What if no bailout happens?

[Francesca R]

FDIC ultimately equals a joke. This is sad, but true. Just to name one obvious reason is the 99 year payback, etc.

I didn't mean just the US--deposit insurance is more widespread than that. And I said it does not--as things stand--protect the entire deposit base of a country. Indeed it is supposed to be a "circuit-breaker", designed to prevent multiple banks runs by means of the "promise" that if one or two experience bank-runs, depositors' money is safe, and there is no need for a widespread panic. In the event that there is a widespread panic anyway, the circuit-breaker is overwhelmed. Then I would predict than any government in the world would, pace congress, vote to raise their debt ceilings and/or print as much money as they needed to. (I also would not expect such action to produce high inflation or higher bond yields particularly)

So we agree it is not a fail-safe. Now when you say it is a joke, do you mean "totally useless and ineffective in any crisis" or what?

And do you have evidence for this "99 year" claim? I've heard it before and nobody came up with anything.

 

[Francesca R]

And are you saying that if I don't say endorse the bail out, that I do not have good ethics/principles?

I don't think anyone here is saying that. Because nobody knows for sure if a bailout is "needed". But if anyone here is saying it, I would dismiss that as political posturing

 

[GreNME]

I understand your anger, and share it, but having a lot of innocent people be badly hurt is a high price to pay for a few inept managers to get punished.

And while I understand your compassion, and share it, I have yet to see a single bit of evidence beyond a proposed best-case scenario that has very little likelihood of happening stopping that hurt from coming regardless of whether our government signs off on the $700bn right away or not. This is actually something I seem to keep coming back to: there is no evidence that this proposal will stop a recession, and there's not even a good indication that we're not currently in a recession already, in which case the steps we should take would be different than trying to avoid one.

I'm not demanding punishment with a lot of innocent people being hurt as the price, and frankly I find such characterizations to be part of the problem instead of trying to work toward a solution. I'm one of those people who stands to hurt-- the company I work for deals with architectural development-- so do me a favor and please don't suggest, infer, imply, or otherwise allude to my position and my statements regarding how and possibly for how long things might hurt. I'm not arguing that nothing be done, but this current proposal is not the only possible course. Unfortunately, there's very little in the way of trying to put together other options because too many people are trying to force this false dichotomy on the public.

 

[GreNME]

Banks explode. Businesses cannot borrow money to cover short term expenses. For no reason at all besides the lack of short term credit, vast numbers of business fail, have layoffs, cut expenses drastically or at best cannot expand operations when by all rights they should be.

But hell, let's have another great depression to prove two points. One that if you give them enough rope they will hang themselves and two, congressmen will do anything to get elected. That's really all it boils down to.

Right, because demonizing those who might disagree with you is a totally logical and reasoned manner to approach things.

 

[Polgara]

I didn't mean just the US--deposit insurance is more widespread than that. And I said it does not--as things stand--protect the entire deposit base of a country. Indeed it is supposed to be a "circuit-breaker", designed to prevent multiple banks runs by means of the "promise" that if one or two experience bank-runs, depositors' money is safe, and there is no need for a widespread panic. In the event that there is a widespread panic anyway, the circuit-breaker is overwhelmed. Then I would predict than any government in the world would, pace congress, vote to raise their debt ceilings and/or print as much money as they needed to. (I also would not expect such action to produce high inflation or higher bond yields particularly)

 

[Francesca R]

Is there another edit coming Polgara?

 

[ZenFountain]

Right, because demonizing those who might disagree with you is a totally logical and reasoned manner to approach things.

It was not my intention to demonize those opposed to the bailout. The original proposal by Paulson and the Bush administration was nothing short of ludicrous and the bill that failed yesterday still had problems. Regardless, I'm not convinced that this is a situation the market can handle completely on its own with banks simply liquidating bad holdings while the economy rolls along like nothing happened with a few bad quarters.

Seems to me that our current posture is the worst possible with the markets unsure of if there will be a bailout, how congress will reshape it and if it will even work.

 

[rjwould]

It was not my intention to demonize those opposed to the bailout. The original proposal by Paulson and the Bush administration was nothing short of ludicrous and the bill that failed yesterday still had problems. Regardless, I'm not convinced that this is a situation the market can handle completely on its own with banks simply liquidating bad holdings while the economy rolls along like nothing happened with a few bad quarters.

