The $250k FDIC insurance "sell"

DriftingByTheStorm

MrSmith wrote:

i agree basically. the threat of economic breakdown is real but i think the "solutions" proposed so far are just meant to keep things afloat until after election day. i do think the Bush administration tried to slip an economic Patriot Act in at first, but the republicans have already abandoned him and arent trying to scam anyone. at least not more than the democrats.

The entirety of this bill is about one thing: preventing a catastrophic meltdown.

I know that is a catch phrase, and many don't understand it.
And that is too bad, because i'm not going to get in to it all here.

I will say this though,
for those that think this is just some "correction" (and i saw the thread with that title, and i cringed) you need to understand something fundamental:

What is happening right now is the exact same thing as a long term severe narcotic addict going cold turkey. I hear all these chants of "Yeah fuck it. Fuck the addict. Drugs are bad. Just take the drugs away and let him deal with it. Its his fault." ...

What people are not understanding is that our economy is HORRIBLY ADDICTED TO LOOSE CREDIT, and you are asking it to not only quit cold turkey, but go on a diet at the same time. The results WILL BE HORRIBLE WITHDRAWAL, and like with some strong narcotics, possibly DEATH.

This bill isn't supposed to be a "stopgap" or "temporary delay" so much as it is meant to be a sort of Rehab Program.

Maybe the metaphor isn't perfect, but what this bill is hopefully going to do is remove some of the systemic burden in the system, allowing the markets to correct, WITHOUT having the housing market tank abruptly, and have the markets at large go on a death spiral.

If people UNDERSTAND THAT RISK, and are willing to forego a bailout, then fine ... thats great. The American people have more fortitude than i gave them credit for. However, i suspect most don't REALLY understand just HOW BAD the results of not offering Wall Street a lifeline could be for EVERYONE.

This is like dominos in a line folks. The markets fall a few hundred points, and everyone starts selling. Everyone starts selling, the markets fall. The markets fall, and banks are FORCED TO SELL because of margin calls. The markets then drop even farther. The consumer gets the shaft, and is unable to make mrotgage payments, obtain further credit, and loses his job. Millions more houses go on the market. The housing market tanks further. This twists the banks arm some more, causes them immense pain, forces them to sell more. The markets drop further ... repeat ad naseum.

IT IS A BAD SCENARIO.

If you understand that and you are all for not giving a green light to this bail out, then praise the heavens, you are a true blue patriot, willing to risk it all to prove a point.

If you DON'T understand that, it would behoove you to figure it out before you make your decision.

Look, i HATE bailout.
I think the WHOLE GAME IS ROTTEN.
But NOW may NOT be the time to stand on principle.
Maybe we should look for ways to MANAGE THE PAIN, get through this, and THEN HOLD THESE FUCKERS ACCOUNTABLE ... maybe split their banks up in a hundred pieces, and DEFINATELY END THEIR CREDIT PARTY vis a vis the Federal Reserve.

DriftingByTheStorm

inmytree wrote:

they won't freeze credit...that's how they make money...

this whole thing is bullshit...I keep hearing about people not being able to get credit...yet I've not seen one credible sorry other that someone saying it...

this is just like the rush to war....

I just called both of my senators and asked them to vote against this crap...

seriously...I keep hearing "this is a crisis" yet see no evidence....please, if someone can find a credible story that this is a true "crisis"...please point me in that direction...

Its not too hard to find evidence.
Monday saw a massive spike in LIBOR.
Here is another example:
Treasurys soar, credit pipes frozen.

and another:
The credit squeeze: Healthy companies struggle for financing because bank failures have frozen lending

and yet another:
In wake of market plunge, state access to capital markets ‘frozen’

and one more, just to hit the point home:
US venture capitalists struggle due to frozen markets

Starting to see any evidence?
Look, just like this current meltdown didn't happen overnight (remember me screaming about it for almost a year, and being called a bloody fool?) neither will the effects of banks refusing to lend. Actually, it has been pretty immediate. It is just taking a while for YOU to feel it personaly.

But make no mistake, you WILL feel it.
EVERYONE will feel it.

inmytree

DriftingByTheStorm wrote:

Its not too hard to find evidence.
Monday saw a massive spike in LIBOR.
Here is another example:
Treasurys soar, credit pipes frozen.

and another:
The credit squeeze: Healthy companies struggle for financing because bank failures have frozen lending

and yet another:
In wake of market plunge, state access to capital markets ‘frozen’

and one more, just to hit the point home:
US venture capitalists struggle due to frozen markets

Starting to see any evidence?
Look, just like this current meltdown didn't happen overnight (remember me screaming about it for almost a year, and being called a bloody fool?) neither will the effects of banks refusing to lend. Actually, it has been pretty immediate. It is just taking a while for YOU to feel it personaly.

But make no mistake, you WILL feel it.
EVERYONE will feel it.

neither of these articles state that anyone was denied credit....only that it's harder and more costly...

I may have missed it, cause I glanced through...

edit: so the days of easy credit are over....I see that as a good thing...

