Now the FDIC Needs to Borrow Money
And this is why our economy is colossally screwed right now. The FDIC didn’t collect any premiums from banks from 1996-2006 and not they want permission borrow $500 million to fulfill its purpose. The reason they didn’t collect premiums? Congress wouldn’t give them the authority to b/c…
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.
Now is it me or is the way insurance generally work a pretty simple thing? You pay a little bit of money each month when you can reasonably afford it, and then when something really bad happens your insurance company steps in and saves your bacon by helping to cover some to all of your expenses.
Because I like analogies, let’s look at the banks like a car. What Congress basically said is, “hey, we have a Toyota Camry (reliable car that rarely has problems) so let’s stop paying our insurance cause we never use it.” Too bad our reliable Camry just got totaled by a texting-while-driving teenager on the way home from the football game Friday night.
There’s a reason you’re required to carry auto insurance. You never know when you’re going to get your car totaled or your going to total another driver’s car. And its very rare that you’re the only one that’s going to be affected in an accident. So now we’re stuck in the desert with jalopy quality banks that were Cadillacs several years ago trying to limp to the next gas station and we’re not sure they’re going to have enough gas to save our bacon.
Credit is the devil.
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DAMN those obnoxious drive-by-texters.
(I’ve been wondering when this would happen.)
This one just about floored me. No, repeat NO, freaking insurance of any kind paid into the FDIC by the major banks for a period of almost exactly ten years.
Can you imagine what would happen to most of US if we didn’t pay insurance for ten years? I’m not even talking about the fact that in many states, certain kinds of car insurance are mandated by law and thus not paying insurance for even one year would be illegal. No, I’m talking about the actual, real-world consequences. Sure, some of us – the lucky ones – might be just fine, but that’s more dependent upon a roll of the dice than anything else. The rest of us? Almost certainly would have at least one major event which would wipe us out during that span of time. And it appears, unfortunately, that the bill is now coming due…with no money to pay it.
It’s even worse than that, though, as editor dday at Digby’s place points out devastatingly:
If you haven’t been reading Digby’s blog, you won’t be familiar with the term “banksters,” though I’m sure you’re all sharp enough to see where it was derived: the usual term “bankers” just doesn’t seem to sufficiently encompass the venality and organized thuggery of these guys over the last ten or twelve years, so some in the blogosphere have hijacked the term usually reserved for Capone-like figures, “gangsters” and simply combined the two terms. The resulting “banksters” fits all too well, sadly.
The point isn’t – or isn’t just that Congress allowed this to happen – although that is shocking enough, and perhaps the most-relevant part of the story – it’s that this wasn’t just happenstance, these banksters aggressively pushed for this to happen, consistently and steadily. And they were aided by powerful governmental allies like Alan Greenspan, whose take on ideas like regulating the credit default swaps which are now acknowledged to be at the heart of the fiscal malfeasance of the last decade or so was more or less that since these financial instruments were such complicated, intricate contracts/calculations (and they were), that no slow-moving governmental bean-counter would be able to keep up with the financial geniuses who created these instruments, and that thus, regulation from the government was not only unnecessary, it would actually be harmful, since it would amount to little more than the regulators ham-handedly meddling in things they understood imperfectly at best. And, to go with that, because the men and women who created the products were the ones who understood them best, that due to their complexity, those same men and women (the banksters) were also the ones best-suited to regulate and oversee the movement of these products. In other words, the market works best when it’s left to regulate itself.
Nice work, Alan.
Hey…my shirt is splitting and my skin seems to be turning green. That’s odd….
This highlights the biggest problem, our politicians are just like the banking people – greedy. I don’t know the intimate details behind all of this, but I’m assuming that the banks and executives gave money to the politicians or other gifts through lobbying efforts and so that’s how you get to this point. Of course banks wanted it, it saves them money which makes them money. It is greedy, but I would argue that most people are greedy when it comes to their own money. So it makes sense (still isn’t right) and I’m sure we’d all be tempted to do the same if offered the opportunity to get insurance for free. But the next step is most troubling for me – why didn’t the politicians stand up for the greater good?
