Randy Inman
Jingo's Ruminations
Kim K.
The Great Bank Bailouts Begin...
July 15th 2008 00:24
By now, most everyone has heard about the great FDIC takeover of IndyMac Bank on Friday. A report was leaked that questioned the soundness of the bank. Fearing that the bank was failing, customers began running the bank like they were giving away the last Chicken McNugget in the USA. They withdrew $1.3 billion dollars in the 11 days following the leak. It was pretty much the iceberg to the bank's Titanic.
Why did they run the bank? Because the FDIC only insures the first $100k of deposits and $250K of IRAs. If a customer has more than that in there and the bank closes, they lose a large percentage, if not all, of the rest.
The FDIC will be looking to sell the bank back out again, which will probably create an even larger bank in the process.
John Bovenzi of the FDIC said, "Customers should just view this as a change in ownership. If you have insured accounts, you have nothing to worry about."
Nothing to worry about? I have a few things.
There are currently about 300 smaller banks that are set to go under, while many of the large ones are having difficulties of their own. Wachovia, who just hired a new CEO, and Bank of America are among some of the biggies who have bad earnings reports for this quarter.
The cost to the FDIC for IndyMac is estimated to be about $4-8 billion. In 2007, they reported about $53 Billion in its deposit fund. Problem is, only $4 billion of that is in actual real cash. The other $49 billion is in "Investments in US Treasury Obligations." If you need more information on why thats a bad thing, there's a great article here.
So, where will the FDIC get the money from to save the banks when they get tapped out? Hmm.. the FEDERAL Deposit Insurance Corporation...thats a tough one...
There are real financial and moral questions here that I frankly don't know the answers to. Do we do away with the FDIC, dismantle all the big banks down into little ones, allow people to sink who have counted on their funds or foreclose on every family who can't make ends meet?
I don't know about anyone else, but I'm not going to be first in line for an account at the newly bought out IndyMac. I'd like to stick to a small local bank, but with my luck they will get bought out by another bigger bank like my last three did.
Financial analyst Eva Weber said "One must have a bit of fate in the FDIC that they are going to be able to take care of whomever fails."
Faith in a government entity?
I pine for the days of George Bailey and his silly little Building and Loan.
Why did they run the bank? Because the FDIC only insures the first $100k of deposits and $250K of IRAs. If a customer has more than that in there and the bank closes, they lose a large percentage, if not all, of the rest.
1931 or 2008?
The FDIC will be looking to sell the bank back out again, which will probably create an even larger bank in the process.
John Bovenzi of the FDIC said, "Customers should just view this as a change in ownership. If you have insured accounts, you have nothing to worry about."
Nothing to worry about? I have a few things.
There are currently about 300 smaller banks that are set to go under, while many of the large ones are having difficulties of their own. Wachovia, who just hired a new CEO, and Bank of America are among some of the biggies who have bad earnings reports for this quarter.
The cost to the FDIC for IndyMac is estimated to be about $4-8 billion. In 2007, they reported about $53 Billion in its deposit fund. Problem is, only $4 billion of that is in actual real cash. The other $49 billion is in "Investments in US Treasury Obligations." If you need more information on why thats a bad thing, there's a great article here.
So, where will the FDIC get the money from to save the banks when they get tapped out? Hmm.. the FEDERAL Deposit Insurance Corporation...thats a tough one...
There are real financial and moral questions here that I frankly don't know the answers to. Do we do away with the FDIC, dismantle all the big banks down into little ones, allow people to sink who have counted on their funds or foreclose on every family who can't make ends meet?
I don't know about anyone else, but I'm not going to be first in line for an account at the newly bought out IndyMac. I'd like to stick to a small local bank, but with my luck they will get bought out by another bigger bank like my last three did.
Financial analyst Eva Weber said "One must have a bit of fate in the FDIC that they are going to be able to take care of whomever fails."
Faith in a government entity?
I pine for the days of George Bailey and his silly little Building and Loan.
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