It's the Crashing Economy Stupid

[Phoebe Loosinhouse]

There's some really scary shit going on.

I knew it when I saw a big full page ad in Newsweek reassuring me about how solid FDIC insurance is. I immediately thought - "Crap, why are they trying to reassure me?".

Obama needs to move front and center on economic issues pronto. He'll make McCain look like a blithering fool in denial.

[berni_mccoy]

1. The economy is crashing *because* of the war and Bush

The war has impacted two key factors driving our economy:
1. The price of oil
2. Massive debt has weakened the dollar

Combine that with massive outsourcing of jobs overseas, predatory lending, and new bankruptcy laws, all new rewards granted by Bush and the GOP Congress over Bush's first 6 years and you have the perfect economic storm we are in.

[HughBeaumont]

6. And what general problem does ALL of that boil down to?

"What the Wealthy WANT, the Wealthy will GET, No Matter WHAT the Cost to Everything and Anyone Else."

That's been the M.O. in America since around about 1945. And pretty much every decade before 1936.

[lurky]

2. What will they do if Citi goes down?

We're talking roughly $300 billion in U.S. bank deposits, and Citi is having problems. I doubt FDIC has that kind of scratch lying around, so I'm guessing another taxpayer bailout would be in order...

[berni_mccoy]

3. There are reserves set aside for up to 100K per account. If the money is not there in the treasury

then someone stole it.

Also, you can bet that a large portion of that 300 billion isn't insured since there are about 5% of the population with most of the wealth, and that would mean many accounts with much higher balances than $100K.

FDIC only insures up to $100K per account.

[lurky]

4. Sadly, I don't think that's true.

The current value of the Deposit Insurance Fund (FDIC's pile of money used to cover bank losses) was $52 billion at the end of 2007.

Yes, banks are required to deposit reserves with the Fed every night, but it is not 100% of their deposits. For large banks it is 10%, and for small banks it is less, and they can use the rest to make loans, etc. If many of their loans go bad or many people try to withdraw at once, a bank might not have the money to cover its accounts.

Regarding the rich folks: They don't keep their wealth in banks, generally -- they invest it in more profitable places. Generally, the only people with more than $100k in their accounts are big companies with payroll accounts, operating accounts, and so on. They usually have some kind of private insurance, though, I think.

Taxpayer bailout is definitely not unprecedented: We had to foot the bill for the Reagan S&L crisis, since the losses then were more than the insuring agency had available, and it became insolvent.

[berni_mccoy]

5. Good points all around!

I agree. The FDIC can't bail out every bank. But they should be able to handle one or two. Sounds like they need to up the reserve rates a bit...

[AllentownJake]

10. Its not one or two banks I'm worried about

Its a domino effect of each one going down after people lose faith in the financial system.

[high density]

11. Don't assume every problem or failure is a 100% loss...

The FDIC is going to shut down any bank way before $300 billion evaporates. Citi cannot go from $300 billion to $0 billion overnight.

[AllentownJake]

14. They have other assets

The government can make liquid over time as well.

Course the Saudi royal family would be none to happy.

[nomaco-10]

7. Major banks are failing, foreclosures are up 50%....

gas is $4.00 a gallon, the jobless rate continues to rise, but we can't be sidetracked by these issues, we must stay focused on the real issue at hand, the cover of The New Yorker.

[redcatcherb412]

17. Mortgages

Foreclosures are up because of all the loans made to 'credit risks' which normally couldn't see a loan with a pair of binoculars. But, since a lot of financial institutions were accused of discriminating against borrowers because of inability to pay, they started making the loans anyway. Now, thay are seeing the result.

[Hoof Hearted]

8. I saw that same ad in People! Freaked me out too.

I don't buy magazines anymore (least of all People) so I didn't know if it was a regular thing or not - but I thought it was pretty odd.

[AllentownJake]

9. Its EVERYTHING stupid

could be actually the most appropriate catchphrase of 2008.