Here is an area where regulation vs. deregulation is highlighted as well. This is simple regulation that we all experience. You have to have insurance by law (the regulation) and you have to pay for it (the “penalty” of regulation) but it will “save your bacon” and keep our system sound (the reward of regulation). But even in its simplest form – you must have insurance and pay for it – our leaders couldn’t hold the line for the greater good. How well can these people do when the regulation is even more complicated? It would just take more money in donations and gifts I guess!
It is the same with debt. I haven’t heard anyone really pick up the mantle of paying off our debt except for Ross Perot and he was just too weird and cooky to win an election. Why not? Because the average person doesn’t want to pay off their own debts. So what happens? People want their kickbacks from government – be it tax cuts, be it new programs, whatever. So politicians promise those things and provide those things because that’s why people will vote for them. No concept of what is right, just what is right to win an election.
I think we should have term limits and very black and white laws against lobbying. A person should not have a life-long job and become very wealthy and well-cared for by being a “public servant”. Politicians should make decisions based on what is right or wrong and what is most beneficial on the whole while representing their constituents. Naturally it won’t be truly objective because people bring their own ideas and opinions to the table. I have no problem with that. I do have a big problem with people being bought – through gifts, donations, and even elections – because it shows that they are there not to make us better, not to make sure people follow rules or even establish appropriate rules, they are there to get and maintain their jobs, a.k.a. power. And when that is your motivation, this is the kind of stupid crap you get.
And Erik – never a more true statement – Credit is the devil. And he is fat and well-fed in this country. We should change the phrase on our money from “In God We Trust” to “Charge It!”
I think there’s a pretty clear demarcation and separation between greedy and dishonest. Not to say that you never see the two combined; clearly, you DO see them combined far too often. I might even say that one of them (greed) is a kind of gateway drug to the other (dishonesty). But to use your example, Steven, would I avail myself of free insurance? It depends. If the situation was such that I could do so without fear of later reprisals AND without knowing that I was harming others, absolutely. In that sense, I think your logic is unassailable. Everybody loves free. Can’t beat it. But stealing is free. Why, if everyone loves free, isn’t there a tidal-wave epidemic of theft? Part of the answer to that, surely, is that people don’t want to get caught and suffer the consequences. That’s a big part of the reason we have consequences. But it isn’t only that. Ask yourself – or I will ask you, purposely, because you are one of the more ethically upright people I know – whether “threat of punishment/consequences” is the only thing which keeps you from dishonest and illegal behavior such as stealing which would (assuming you got away with it) undeniably result in “free” stuff for you? I don’t know you nearly as well as Erik does, and certainly not as well as you know yourself, but I feel as certain as I ever am about anything that fear of consequences isn’t your only reason.
The point here is that honest people – people who are constrained not just by rewards or punishments, but by their own sense of what is right and wrong – might WANT free stuff, whether it be insurance or DVDs or anything else, but they aren’t going to avail themselves of an opportunity to GET it, if their ethics tells them it’s wrong…even if their logic tells them that it’s technically legal, or that they’ll never be caught or punished. Thus, I don’t cut the banksters any slack for simply “wanting free insurance.” I understand it, but I don’t condone it, nor cut them any slack for it. It’s a bit like wanting to understand why a guy like Osama Bin Laden does what he does (so his thought process can be better understood and therefore countered more effectively), but not condoning for a moment his illegal and immoral acts – and certainly not “supporting” them. It’s something of a “blame the victim” line of thinking to say it’s understandable (and therefore less serious or less offensive than whatever the politicians did) for bankers, who deal in money, to have taken an opportunity (or even pushed for an opportunity) to avail themselves of free insurance.
That’s not to try to absolve the politicians, not at all. But I don’t share your view that the most troubling part of this lies in whatever the politicians did or did not do. This was pushed for, aggressively, by banking interests who had access via campaign contributions, etc, to the highest levels of policy-making in Washington, and who used that influence to avoid doing things (like paying taxes and insurance) that you and I have to do or risk the penalty of law.
