What about the FDIC Scare?

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Is the FDIC going broke or are we being treated to yet another Obama-based scare tactic?  The Senate has voted emergency funds.  Will it be enough?

NOTE:  I’ve been holding this piece for over a week, waiting for new information to surface.  Darn, if I wasn’t correct.  Regular Pink Flamingo reader, Sally Vee sent me the link to the latest dirt about the Treasury Department.  It comes from RBO.

“…The Federal Deposit Insurance Corporation (FDIC) treasure chest is empty. And why is it empty? Because the FDIC decided not to collect insurance premiums from its membership of banks from 1996 to 2006….These are adults at the FDIC, and the Congress is full of adult appetites. Starting from the second Clinton administration, with Larry Summers (now the sorcerer’s apprentice) as Treasury Secretary, Bob Rubin as the genius of Citigroup as Sandy Weil’s best idea, and Tim Geithner (now the sorcerer’s apprentice’s sorcerer) at Larry Summer’s side, with the usual suspects in both the Republican and Democratic parties chairing the various banking or finance committees, (Chuck Grassley, Phil Gramm, Paul Sarbanes, Chris Dodd, Chuck Schumer, Barney Frank), no one thought to collect the fees for a rainy day. Times were too good. Who needed to plan for bad times? (You would not believe this unless it had actually happened.)…Now FDIC Professor and Chair Sheila Bair (right) needs emergency funds because the bank failures so far, with giants such as IndyMac already gone, and with the threat of Behemoths such as Citigroup and Bank of America possible deaths, have drained the $52 billion in a wink. …”

Or, is it just another way to wring additional tax money out of banks, which will pass the fees on to us?  Or abject incompetence?

Why are we even bothering to bail out these banks.  If you remember the S&L failures in years gone by, various “banks” were allowed to fail, they were not propped up.  According to financial experts, the “pain” lasted about six months.

Why must we constantly bail out everyone and their grandmother?

Why can’t failure be an option?

Is the failure of the FDIC reality or just another shake-down tactic?

“…“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry.

“A large number” of bank failures may occur through 2010 because of “rapidly deteriorating economic conditions,” Bair said in the letter. “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”

The FDIC last week approved a one-time “emergency” fee and other assessment increases on the industry to rebuild a fund to repay customers for deposits of as much as $250,000 when a bank fails. The fees, opposed by the industry, may generate $27 billion this year after the fund fell to $18.9 billion in the fourth quarter from $34.6 billion in the previous period, the FDIC said. The fund was drained by 25 bank failures last year.

U.S. community banks plan to flood the FDIC with about 5,000 letters in protest. They are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said today in a telephone interview.

“I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers.

‘Significant Expense’

“The FDIC realizes that these assessments are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure,” Bair wrote. “We did not want to impose large assessments when the industry and economy are struggling. We searched for alternatives but found none better.”…”

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