FDIC Chairwoman Sheila Bair announced last week that the quasi-public insurance monopoly would become insolvent in the next few months if it is not allowed to implement a one-time, draconian surcharge on all U.S. banks. This charge will, in some cases, wipe out last year’s profits. At the same time, the FDIC has requested an additional $500 billion "loan" to from Congress.
Small, solvent, well-run local and regional banks have objected. They rightly claim that they are not the problem. These banks have a solid and growing deposit base and many of them service their own loans and so did not get caught in the trap of originating bad loans and dumping them on the secondary mortgage market in federally-guaranteed bundles. Whether they know it or not, these banks intuit that, like Social Security, there is no FDIC "fund." FDIC insurance, like social security, is just another government-coerced Ponzi scheme — a tax that, according to former FDIC commissioner Bill Isaac, goes immediately to the Treasury to buy “spending . . . on missiles, school lunches, water projects, and the like.” Rather than increasing their taxes and punishing their relatively good behavior, these small banks suggest that the FDIC look first to Bailout Banks, the Wall Street mega-banks that have received nearly a trillion dollars in unearned, government-supplied capital via the printing press, for any increased insurance premium/tax.
Ms. Bair rejected these pleas by claiming that FDIC law does not allow her to "discriminate" against banks based on their size.
What is really going is that the Bailout Banks are using the government and its insurance monopoly to help them gain market share by drastically increasing the operating costs of their smaller, better-run and scrappy competitors. You see, in the fall of 2008 as the Wachovias and Washington Mutuals of the banking world were going down and being served, on a federal silver platter, to the Bailout Banks, the free market — individual depositors — were silently and electronically withdrawing their deposits from poorly run and insolvent banks and depositing those funds with smaller, well-run banks. There are many local and regional banks that are flush with a solid deposit base and are willing to continue making loans as they always have, based on the five C’s of credit. Furthermore, since that fateful fortnight in October of 2008 when Congress passed and implemented the financial bailout bill and the feds began stuffing the pockets of all their Wall Street friends with newly printed dollars so that they would have money to cover two decades of bad bets, the capital markets have taken notice. The Bailout Banks have lost between 65 and 95 percent of their value since October of 2008. Knowing that the Bailout Banks have elected to spend the night with the Devil, the market knows that their reputation will be gone in the morning. For this reason, smart investors are taking their capital and running away from the Bailout Banks.
The Federales of course will not allow this. They created our present fractional-reserve banking system and have the regulatory power to keep everyone in the system in their proper caste. This is why many of the Bailout Banks have not been as eager to lend as their smaller competitors. They are keeping their newly printed powder dry for the squeeze play — they intend to use their potentially limitless bailout funds to acquire the small banks that cannot handle the surcharge or new FDIC insurance "premiums." The FDIC claims to have $20 billion in its insurance fund to cover failed banks and already has a $100 billion line of credit with the Treasury. Yet it requests a loan of over 25 times the amount in its fund to cover banks that will become insolvent over the next few years. If the FDIC can simply borrow to cover this exposure, why impose a surcharge or increase premiums at all? The answer — consolidation.
This is just the start of the pressure on the smaller banks, as the banking system becomes more and more nationalized, expect to see "section 8"-like lending requirements imposed on all banks, not just the Bailout Banks. With ACORN receiving potentially billions in the latest Obama stimulus package, a federal mandate requiring banks to make bad loans to unqualified borrowers is on the horizon. Don’t be fooled. The real purpose of this do-gooder cover is to bury small banks and allow Bailout Banks to seize market share.
Two things could stop or delay this from occurring. First, depositors could do their homework and choose to avoid the Bailout Banks and deposit their funds with smaller banks that have rejected bailout funds. Second, a capitalist like Warren Buffet could step forward and offer a free market alternative to the FDIC. Mr. Buffet for several years was in the business of providing private insurance for deposits in excess of $100,000. With the help of some aggressive and sharp lawyers and the choice of a good court venue, Buffet could break, or at least attempt to break, the FDIC’s monopoly and offer private insurance to the well-run banks. If Buffet was willing to privately insure a bank’s deposits, depositors would naturally flock to these banks and away from zombie banks propped up by the FDIC and the federal printing press. If Buffet had this kind of courage, it would bring about the speedy demise of at least two banks that have had a stranglehold on our country for a century. Indeed, it could be the first step in reversing the socialization of the United States by putting a roadblock in front of federal attempts to centralize financial power and resources.
Come on, Warren, be a real patriot!!