DriftingByTheStorm

inmytree wrote:

neither of these articles state that anyone was denied credit....only that it's harder and more costly...

I may have missed it, cause I glanced through...

edit: so the days of easy credit are over....I see that as a good thing...

State Access...Frozen wrote:

State Treasurer Tim Cahill said state government has lost access to the short-term credit lines it relies on to pay its bills

and the "converse" (not really, just seperate forms of accessing borrowed capital):

Same Article wrote:

Cahill said there were “no buyers” for state debt

and then on the private side:

The Credit Squeeze wrote:

The company wanted to increase its line of credit to buy more steel for some new big orders, but it was turned down by its bank.

Same Article wrote:

Drew Greenblatt, president of Marlin Steel Wire Products in Baltimore, thought it was bad in August when he asked his bank for a $175,000 increase in his line of credit. Sure, he said he was told - if you take out a $175,000 certificate of deposit with us.

That's not a loan. Thats a One-To-One Deposit\Withdrawal.

Look man,
i'm not going to argue semantics with you.
This is what it is.
Credit in this country is already noticeably worse.
Its a fact.
And it is economic reality ... not just in this situation; the fundamentals are rooted in basic economic theory.

We have a credit problem right now.
Banks are scared, and therefore won't lend.
Period.

Either we do something about it,
or allow it to further deteriorate.

I'm not going to sit here and make value judgements just to get torn apart,
I will just state facts and let others decide for themselves what is "right" and what is wrong.

LikeAnOpeningBandForTheSun

DriftingByTheStorm wrote:

The entirety of this bill is about one thing: preventing a catastrophic meltdown.

I know that is a catch phrase, and many don't understand it.
And that is too bad, because i'm not going to get in to it all here.

I will say this though,
for those that think this is just some "correction" (and i saw the thread with that title, and i cringed) you need to understand something fundamental:

What is happening right now is the exact same thing as a long term severe narcotic addict going cold turkey. I hear all these chants of "Yeah fuck it. Fuck the addict. Drugs are bad. Just take the drugs away and let him deal with it. Its his fault." ...

What people are not understanding is that our economy is HORRIBLY ADDICTED TO LOOSE CREDIT, and you are asking it to not only quit cold turkey, but go on a diet at the same time. The results WILL BE HORRIBLE WITHDRAWAL, and like with some strong narcotics, possibly DEATH.

This bill isn't supposed to be a "stopgap" or "temporary delay" so much as it is meant to be a sort of Rehab Program.

Maybe the metaphor isn't perfect, but what this bill is hopefully going to do is remove some of the systemic burden in the system, allowing the markets to correct, WITHOUT having the housing market tank abruptly, and have the markets at large go on a death spiral.

If people UNDERSTAND THAT RISK, and are willing to forego a bailout, then fine ... thats great. The American people have more fortitude than i gave them credit for. However, i suspect most don't REALLY understand just HOW BAD the results of not offering Wall Street a lifeline could be for EVERYONE.

This is like dominos in a line folks. The markets fall a few hundred points, and everyone starts selling. Everyone starts selling, the markets fall. The markets fall, and banks are FORCED TO SELL because of margin calls. The markets then drop even farther. The consumer gets the shaft, and is unable to make mrotgage payments, obtain further credit, and loses his job. Millions more houses go on the market. The housing market tanks further. This twists the banks arm some more, causes them immense pain, forces them to sell more. The markets drop further ... repeat ad naseum.

IT IS A BAD SCENARIO.

If you understand that and you are all for not giving a green light to this bail out, then praise the heavens, you are a true blue patriot, willing to risk it all to prove a point.

If you DON'T understand that, it would behoove you to figure it out before you make your decision.

Look, i HATE bailout.
I think the WHOLE GAME IS ROTTEN.
But NOW may NOT be the time to stand on principle.
Maybe we should look for ways to MANAGE THE PAIN, get through this, and THEN HOLD THESE FUCKERS ACCOUNTABLE ... maybe split their banks up in a hundred pieces, and DEFINATELY END THEIR CREDIT PARTY vis a vis the Federal Reserve.

many in congress with a inadequate knowledge of economics probably voted for it thinking it was, but it isn't. its terribly written. it will only make things worse.

inmytree

DriftingByTheStorm wrote:

and the "converse" (not really, just seperate forms of accessing borrowed capital):


and then on the private side:




That's not a loan. Thats a One-To-One Deposit\Withdrawal.

Look man,
i'm not going to argue semantics with you.
This is what it is.
Credit in this country is already noticeably worse.
Its a fact.
And it is economic reality ... not just in this situation; the fundamentals are rooted in basic economic theory.

We have a credit problem right now.
Banks are scared, and therefore won't lend.
Period.

Either we do something about it,
or allow it to further deteriorate.

I'm not going to sit here and make value judgements just to get torn apart,
I will just state facts and let others decide for themselves what is "right" and what is wrong.

no need to get defensive....I'm am seeking facts...fact is, no one has been unable to get credit...they just had to work harder to get it...BFD...

