Curmudgeon's Corner

FDIC Makes Banks Pay For Congress' Folly

Posted by Al Campbell on Nov. 13, 2009

Economy, Political, Quality of Life, U.S.

The Federal Deposit Insurance Corporation (FDIC) is in a deficit position since it has bailed out something in the range of 120 banks so far this year.  As the result of that extreme level of cost, the FDIC needs to replenish its coffers which are created by fees charged to banks for the "protection" to depositors that now totals as much as $250,000 for an account, up from the historic $100,000 protection.

The FDIC is after all banks to make their contributions to its coffers three years in advance; it wants the contributions for 2010, 2011 and 2012 and its wants that now.  This is placing a strain on some banks since they are facing the problems created by the folly of Congress.

Fannie Mae and Freddie Mac are creations of Congress.  They have been used as political tools most often, if not always, by the Democrats when they are in control as they are now.  The requirements made that lending institutions make questionable loans with limited background checks, and with little or nothing in the way of down payments have led to the situation we face today.  The so-called TARP (Troubled Asset Relief Program) monies were necessary to help stave off more bank failures than have already occurred.  That money was appropriated by Congress to cover its own trail of legislative abuse.

Lenders were threatened with sanctions unless they made the questionable loans; they made those loans and suffered the losses when people reneged on those obligations they couldn't really afford in the first place; some banks failed and that brought the FDIC into the picture; Congress had to appropriate more money to cover its tracks.

All this money comes out of the economy.  It is money that isn't available to create jobs and that isn't available to assist in the start-up of new businesses to fuel expansion.

So, Congress created the problem, and Congress needs more of our money...good money after bad...to "solve" the problem it created.  And, the good name of commercial banking in general is sullied.  We have all watched as one bank after another has been forcibly acquired by a competitor in order to stay alive.  Many would say that this was caused by the bankers, but a more careful review suggests that the vast bulk of this problem lays at the feet of our Congress.  And it lays more specifically at the feet of those who championed the bad loan policies; people such as Rep. Charlie Rangel and Rep. Barney Frank and Sen. Chris Dodd.

Of course, all Congress' actions that have bad outcomes are ultimately laid at the feet of those of us who pay taxes and who make our livings using the capitalist engine of commerce.  Only those actually in Congress seem impervious to the damage they cause.  That seems wrong to me, but then again I have a fairly simple view of integrity and responsibility; certainly it is a view not shared by enough in Congress.

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The Curmudgeon Blog today is titled "White House Losing People".