra away for the future just in case Greenspan's easy money scam ever ran out.
Anyway. I wrote this in December of last year and it is appropriate to address once again. You don't care if I recycle content, do you? Sorry kids but JDA is, uh, afk for a few days.
[A]pparently, the Federal Deposit Insurance Fund is just one more liability on the United States' statement. If you believe a former chairman of the whole shebang, that is. Sorry, but, uh, I'm more likely to believe it if it comes directly from a source like that.
Isaac goes on to sum up a discussion between he and former U.S. Treasury Secretary Don Regan thusly:Isaac: Don, I'd like to come over to look at the money.No money. Not a penny. You know, like, the FDIC just kind of writes it off as a liability and hopes for the best. Not a single God-forsaken dime.
Regan: What money?
Isaac: You know . . . the $11 billion the FDIC has in the vault at Treasury.
Regan: Uh, well you see Bill, ah, that's a bit of a problem.
Isaac: I know you're busy. I don't need to do it right away.
Regan: Well . . . it's not a question of timing . . . I don't know quite how to put this,
but we don't have the money.
Isaac: Right . . . ha ha.
Regan: No, really. The banks have been paying money to the FDIC, the FDIC has
been turning the money over to the Treasury, and the Treasury has been
spending it on missiles, school lunches, water projects, and the like. The
Isaac: But it says right here on this financial statement that we have over $11 billion
at the Treasury.
Regan: In a sense, you do. You see, we owe that money to the FDIC, and we pay
interest on it.
So what happens when 25 failed financial institutions are tapping the vein for relief?
Everyone saw this coming. Sadly our government didn't want to give us the heads up before it did, cuz, you know, we've been real busy fighting a fake war in Iraq. Among other sins of the current administration. Surely it must have just slipped their minds.
So the "insurance" premiums are nothing more than taxes by a different name.
The FDIC is just one more Fiduciary Unicorn placed in front of us as a fictional entity to soothe fears that, perhaps, things may not be as under control as we've been told they are.
"It is important for people to understand that the deposit insurance fund, like all federal trust funds, is simply an accounting entry with the US Treasury." said the Institutional Risk Analyst after posting a story based on available Associated Press documents on the FDIC, "However, we need to make clear that the US Treasury will advance whatever cash is needed by FDIC to address bank failures and make good the deposit insurance guarantee."
Whatever cash is needed. Your retirement. Your tax money. Fuck it, let's just throw your Christmas bonus in there too - oh wait, you don't GET ONE because you, like 8.2 million Americans, don't have a job any longer.
Accounting fiction? This isn't Harry Potter, you can't just make up a story!
But wait, moral hazard gets worse. Yeah, I know.
One of the fundamental tenets of a free market is that in an auction the rules of the game should not give one bidder a fundamental advantage over another bidder. Sadly, that may not have been the case last month when the FDIC oversaw the sale of Texas-based Guaranty Bank. On August 21, Sheila Bair, the chair of the FDIC, declared Spain's second-largest bank -- Banco Bilbao Vizcaya Argentaria SA -- the winner of a spirited auction to buy Guaranty Bank instead of a consortium of U.S. investors including Blackstone Group and TPG.
The deal was yet another reminder of Bair's bias against private equity firms buying failed banks. Certainly, there are cases where private equity investors have made a hash of the banks they have acquired and of course private equity firms may not make the highest bid in a given situation, but it appears Bair is tarring an entire industry with a wide brush. It would seem the FDIC is being less than accommodating to an important potential source of funding for struggling banks at the very moment when the FDIC's own insurance fund is running low given the 94 bank failures so far in 2009.
Ooh, now that could totally be the FDIC's fault.
End the Fed? We might not get there so why don't we start with the FDIC instead? You know, test run. Pull the plug already, they are done. And it only took 76 years!