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Is sanity on its way?
Maybe, just maybe:
The U.S. Senate may consider expanding the authority of the Federal Deposit Insurance Corporation as part of a package of legislation to reduce turmoil in the financial markets, Senate Banking Committee Chairman Christopher Dodd said today.
You'll note that the FDIC specializes in concentrating its actions on insolvent banks, which is exactly what we should be doing. The FDIC also has experience in this area, believe it or not.
Posted by Tyler Cowen on September 30, 2008 at 01:08 PM in Current Affairs | Permalink
Comments
If this happens and it is better than the original bailout....doesn't it mean the people who voted against the bill yesterday did the right thing?
Posted by: Chris at Sep 30, 2008 2:23:26 PM
I'm surprised that raising the FDIC deposit insurance limit from $100k to $250k is considered serious enough to be even a minor plank in any solution. The number of people who have more than 100k but less than 250k in a checking or savings account is, compared to the entire economy, very small. And the percentage of that small number who haven't just divided their accounts between institutions to get full FDIC coverage has to be additionally very small.
We're looking at. . what. . a few tens of thousands of people at most?
It's just weird. Maybe that population of people with a lot of cash but who are too lazy to open up another savings or insured money market account have a great lobby.
Posted by: sidereal at Sep 30, 2008 2:58:39 PM
I also don't understand how there could be many people who have more than $100k in a single account. Are the interest rates a lot better or something? What are we missing?
Posted by: Christopher Monsour at Sep 30, 2008 4:19:43 PM
I think it's great. I was actually thinking they should announce that FDIC coverage as of last night is $100,001. I.e., it means nothing...and everything. Kind of like bumping up the minimum wage a few cents every year.
Posted by: Andrew at Sep 30, 2008 4:40:20 PM
Tyler (or Alex), I'm not trying to be a wiseguy here. I don't see how the FDIC limit has anything at all to do with the current mess. Seriously, could one of you elaborate in a future post?
Posted by: Bob Murphy at Sep 30, 2008 4:59:00 PM
Businesses keep money in bank accounts, too.
Posted by: Norman Pfyster at Sep 30, 2008 5:14:30 PM
Tyler or Alex, what are your thoughts on the mark-to-market clarification the SEC made today?
Posted by: John B. Chilton at Sep 30, 2008 5:19:29 PM
I am glad that I am not the only person thinking this way. I don't understand how this in any way addresses the problem. I thought it was common knowledge that you don't put more 100k in any one account.
Posted by: Jim Ross at Sep 30, 2008 5:21:42 PM
The FDIC has a lot of powers, both actual and potential, not just raising the account limit. We'll see what they actually come up with, of course...
Posted by: Tyler Cowen at Sep 30, 2008 5:29:29 PM
John B.,
Yay!
First the bailout, then the FDIC, now the mark-to-market "clarification."
Three victories in two days. It's not that the coverage is functionally important, it is psychologically important and costs almost nothing and they are "get 'er dunnable." Tomorrow, if the market heads down or we see a lot of bank buyouts, I'm a buyer.
Posted by: Andrew at Sep 30, 2008 5:43:52 PM
Sorry, but what kind of signal would raising the insurance limit send to the market? Certainly not one of faith & confidence.
Posted by: kurt at Sep 30, 2008 6:15:11 PM
All raising FDIC limits are going to achieve is for masses of people cashing out of stocks and sticking them in savings accounts.
No, the better option would be to lift the caps of Roth IRA's / 401K's. Make it so for the 2008 financial year there is no limit on how much you can deposit in Roth or 401k's.
There would be a landrush of people pumping money back into the market to take advantage of the one time tax free gift from Uncle Sam.
Posted by: Bryan S at Sep 30, 2008 9:37:55 PM
I have no problem seeing how businesses (i.e. employers) which cycle through tons of cash each day/week/month would be helped by having a higher cash protection from FDIC. Thus, they would be less likely to contribute to bank runs of the sort which disintermediation hammered WaMu very recently.
Normally many such businesses try to keep that cash in money marekt funds, but with State Street's money market fund for instituional investors having major withdrawal problems, this (assuming that FDIC limits were raised high enough, at least for businesses) would have huge helpful effect on the issue businesses safely and confidently being able to meet their short term cash needs.
Posted by: happyjuggler0 at Sep 30, 2008 11:33:02 PM
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