Seems to me that our current posture is the worst possible with the markets unsure of if there will be a bailout, how congress will reshape it and if it will even work.

You're right about what you've said in your final sentence. Congress should kick the lobbyist out and hold the line, giving everyone a sense of certainty that no bailout will be forthcoming.

 

[GreNME]

It was not my intention to demonize those opposed to the bailout. The original proposal by Paulson and the Bush administration was nothing short of ludicrous and the bill that failed yesterday still had problems. Regardless, I'm not convinced that this is a situation the market can handle completely on its own with banks simply liquidating bad holdings while the economy rolls along like nothing happened with a few bad quarters.

Seems to me that our current posture is the worst possible with the markets unsure of if there will be a bailout, how congress will reshape it and if it will even work.

Just try to keep in mind that there are not only two choices here-- voting for the proposal or doing nothing. At this point I'm mostly baffled that there hasn't been more of a call in the media punditry (there's been some call in the House) to examine other possibilities. I don't disagree that something must be done, but as of this time I am fairly confident that the current proposal is not it, and the longer those in Congress who won't let it go continue to hang onto it without looking for alternatives, the harder it's going to be on their constituents. If I were a House member right now, I'd be pulling every string I could to get as many economists and sharp minds on drafting an alternative as I could convince to do it.

 

[Polgara]

Is there another edit coming Polgara?

Sorry, speaking of the economy today has been frantic in my office.

http://www.fdic.gov/Consumers/consumer/news/cnfall02/setrcrd.html


Most depositors have access to their insured funds within one business day after a bank failure. In most cases, the FDIC will arrange for another institution to acquire a failed bank and its insured deposits. When that happens, the failed bank's depositors will become customers of the healthy bank, and they will have prompt access to their insured funds by check, automated teller machine, debit card and other services. With certain types of deposits—primarily 401(k) and other employee benefit plans, living trust accounts, and bank CDs (certificates of deposit) placed through brokers—the FDIC may take longer to complete the insurance determination. "The additional time is needed because the FDIC must ask the depositor for more information before we can accurately determine the depositor's insurance coverage," explains Martin Becker, a senior specialist with the FDIC division that handles insurance claims.

Even in the rare cases when the FDIC cannot find a buyer for a failed institution, payments to insured depositors begin within a few days. In fact, the goal of the FDIC is to begin mailing checks representing insured deposits within one business day. As noted above, payments for certain types of accounts may take longer.

Federal law requires the FDIC to make payments of insured deposits "as soon as possible" upon the failure of an insured institution. While every bank failure is unique, there are standard policies and procedures that the FDIC follows in making deposit insurance payments. It is the FDIC's goal to make deposit insurance payments within one business day of the failure of the insured institution. Typically, a bank that has failed will be closed on a Friday. The FDIC will then work the weekend to complete deposit insurance determinations for most deposits and be prepared on Monday to either transfer the insured portion of a deposit to another FDIC insured institution or provide deposit insurance payment checks. (Note: Some deposits that require supplemental documentation from the depositors, such as accounts linked to a living trust agreement or funds placed by a deposit broker, may take a little longer. The timing of the completion of the deposit insurance determination is based solely on the depositor providing the documentation needed by the FDIC to determine insurance coverage.)

(This is from the FDIC site. Notice it is vague. It says “it is the goal…..to begin mailing checks within one business day..” “Most depositors have access to their insured funds within one business day after bank failure”…)

When I was studying and taking my Securities Exam, the study materials stated that there could take upwards of a 99 years to pay. I remember my eyes popping out of my head when I read that.

I’ve also seen bank disclosures that state that it can take up to 99 years to payback.

I threw away my exam books when I moved back to Fl a year and half ago, but I still have the CD somewhere, and the test questions loaded in my PC at home. I hope to hell to be able to pull that info. off there.

I’m still searching for a definite proof for all to peruse re: maximum length of time allowed for FDIC pay. I’m doing this while working.

