Even Sheila Bair Concurs: The FDIC May Be Insolvent
Mar 5, 2009
Posted by Jody Eisenman | Filed under Uncategorized
Last week, I wrote an article questioning the solvency of the Federal Deposit Insurance Corporation, better known as the FDIC (“Is The FDIC Broke?”). According to Bloomberg news, the FDIC could be insolvent this year.
I think Ms. Bair is being too optimistic. Based on their losses of last quarter, and the deteriorating economy, the FDIC might very well run out of funds this month or next. The FDIC only had $18.9 billion left at the end of the year. They lost $33.5 billion last year with 25 bank failures. There have already been 16 failures this year, and more are on the way. So what’s the solution? Well, the FDIC has decided to charge a one time fee to all banks to make up the difference. Needless to say, the small community banks are furious, and I don’t blame them. While many of these small banks engaged in traditional banking and have secure balance sheets, they are now being forced to subsidize the “cowboy banks” that engaged in risky leverage and lending policies. When these cowboys took risks, they were paid handsomely. When the risks blew up in their faces, everyone else needs to bail them out. What a world.
Meanwhile, the market finally reversed the downtrend with a 150 point gain today. I was not all that impressed with the rally. First of all, the financials continued to get hit. JP Morgan, one of the supposed “strong” banks, lost over 8%. Wells Fargo got destroyed again, dropping over a dollar to close at $9.66. Wells was $14.40 last Thursday, and was over $29 at the beginning of the year. General Electric continued to plunge, down another 32 cents to close at $6.69. In the morning, the stock fell to a new low of $5.73 before recovering later in the day. Secondly, the Dow continued its recent trend of selling off into the close by dropping about 100 points in the last half hour of trading. I’m now more skeptical of a big rally here. The rallies don’t even seem to last more than a few hours these days. If history is any guide, the selling will continue tomorrow.
March 6th, 2009 at 4:30 am
are you the only one covering this?!
September 23rd, 2009 at 3:13 pm
[...] discussed on this blog previously (http://www.jodyeisenman.com/2009/03/even-sheila-bair-concurs-the-fdic-may-be-insolvent/), the Federal Deposit Insurance Corporation is running out of funds. According to FDIC’s own [...]