The FDIC Reserve is gone. Blame our maniacal optimism.

By | November 25, 2009 cash reserves needed for the FDIC to keep paying depositors at failed banks has all been used up. Don’t panic (yet anyways), the FDIC has an open credit line to the Treasury Department (uh, that means us tax payers) that will keep the FDIC floating in cash to keep paying out money to Grandma and Grandpa at the failed banks.

You see, the FDIC is supposed to be self maintaining, it charges banks a fee to have their deposits insured. Think of it as the banks paying an insurance premium. That money goes into the FDIC kitty and is used to pay depositors when a bank fails. That is all well and good except when the financial system blows up like it has over the past 2 years.

As of today’s quarterly report issued by the FDIC they are now broke, and I mean that in the literal sense.

FDIC deposit insurance fund now -$8.2B v $10.4B last quarter

Yep, they are broke, no money left in the cash drawer. So what now? As long as the FDIC has an open credit line with the Treasury then any bank that fails it will be the taxpayers who reimburse Grandma and Grandpa.

Think of it this way: you have a checking account at (let’s pick a name out of the air) #tyBank and they get closed by the FDIC. Your very own money will be reimbursed to you via the FDIC insurance fund, but you will actually be paying yourself back in part because taxpayers will be on the hook to keep the FDIC floating in funds. So in the end you still lose some money. – ats

Verified the Deposit Insurance Fund figures here, page 15:

This happened in 1992 after the SNL bailout as well. How did this happen? It happened because we as a species are a bunch of damn fools. I tend to agree with Barbara Ehrenreich’s main point:

November 24, 2009 “In These Times.” — In her new book Bright-Sided: How the Relentless Promotion of Positive Thinking Has Undermined America (Metropolitan/Holt, October 2009), Barbara Ehrenreich traces the origins of contemporary optimism from nineteenth-century healers to twentieth-century pushers of consumerism. She explores how that culture of optimism prevents us from holding to account both corporate heads and elected officials.Manufactured optimism has become a method to make the poor feel guilty for their poverty, the ill for their lack of health and the victims of corporate layoffs for their inability to find worthwhile jobs. Megachurches preach the “gospel of prosperity,” exhorting poor people to visualize financial success. Corporations have abandoned rational decision-making in favor of charismatic leadership.

This mania for looking on the bright side has given us the present financial collapse; optimistic business leaders — assisted by rosy-eyed policymakers — made very bad decisions. – infoclearinghouse

The solution is not pessimism, it is rational, incremental determination. Step by step we can recover. 

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