FDIC Dissembling Again
by ilene - August 27th, 2009 1:36 pm
FDIC Dissembling Again
Courtesy of Karl Denninger at The Market Ticker
The Litany of Lies has once again appeared from a government agency:
"While challenges remain, evidence is building that the U.S. economy is starting to grow again," said FDIC Chairman Sheila Bair.
Bullshit. The economy is not growing; capacity utilization is not expanding, hours worked have no durable upward trend, job loss is continuing and consumer spending and borrowing are both contracting. This is a flat lie.
Chairman Bair went on to say, "The FDIC was created specifically for times such as these. No matter how challenging the environment, the FDIC has ample resources to continue protecting depositors as we have for the last 75 years. No insured depositor has ever lost a penny of insured deposits…and no one ever will."
Alan Greenspan disagreed in 2003 that "The FDIC was created specifically for times such as these." Indeed, it was his opinion that The FDIC in many ways CREATED times such as these!
The benefits of deposit insurance, as significant as they are, have not come without a cost. The very process that has ended deposit runs has made insured depositors largely indifferent to the risks taken by their depository institutions, just as it did with depositors in the 1980s with regard to insolvent, risky thrift institutions. The result has been a weakening of the market discipline that insured depositors would otherwise have imposed on institutions. Relieved of that discipline, depositories naturally feel less cautious about taking on more risk than they would otherwise assume. No other type of private financial institution is able to attract funds from the public without regard to the risks it takes with its creditors’ resources. This incentive to take excessive risks at the expense of the insurer, and potentially the taxpayer, is the so-called moral hazard problem of deposit insurance.
Of course you wouldn’t expect Sheila Bair to admit to this little problem…..
"Deteriorating loan quality is having the greatest impact on industry earnings as insured institutions continue to set aside reserves to cover loan losses," Chairman Bair noted. "Of all the major earnings components, the amount that insured institutions added to their reserves for loan losses was, by far, the largest drag
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.