[butterfly77]

12. Exactly..

[Phoebe Loosinhouse]

13. Well I got to personally experience a melt-down in 1990's in Rhode Island

Which may be slightly instructional here.

In the late 80's, the Rhode Island Credit Unions were headed for their very own miniaturized version of the larger S&L crisis. Rhode Island, being the cranky little state that it is, decided that they should have their very own form of credit union insurance which they set up and called RISDIC (Rhode Island Share Indemnity Corporation). They were famous for their ads which showed a pair of hands chiseling out the initials R I S D I C while a stentorian voice proclaimed that their commitment to you was "carved in stone".

And again because of their congenital suspicion of anything large (like national banks), Rhode Islanders embraced a multitude of neighborhood credit unions. (Side note - even the banks had peculiar names like Hospital Trust,and Old Stone Bank (who used Fred Flintstone as their mascot,because who wouldn't trust Fred with their money). These credit unions became somewhat known for their "handshake" form of business acumen which quickly translated into an insider type of lending where the same players often went to the well over and over. This ominous brew was then supplemented by a real estate bubble,often supported by inflated appraisals and a property version of musical chairs where the same fannies changed the same set of seats over and over.

The only thing missing was embezzlement. Oh wait, it wasn't missing. That's right, one of the friendly credit union Presidents was also lining his own pockets and keeping duplicate books. And it started to get harder and harder to cover his tracks especially if any real auditors showed up. And, one day the jig was up and he beat it out of town to hide out in Florida while his transgressions were discovered.( another side note - every single news account mentioned that on his way out of town, he illegally parked in a handicapped spot at the airport.)

The embezzlement turned out to actually be rather small - only about 1 mil. But imagine the surprise of all the cranky yet trusting Rhode Islanders when they discovered that RISDIC (carved in stone) could not cover the loss! This discovery was made on December 30 or thereabouts. And then all the now hysterical and no longer trusting Rhode Islanders were waiting impatiently to stampede to the credit unions to pull out their money on Jan. 2.

But, the credit unions were ALL closed down on January 1st, 1990 by the Governor. Happy New Year Rhode Island! And then followed a whole succession of events involving public hearings, investigations, audits,etc. Some people could not get access to their money for a very long time. Businesses shut down, kids had to leave school, houses were lost and there was an enormous ripple effect over the very small pond known as the Rhode Island economy.

Anyway, the moral to my long sad tale is that the institutions are only as sound as the insurance behind them. THAT's why I said crap! when I saw the FDIC ad in Newsweek. I could just hear that voice echoing, "carved in stone, carved in stone, carved in . . ."

BUT, I do think that the FDIC is hundreds of times sounder than RISDIC. I also know that a run on banks will be a very, very bad thing and really there is no alternative aside from your mattress. I think it is best if we all just pretend that the banks are sound because that is almost the only thing that will keep them sound. The feds can run around for the next few years and close down the worst ones in a controlled fashion while the rest of us just go about our business.

[Phoebe Loosinhouse]

15. Anyone from Rhode Island who also lived through this? nt.

[Hamlette]

16. Look over there! A magazine cover is being mean to Obama! What economy?

We need to keep talking about the Bush/McCain recession.

We also need to talk about what plans are afoot to fix it.

We need to make THEM talk about it.

[rocktivity]

18. I can't remember the last time Monster or Careerbuilder

have e-mailed me more than half a dozen job leads.

:scared:
rocknation

[Phoebe Loosinhouse]

19. I heard Bernitwit on the radio and I am furious!!!!!!

The clip I heard said that his big concern is:




wait for it



















SALARIES AND WAGES GOING UP!!!!!!!!!!!!!!!!



Arrrrrrggggggghhhhhhh! Those are the only freaking things that haven't gone up you moron. Not concerned about unsustainable commodity prices coming down, no just terrified the peon wage earners will demand more money.

Do you think he is concerned about the salaries and bonuses of the big boys or the BODS?

Just another cake eater in charge.

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