Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn't Act

[villager]

Source: Yahoo! Finance

Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn't Act

by Aaron Task in Investing, Recession, Banking

With the "financial storm of the century" hitting financial institutions, many Americans are worried about the safety of their bank deposits. While the FDIC insures individual accounts up to $100,000, the reaction to IndyMac's failure this summer -- lines outside retail branches -- shows Americans have limited faith in the Federal Deposit Insurance Corp., which guarantees individual accounts up to $100,000.

Update: "The banking system is safe and sound," Treasury Secretary Hank Paulson declared at a mid-afternoon press conference Monday, seeking to ameliorate such concerns.

"Nothing is more important than the stability and orderliness of our financial markets regulators remain vigilant," Paulson continued. "We're working through a difficult period in our financial markets right now as we work of some of the past excesses, but the American people can remain confident in the soundness and resilience of our financial system."

But Americans are justified to be worried, says Nouriel Roubini, of NYU's Stern School and RGE Monitor, who notes there is already a "slow-motion run on retail banks" occurring nationwide.

That "run" could accelerate as people realize the FDIC fund has about $50 billion to "insure" about $1 trillion in assets at the nation's financial institutions, says Roubini. "They're going to run out of money" unless Congress acts soon to recapitalize the FDIC.

In addition, the recent spike in number of banks on the FDIC's "troubled list" is only through June, meaning even that inflated number understates the problem.

<snip>


Read more: http://finance.yahoo.com/tech-ticker/article/56994/Top-Economist-Americans-Should-Worry-About-Bank-Deposits-if-Congress-Doesn%27t-Act?tickers=LEH,MER,BAC,AIG,WM,^DJI,^GSPC

[mbperrin]

1. Haven't banked in years. Nobody making less than $100k can

afford it.

[Renew Deal]

3. What are you talking about?

I can't afford to hide money under the mattress.

[JoFerret]

42. Ridiculous. n/t

[mbperrin]

67. Really? You just let them hold your money and charge you every time

you turn around to access it? All sorts of charges, hidden and open, just eat away at it. Or maybe you'd rather put it in a 3% CD with inflation running in double digits?

Nah, I'll put (and have for years) mine into real things, rental property primarily.

On the other hand, if you're wealthy enough to OWN a bank, well, sure.

[Codeine]

61. What does that even mean?

I make WAY under that and I do everything through my bank. I haven't carried more than $20 cash on me in years.

What am I missing? :shrug:

[nam78_two]

72. Huh?

Are you saying people who make less than $100,000 don't bank :shrug:? Because I have bank accounts and I am definitely making under 100k...

[dysfunctional press]

92. bullshit.

utter and complete bullshit.

[Zynx]

2. As much as politicians want to dig in their heels, bailouts will be needed.

They can be coupled with an agreement that the top executives of the banks bailed out will have to quit and give up their severance packages.

[harun]

100. Dig in their heels on this? I don't see one politician doing squat about this

They are all letting the Executive do whatever it wants, as usual.

[bemildred]

4. It's just paper, what are you going to do with it if you take it out?

We have a "faith-based" currency, and so do most of the other countries in the world.

The only sensible thing to do at this point is to NATIONALIZE ALL THE BANKS, and unify them in state and federal banking an loan entities, OWNED BY THE PUBLIC, not for profit, so the banking system can serve its purpose without the constant fucking up of these greedy swine.

[JenniferJuniper]

5. Exactly.

It's no better off under the mattress.

We're heading for very, very rough times.

[Javaman]

6. Actually, the old bills do fluff up the mattress a bit. LOL nt.

[SpiralHawk]

7. Buy seeds.

Open-pollinated, heirloom seeds. Dig up your lawn. Get ready to plant next Spring. Real food. Real value.

[bemildred]

9. I have a garden, I take it very seriously. nt

[kestrel91316]

27. And if you live someplace where it's legal to keep chickens or even rabbits,

get busy building those coops and hutches.

Pick up a pressure CANNER and jars and learn to put your own food up.

[susanna]

102. Good to go on that, been doing it 15 years.

I'm sick about what will happen to the little I have in the bank that was supposed to pay for my college retraining (I'm 40 and switching careers - mine dead ended thanks to a host of stupid GOP-led policies).

I have the heirloom seeds, I can extra food, I get most meats through CSA programs and plan on continuing that if possible.

This is all really, really scary. I'm not sure some folks grasp the impact of what is going on here. :-(

[eridani]

73. That's the definition of currency

"Credit" from "credere"= "to believe".

[bemildred]

79. True, But in the case of our currency, you have to believe in nothing.

It is not convertible into anything else. It is created as debt, and it is legal tender to pay off debt; but otherwise you are not guaranteed that you can buy anything with it. All it is in fact is some magnetic marks on some computer storage somewhere or other, or even nowhere in particular.

[eridani]

83. Irrelevant. What else would you use as a medium of exchange?

If people take it in exchange for goods, it's doing its job. Let me know when people you know are doing all their transactions by barter. Gold? Lots of luck getting change when you want to buy a few tomatoes.

