Oh, Perfect

Big fun coming:

The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts.

[...]

Hurley agreed with Bair's analysis of the FDIC's dilemma. "Typically you would build up a reserve during the halcyon days to protect yourselves during a recession," he said, calling the decision to stop collecting most premiums "a political one" that was pushed by banks and not based on strict accounting principles.

Here's the punchline:

But James Chessen, chief economist of the American Bankers Association, said that it made sense at the time to stop collecting most premiums because "the fund became so large that interest income on the fund was covering the premiums for almost a decade." There were relatively few bank failures and no projection of the current economic collapse, he said.

"Obviously hindsight is 20-20," Chessen said.

We're fucked.

[Via Atrios.]

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Comments

[gyma]

I so hope you're wrong. I rarely go inside a bank these days, but today I had to get some papers certified. My day-to-day banking is done with Chase and I absolutely hate dealing with their personal bankers. After getting the papers certified I was forced to sit through the spiel about how if I used my debit card more I might win something or other. She also asked whether I paid my bills online and did I want to open up a savings account at some miniscule interest rate because she thought my checking account balance was too high. The next line was a question about using a personal line of credit, blah, blah, blah. Any more it all sounds like a scam and I can't decide what to do. It seems impossible to determine the health of any of the banks, so what is one to do? Apparently the banks in London are going to start charging people to keep their money in them.

Something's wrong with this picture, no?

[spork_incident]

I never hear any spiels from banks or others trying to sell me something - "discount cards" being the most common. In a friendly way as possible I say "I know your doing your job but no thanks." Usually they seen relived to not have to recite the hard sell.

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