To me, the outcome we’re now all observing, and the venality of the banking interests combined with the failure of spine or foresight among the governmental entities which were supposed to enact and enforce regulation, leads to the conclusion that we need either more or better regulation – or both – rather than less or none. It’s a “baby-and-bathwater” issue at this point: I will agree with you that ethics seems to be something not commonly found (judging from the evidence at hand) among the leaders of the nation’s banking interests. If we KNOW that, then in order to keep all of our “bacon safe,” we need to put in place policies which are actually effective at regulating these entities, and keeping them within some broad guidelines so that illegal and/or spectacularly unwise actions are not able to be taken without review or oversight, actions which result in substantial losses for all of us. Put simply: if banks are greedy AND dishonest, they need to be controlled and regulated. If regulation has failed or not worked well, it needs to be FIXED, not ABOLISHED or weakened.
I’m no expert, but it seems to me that several concrete steps should be taken. You mentioned at least one with which I’m in full agreement: rules against lobbying. At least very carefully-crafted rules against certain kinds of lobbying. I’d also like to see publicly-financed elections. The amount of money spent on elections in this country is ridiculous currently, and just keeps rising with each election. Yes, it’s all technically “private money” right now (for those candidates who don’t accept public matching funds), but don’t think that funds spent on political campaigns don’t have a negative effect on the economy by virtue of being funds which aren’t spent on other things which actually benefit the economy. The people who don’t want these laws to change are – sad to say – the rich people, i.e.: the ones for whom the system works best as it is: if it takes money for a Congressperson to get re-elected, and the largest source of money comes from campaign contributions, and the people in the best position to MAKE campaign contributions are the ones with the most money (the rich), it stands to reason that they’re quite happy with the way things are right now. The current system keeps politicians dependent upon the opinions of those both wealthy enough and willing to open their own pockets (or those of their friends and associates) to help get Politician X re-elected. It’s still technically illegal to buy votes for cash, but to prove this, there has to be a pretty ironclad case of evidence showing a quid pro quo….which there often – usually – is not. Abuses like Duke Cunningham’s or William Jefferson’s, which are almost cartoonishly over-the-top, are actually much more rare than the sort of garden-variety, likely unprosecutable influence-peddling which goes on every day in Washington, and which is the sort of thing which led to the failure to collect insurance from banks for the FDIC for a decade.
I’m against term limits on principle. It is indeed possible to have good-quality, honest, effective political leaders. They may be more rare than hen’s teeth, but they aren’t completely unheard of. And, were politics to be freed from the distorting and debasing influence of pay-to-play, you might be surprised at the increase in the number of people who truly want to serve their country in elective office, honestly. But with term limits, even the best representatives, whether state or national, can’t be allowed to stay, no matter how much of the electorate wishes they could. Beyond that, the thing is that we already HAVE term limits. They’re called “elections.” Every two, four or six years, we – the people – get the chance to go to the polls and express our collective will and wisdom. It ain’t always a perfect system, but (as Winston Churchill observed pithily at one time) “Democracy is often said to be the worst form of government ever invented, except for all the other forms which have been tried throughout history.” Even now, with the corrupting and twisting that goes on due to the influence of money in politics, we STILL have the opportunity to “throw the bums out.” The fact that too often, we DON’T do so, reflects a lack of understanding on the part of many voters about what the real record(s) of various elected officials are, as well as general cynicism that “they’re all the same.” No, they’re NOT all the same. Some are far more effective, far more honest, far more skilled, etc…than others. But if we term-limit them out, we reduce our ability to reward good behavior and punish bad. What’s needed here is again, more transparency in politics: sunshine laws which expose the workings of government to the public, and a concerted effort to not just make those workings available to anyone who wants to search for them, but to proactively publish them. The Obama administration appears to be embarking upon a project to do just these things (witness the creation of new websites detailing exactly what new rules are, what they do, and how dollars are being spent). And again, with publicly-financed elections which means politicians free from having to pay attention to certain people’s opinions far more than other people’s, we will have less incentive for politicians to not tell the truth (or not obfuscate it).
OK, rant over. Last thought re: changing “In God We Trust” to “Charge It” – I’ve heard anonymous gadflies suggest that the motto should be “In God We Trust – All Others Pay Cash.” Perhaps if we had to pay cash for most of our stuff, we’d be in better shape.