Signed, Sealed, Insured, I'm Yours

Here is an excellent clip, re-posted from Calculated Risk. 60 Minutes went with the FDIC when they seized Heritage Bank in Illinois (number 15 of 17 so far this year, closed on 2/27/09).


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This is good for a few reasons. One, because it shows how the FDIC really knows what it is doing. Two, it really hits home what it is like to have a bank fail. Imagine working for a bank for twenty years and then having the FDIC come in the door right before you are about to go home Friday evening.

Third, and most importantly: this is why we do not have a free market and why we should NOT, never, by no means have unrestricted capitalism. Can you imagine if all these people just lost their money? Sorry: we took your money and pissed it away. The FDIC is an institution that protects people, and frankly, we need more such institutions in this country.

Unlike Congress, for example, who seems more concerned with investors than taxpayers. Note when Sheila Bair suggests at about 12:00 that perhaps taxpayers should question the size of institutions who are being bailed out by the government. The FDIC protects taxpayers and their deposits, whereas Congress is protecting investors and their investments. Think about that.

Also, think about this. The CEO of MB Financial interviewed in this piece, suggests that closing weak banks is good for the banking industry. Okay, perhaps. But: the number of FDIC insured institions has halved in the past twenty years. Halved! It has largely sustained the growth of the banks who remain; even in recessions, when the amount of total FDIC-insured assets stops increasing, the average amount of assets per institution is increasing, because banks are dropping off the map left and right. How long can this sustain itself? How long before we end up with too few banks, all of which are too big to fail? Or how long before the MB Financial's of the banking world cannot shore up their balance sheets with cheaply bought fire-sale assets? There are only some 7,000 FDIC insured institutions left. How big of a banking system is sustainable? How small?