FDIC Fright

12 07 2008

Late today, the FDIC seized IndyMac.  Not surprising – but I am seeing some really ominous numbers.  The FDIC statement – issued after the markets closed yesterday – said that their preliminary estimate of the FDIC cost was $4 to $8 billion. About $1 billion of IndyMac deposits were uninsured and will be lost, affecting about 10,000 customers.

But now for the really troubling data: the FDIC’s total insurance fund is less than $60 billion.  If IndyMac ends up costing $6 billion, that’s more than ten percent of the FDIC’s total insurance fund that’s been wiped out with a single collapse.

Yet, the FDIC “insures” more than eight thousand banks with about $7 trillion in deposits.  The top 150 banks have total assets of at least $20 billion each and deposits exceeding $2 billion each.

I just don’t see how this can end well.

  • Josh
    I know it is to the advantage of Liberals in an election year to hype any bad news, but the reality is the FED will step in, as it's done in the past, if the FDIC or Fannie/Freddie needs money.

    I wonder if Obama is elected, if your "concerns" will disappear, and that same news stories will receive the same level of concern. This smells of the 1992 Clinton tactic of hyping the "bad economy" and somehow declaring it was magically fixed after election day.

    The reality is that the mild early 90s recession was over by 1992, and we are not even in one today.
  • Well, you'll need to go scold those "liberals" - not me - if you think they're unduly hyping things, but speaking for myself I don't think it's really possible to overhype this. Most Americans are under-hyping it with heads in the sand.

    We are undergoing the economic cataclysm that I have been predicting (on these pages) for years.

    So, the Fed will step in because the FDIC is too big to fail, right? Well, is the Fed too big to fail? Who steps in when the Fed's ink is worthless? Your comment smacks far more of liberalism than mine - that a Nanny Bank will step in to save us from ourselves, and all will be OK. I hope it will be that easy, but I don't think it will.

    A different President is not going to change this situation much. The next President is going to be sailing through some really nasty economic waters.
  • I'm with you Anthony. The implications of this mess are much bigger than people think. The whole too big to fail argument for institutions has clearly been debunked. The next question is, is the American economy too big to fail? Unfortunately I'm not sure.
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