I say let the banks not lend...that only hurts there bottom line...so that's their choice...

how about this, let's just agree to disagree....

keithjam

Could the FDIC really cover all the money if we had a run on the banks?

I would just guess they would print more money causing the value of the dollar to go down causing more problems.

But, I don't know how any of this stuff works.

DriftingByTheStorm

keithjam wrote:

Could the FDIC really cover all the money if we had a run on the banks?

I would just guess they would print more money causing the value of the dollar to go down causing more problems.

But, I don't know how any of this stuff works.

No.
The FDIC will be "broke" in a hurry.
But like you said, the government would run quick as a bunny to get more funds appropriated for it ... as you say, out of thin air.

The point of this increase in the FDIC limit is, ironically, to ensure that the funds DO NOT get used.

They are trying to say, "hey look, it doesn't matter HOW much you have in your account. JUST LEAVE IT THERE, PLEASE!"

Because a run on banks is the LAST thing we need right now.
:(

dmitry

DriftingByTheStorm wrote:

Jesus H. Christ, folks.
Is it that hard to understand?

This attempt to raise the FDIC insured deposit limit is NOT about corrupt Republicans, and the intention is NOT to lower bank liability ...

IT IS ABOUT REDUCING RISK IN THE SYSTEM.

If larger depositors can be assured that their money is GUARANTEED by the Government, there is a BETTER CHANCE THAT THEY WILL NOT PULL THEIR MONEY OUT OF THE BANKS.

THIS REDUCES SYSTEMIC RISK OF BANK FAILURE, AND POTENTIALY REDUCES TAXPAYER LIABILITY.

You need to understand that THIS is the intention at play here.

Yes, it seems paradoxical ... we are increasing Federal\Taxpayer liability in order to REDUCE it ... but that IS what the intention of this legilstaion is aimed at.

It is a market calming approach.

Does that not make sense?

It doesn't matter what the legislation is aimed at. If intentions are all that mattered we'd be living in heaven on earth by now. Deposit insurance is a moral hazard which has now been more than doubled.

You've got the king on his knees and you're scared to chop off his head. Hand me the ax.

MattyJoe

dmitry wrote:

Just what we need, banks with less responsibility.

What are you talking about?

dmitry

MattyJoe wrote:

What are you talking about?

Greenspan can say it better than me:

"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."

So, my understanding is that raising the insurance is increasing long term systemic risk to avoid short term bank runs.

DriftingByTheStorm

inmytree wrote:

neither of these articles state that anyone was denied credit....only that it's harder and more costly...

I may have missed it, cause I glanced through...

edit: so the days of easy credit are over....I see that as a good thing...

Just to give you another update,
GE, yes the MASSIVE conglomorate, General Electric, parent company of NBC Universal, and a gianormous financing corporation, as well as manufacturing company ... IS HAVING SO MUCH TROUBLE GETTING SHORT TERM CREDIT THAT IT HAD TO DILUTE ITS SHARES WITH A STOCK OFFERING TO COME UP WITH CASH! [bottom of report]

here wrote:

Finally, the OTHER GREAT WORRY is the credit market freeze-up. Our parent company, General Electric, priced a large secondary at $22.25 this morning, largely to deal with its difficulty rolling over short-term commercial paper. If GE is having trouble rolling over paper, this is an issue that needs to be addressed.

If you think anyone in their right mind wants to be offering shares for sale in THIS MARKET, you got to get your head checked.

DriftingByTheStorm

dmitry wrote:

Greenspan can say it better than me:

"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."

So, my understanding is that raising the insurance is increasing long term systemic risk to avoid short term bank runs.

Dude i agree with you.
It is a huge moral hazard, but what the fuck?
It is already there. We've had FDIC for what, 70 years or more?
You're telling me NOW the American people want to stick to their formally-non-existant guns about the principles of moral hazard in the banking industry?

The Federal Reserve is NOTHING but a MASSIVE moral hazard.
Period.

Arguing a raise in the FDIC at this point is absurd.

And further, fuck Alan Greenspan, the asshole wrote a HUGE essay about THE EVILS OF FIAT and how GOLD WAS THE ONLY PROTECTOR OF THE PEOPLES WEALTH AGAINST STATIST INTERESTS.

And where did he go with that thought?
:rolleyes:

Look, he was right.
The concept of the FDIC=Moral Hazard is a giant fucking "No Duh" to anyone with half a brain. The fact that Greenspan even felt the need to say it is a joke. ESPECIALLY given his tenure as Reserve Chairman. WTF?

Man, honestly i don't even care which way it goes.
I just find it laughable that suddenly everyone is all for standing firm on principle with regards to banking legislation.
Where the fuck was everyone before this crisis?
:(

Sludge Factory

I'd have to say the first post here:

http://www.ronpaulforums.com/showthread.php?t=160593

sums things up as I see it pretty succinctly.

I also like this video with Jim Rogers:

http://www.youtube.com/watch?v=5ZQs3anwN0I