Ok. I called: 877-ASKFDIC (877-275-3342)

I asked if there was a page other than on the above link that specifies a pay schedule. Specifically I asked if there was any place that listed firm indication that there was a minimum and/or maximum amount of time promised re: paying insured people. The answer was a firm, “NO” and then the answer further expounded upon to say “Historically we pay within three business days…”

I asked if there was any written material, anywhere in the FDIC pages that indicate that paying the insured could take up to a maximum of 99 years. The answer I received was “No. I don’t believe there is.”

I asked if the FDIC rep. knew that people taking their Series 6 & 7 licensing exams were instructed to be aware that the FDIC could take upwards of 99 years to pay an insured’s money… The answer I received was, “I think that is accurate.” I asked why this would be the case. The answer I received was, “I’m not sure, you would have to speak with a supervisor.”

I’ll pull the exam data a/o call someone I know to provide me that information in writing from the Series Exam material.

 

[Francesca R]

OK so we can't totally eliminate the possibility that the FDIC takes a while to cough up, but it looks pretty tight to me (not being a fail-safe).

But you said it was "a joke". Is this based on studying for a securities exam, or something more?

(No worries about work pressure--I am working all the time these days--and thanks for the info)

 

[Polgara]

OK so we can't totally eliminate the possibility that the FDIC takes a while to cough up, but it looks pretty tight to me (not being a fail-safe).

But you said it was "a joke". Is this based on studying for a securities exam, or something more?

(No worries about work pressure--I am working all the time these days--and thanks for the info)

I should be specific re: 'joke'. If things crash down and around at a rapid clip, I'm not confident that the FDIC will pay everyone, nor that it will pay them in a timely fashion, and I'm not convinced they would pay at all. Joke is more of an IMO, but not entirely. And, in large part it's based on what I was taught when completing my securities and insurance exams, etc. In large part it's based upon my lack of faith in the bozos running the show in Washington; their often less than honorable behavior, their failure to manage properly, etc.

I'll elaborate later on. There are available fund issues; if too many collapse, etc. who will be left to rescue whom...

 

[Polgara]

Polgara, I'm still waiting for an specific example of someone who did not get their money back from the FDIC.

I stand corrected, it is uninsured people getting only 50% back to not getting anything back.

Bad form on my part.

 

[Polgara]

It must be true if the chain email said so!

I stand corrected, it is uninsured people getting only 50% back to not getting anything back. I reiterate.

Bad form on my part.

No, however, my comment was not based upon a chain email letter. I'll stand corrected, but I'm a bit better than reading chain emails and jumping guns...

 

[Mark Alan Sauer]

Apparently the new bill will take the fractional reserve system to new lows. Currency may represent nothing but paper, not even a 10% bank asset.

 

[Dan O.]

What are you talking about Mark? Currency is nothing more than a trading token that is widely accepted to represent a certain value not unlike sea shells or pieces of gold. It just happens to be easier to ascertain the value of government printed folding currency than some quantity of unknown yellowish metal (not to mention a lot easier to carry around).

 

[Old Bob]

Take your money out,put it under the bed.(I should talk,but Australian banks seem to be ok for a while) Blue chip what a joke, the investors agent just wanted the commission. This just proves my theory, " If some one else handle's your money you lose it" The word "hedge fund" ?? hedge your bets.

 

[dudalb]

Banks explode. Businesses cannot borrow money to cover short term expenses. For no reason at all besides the lack of short term credit, vast numbers of business fail, have layoffs, cut expenses drastically or at best cannot expand operations when by all rights they should be.

But hell, let's have another great depression to prove two points. One that if you give them enough rope they will hang themselves and two, congressmen will do anything to get elected. That's really all it boils down to.

But we show those Fat Cat Bankers a thing or two, by God!
No one like the idea of bailing out banks.
No one likes the idea of saving people from their own stupidity,who deserve to take a big hit.
BUt if we don't, they will pull the rest of the economy down with it.
The worst thing about this is the way some media figures have demogogued this issue beyond belief.
And I am looking at you, Lou Dobbs.

 

[dudalb]

AH, the crackpots are showing up in force.

 

[Francesca R]

Well anyway, a bailout's happening. 263-171.

Now does this make the US congress look rather hopeless or what? (By which I mean the huge backflip with rather unconvincing face-saving "cover")