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Wednesday, September 30, 2009

Foundation continues to crumble

The Federal Deposit Insurance Corp. is officially insolvent as of this week. But it has a plan to get out of that condition: borrow more money.

Some days reading about America's economy is like watching a football team that's behind by two touchdowns with a minute to go in the game, heaving up "Hail Mary" passes. Here's $3,000 toward a car! Here's $8,000 toward a house! It's long past time for a new offense -- and maybe a new defense as well.

Comments (12)

Why worry? The Fed will backstop the financing virtually interest free, and to protect bank earnings the expenses be amortized over several years. Way to go Ben. Thanks for the assist FASB. Very clever Sheila, you ought to run for office.

Hey, you forgot the better news. This weekend, Social Security (SSA) announced payouts will be greater than income for the next two years.

I thought the BlueOregon types said this wasn't going to happen until 2050?

Can hardly await Pres Obama's next bold move - Perhaps another stem-winder?

If financial institutions were required to waive limited liability on the personal resources of the owners as a precondition to obtaining insurance from the FDIC then they might lend it out just as they would lend out their own money.

One way to be more equitable is to insure no more than $100,000 in deposits, limited to cover for someone in a 5 year period of time and pegged to their SS Number, and limited further by not allowing someone to get more than $100,000 simply by splitting their deposits among multiple institutions. (An overnight transfer/consolidation should trigger recognition as FDIC payment for some portion of the covered deposits, thereby reducing the eligibility for cover on a deposit/depositor when held by the bigger-fish institution.) The minimalist per person deposit insurance has morphed so radically that it is just wealth insurance and ultimately somehow justifies nationalizing the then-private GSEs so as to provide a US government guarantee on 1.5 trillion dollars of potential liability of then-private folks to foreign sovereign funds.

Word cartoon:

Picture a car driver approaching a flood swollen river, with disappearing pavement. "I can not make it across alone. All I need to do is create a rope line with the hundred cars behind me. This way all of us can make it across."

Insurance farce.

Social Security ... payouts will be greater than income for the next two years

All tax receipts are down, not just FICA contributions - excepting, I guess, Oregon property taxes.

Projections that the crossover would happen much later were based upon a projection of normal economic times.

Guess what folks, FICA finances Medicare too. You can kiss Max Baucus' deficit-neutral Medicare savings to finance health care reform good-bye.

The decade-long suspension of bank insurance payments cannot be blamed on Sheila Bair since she arrived afterwards.

Neither can costs involved in Bair's seizure of WaMu a year ago and transfer of $307bill of its assets to JPMChase for $1.9bill since she has boasted that no taxpayer money was spent.

Nevertheless, it should not be assumed that the Bob Dole protégée and Bushleague appointee Bair is competent to serve in her current role. Certainly she has wrought great harm here in the NW. A recent Seattle Times piece from Jon Talton, for example, suggests that her dismantlement of WaMu was based more on pique than financial analysis:

As revelations emerge from the bankruptcy proceedings underway in DE, it should become clear that rather than being lionized as a hero of the financial system -- by Goldman Sachs fratboy and certifiable clown Cramer, for example -- she really did foster a great deal of damage.

Just yesterday I went to my friendly Wells Fargo branch to cash in my CD. I had 16K on a six month term. I got a big whopping $72.43 in interest and they made me wait until a personal banker was available to consummate the transaction. It was a half hour wait. So I locked up my money, was made to wait to get it back and earned less than the cost of a dinner and drinks for two at Jakes. Driving home last night across the Burnside Bridge I saw a sign in the window of United Finance. They are paying 5.13%. Not insured by the FDIC you say? They have been in business under the same management since 1926. Wells Fargo is the third owner of what once was First National Bank. I think my money will be safe at United Finance.

"All tax receipts are down"

The point is that there was supposed to be such a gap between what SSA gets and payouts that we wouldn't see this happen for 40 years. At least that what everybody was saying when Bush said we should look at SocSec.

Steve, the SSA modelers were not talking to the gamesters at the too-big-to-fail financial institutions who were conducting their own unregulated experiment in economics. That is, the financial event from which we are struggling to emerge was not foreseen by the SSA, but they can hardly be held responsible for that. With real unemployment running around 20% in this country, there is considerably less FICA going into the pot than could have been anticipated.

Let me try to stay mostly on the technical side of things here because I don't think this is the post for getting into the causes of the financial meltdown.

My essential point is that the actuarial assumptions for pretty much every public and private retirement program have been kneecapped by the recent financial meltdown. It's gonna take a while for the bureaucrats, politicians and actuaries and their budget and valuation processes to catch up to that.

I will say that as fashionable as it is to bash all things Bush, he was right in warning that Social Security was on unsound footing; also it was perfectly appropriate to talk about solutions that involved substituting real assets on the SS balance sheet for the fake government securities that are nothing more than a spreadsheet entry.

We are in fantasy land. Down the road we (our children) are going to pay for not addressing these issues like nobody's business.

I criticize Bair because she is playing to the hilt the kick-the-can-down the road game that virtually all politicians of all stripes have been playing for the last 20 years. We need some brave leaders to step up and say enough is enough. She is in a position to do something at this stage -- Bush is not.

Here's $8,000 toward a house!

Where are my manners?

Thank you!

"there is considerably less FICA going into the pot than could have been anticipated."

My point is that SS is a lot closer to the edge than most of the politicians would have you believe - yet to most of them, it doesn't bear looking at.

Sure, we might go cash-flow positive in a year or two, but the long-term trend is payous going up way faster than income.

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