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| http://finance.yahoo.com/banking-budgeting/article/109184/five-sugg...
from article............
Over the past 80 years, while done with the noblest of intentions, we've traded bank runs for country runs (with FDIC Ins.). The sooner we address this risk, the better.
Don't get me wrong, I fully understand and appreciate the value of the "safety net" provided by the government to economic growth. But as we have seen in housing, banking, (and I suspect soon in higher education), an oversized safety net -- in which risk is ultimately fully borne by taxpayers -- results in wildly misdirected capital flows. And while at the time it all feels great, as we are now seeing, the ultimate consequences are devastating.
I believe the time has come to eliminate FDIC insurance. When the FDIC was created in the 1930s, it was intended to be a temporary solution. Today, it puts the US taxpayer on the hook for more than $7 trillion in bank liabilities. But as a consequence, depositor due diligence is non-existent.(they need to re-learn to read a call report, understand Liqudity & capital) And putting Wall Street aside, this crisis has shown, even with specific oversight, hundreds of now-failed banks took excessive risk in their traditional banking businesses and their insured depositors neither cared nor were adversely impacted. Their risk was borne by the government, while they earned returns far in excess of comparable US Treasuries. If we're truly going to eliminate "moral hazard"/"too big to fail" we must eliminate deposit insurance in the process.
we must repeal the "Levitt Rule." In good times, loan loss reserves must be built in anticipation of bad times. And, should FDIC deposit insurance not be repealed, as I recommend, fund premiums must also adopt a countercyclical methodology. That banks were releasing reserves and the FDIC was reducing/eliminating premiums at the top of the market defies basic logic.( Its exactly the time they should be building them ).
..........Lack of perceived risk .......leads to lack of responsibility....
FDIC.....traded runs on banks...........to a run on the finances & economy of the USA | |
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FDIC insurance
