We seem to have created a new device in Washington; it is a magic socializer wand. This wand sweeps aside constitutional limitations, enables the spending of trillions of dollars of tax payer money with little to no oversight and tramples any calls for informed debate.
With a puff of smoke, it instills fear into the hearts of the American people (opens their wallets) and collapses months of reasoned consideration by intelligent people into sweeping overnight approvals.
Government uses Fear to Increase FDIC Insurance to $250K
Let’s take a small example of what just happened with the FDIC insurance for deposit accounts contained within the misshapen bailout plan (“rescue plan” for supporters). The wand is waved and we are told by the “experts” including the ever eminent Lawrence Lindsey, and subsequently parroted by every completely uninformed TV personality for the day, that one of the things that “must” happen to restore confidence in the banking system is to raise the amount of deposit insurance.
One very prominent stock advisor even said it should be unlimited or raised to at least a million dollars an account. This then would stop panicked depositors from rushing to withdraw their money from the banking system (a “run on the banks”) and work to help stop additional bank failures.
Upping the FDIC Insurance Limits Helps the Elite at the Cost of the Middle Class
So, the wand was waved and it became so. Overnight, the FDIC insurance went from $100,000 per account to $250,000 per account. Admittedly, less and less stunned by the power of this wand, I couldn’t help but think about the following:
- How many people is this really going to help?
- Who are the people this is really going to help?
- How much is it going to cost, since there will be a commensurate increase in FDIC insurance premiums?
Banks Must Pay Higher Insurance Premiums to FDIC
Since the banks will have to pay more in insurance premiums, this will, in turn, reduce their already eroded profits. This means that banks will have to increase what they charge in interest rates or fees and/or reduce the amount they pay depositors to pay for the increased insurance cost.
Let’s take a quick look at the numbers from the FDIC Statistics on Depository Institutions Report, U.S. domestic deposits as of 6/30/2008:
As detailed above, 98.4% of the current deposit accounts were already $100,000 or less, the amount already covered by FDIC insurance. The rules drive some part of the numbers (i.e., since the limit is $100,000, people keep their accounts under that level) but if you had a joint account under the old rules, you would still have qualified for $200,000 in deposit insurance.
The average balance in the accounts under $100,000 is $5,706. Using averages can certainly skew the statistical analysis (the unavailable median would be nice to compare); however, the fact that the average is so far removed from the cap tells you that the majority of the depositors were already covered.
The fact that a few wealthy people have to understand the rules and work within them doesn’t seem to merit this sweeping change.
In summary, we have a plan to double the FDIC insurance coverage to take care of 1.6% of the people with accounts that have an average balance $401,161. All of the system’s depositors will face increased costs when doing business with the banks, in order to increase the insurance coverage for a relatively small number of people.
The wand has done a great job in keeping actions like this within its socialist tenants by scaring the American people who earn the money into handing over the keys to free market capitalism. Many more current examples of the truth behind the Halloween mask can be found at http://pallante.typepad.com/
We’d better start in on collecting and destroying these wands or the next puff of smoke you see might contain our constitution, our precious “free market capitalism” and your individual freedom.