[bemildred]

85. Anything you like. Paper if fine, but so are magic dots on a disk drive.

The question I was interested in was whether the government can create it out of nothing or not? It's a situation that has occurred before? With predictable results, they create quite a lot of it?

[eridani]

89. All money is created out of nothing. That is its nature

Values assigned to money have no relationship to the commodity value of whatever it is that you are using as a medium of exchange.

[bemildred]

91. You feel that that is sort of a law of nature, or a law of money, or some sort of law?

Or are you just agreeing with me about US money?

[eridani]

93. Not a law of nature, but an arbitrary law that humans invent in order to avoid barter

All money is fiat money, no matter what material is inscribed with the result of human legal decisions.

[bemildred]

95. "All money is fiat money"?

http://en.wikipedia.org/wiki/Fiat_currency

[eridani]

98. Governments still assign a value to commodity money

If coins have numbers on them, those numbers are dictated by the government and therefore fiat money. Real commodity money is only slighly upgraded barter. To the extent that it has value as a commodity, it is useless for exchange. If we want to tie our money supply to something real, why not the joule or some other energy unit?

[bemildred]

103. Well, this certainly has been an interesting conversation.

But I really think I have to move on now.

[crossroads]

99. Makes Sense To Me! nt

[truthisfreedom]

8. I have overseas wire transfers that go into Wells Fargo for my business. From now on, that money

is getting transferred over to my little mom-and-pop bank the moment it comes in. I just called the small bank I've been with for years and talked to the president, and he told me their loan-to-deposit ratio is about 40% and they have no connection whatsoever to any big banks, and they do very few real estate loans or home equity loans, and they won't write home equity loans that push a borrower past 80% loan-to-value.

I don't know what I'm supposed to do with my company's money if the banks are going under.

Basically, they can't go under, or everything comes to a dead halt.

[bemildred]

10. Very good. Not a bad bet.

But the money is still just paper with nothing at all behind it. We can hang separately or survive together. That's the real deal here.

[truedelphi]

39. I feel that way myself. Maybe this will knock some sense into our collective heads

I have spent the last two decades watching people mortgage their homes in order to look and feel like movie stars all the time.

Personal trainers. Designer outfits. Outrageous SUV's.

And any extra money they have left goes into whatever the current economic bubble happens to be. Jeesh!! First it was the dot com thing, then the housing bubbe, and now the stock market.

So glad I now live in a rural area where people know their neighbors and care about each other.

[eridani]

74. Wrong. It's much less substantial than that

Most of it is electronic blips on hard drives.

[bemildred]

80. LOL. Just what I said to you now.

But you can still get paper money, that's that ATMs are all about.

[eridani]

82. What percentage of your total budget requires paper money?

Vending machines and convenience stores are about all I use it for. Amounts to less than $150 a month.

[bemildred]

84. I don't understand your point.

It can be anything from zero on up. So what?

[eridani]

88. So if people mainly don't use paper money, how does its existence affect the economy?

The government does not affect the economy in any way by "printing money."

[bemildred]

90. Well, I can see you are going somewhere with this. nt

[amandabeech]

57. Check out the small banks before you put money in them.

Some have too much preferred from large financial institutions as capital. Some may have done stupid things with CDOs that they didn't understand.

Remember the SNL scandal? Michael Milken, that wretch, made his money convincing boards of small town SNLs to buy into a junk bond funds.

The snake oil salesmen at Bear Stearns and Lehman did the same with CDOs.

Make sure you check that rating and the financial statement of the bank as filed with Treasury (Comptroller of the Currency, I think) or the SEC (if the little bank made itself into a bank holding company--huge numbers did).

[Codeine]

62. Wells Fargo is very stable.

One of the few banks that didn't dive headfirst into the mortgage-backed securities nonsense.

[trthnd4jstc]

11. Please Note that a Run on the Banks Makes This Worse.

I know that fear drives actions, just as greed does, but is it worth disabling the whole economy to start a run on the banks?

[bushmeister0]

12. "The American people can remain confident in the soundness and resilience of our financial system."

I think herbert Hoover said something similar once or twice.

I'm making a trip to the bank first thing tomorrow.

[libnnc]

13. I don't like this thread.

Rube that I am, I was sure the FDIC was sound.

I bank with BOA. I also have a savings account with a "community bank". I wonder if I should move everything out of BOA and into the community bank or put it in a credit union...

I repeat. I do not like this thread....:scared:

[Pale Blue Dot]

16. If you have more than $100,000 in BoA, get it out NOW.

BoA was on the list of problem banks before this crisis became big news. Buying Merrill will only make things worse.

You MIGHT want to consider moving your money out of there regardless.

[libnnc]

17. much less than 10,000

but I want to keep what I have


Credit union or small savings and loan?

[bemildred]

18. Credit unions are good.

They still follow rules. I've been thinking about that myself.

[libnnc]

20. christ this is unbelievable

unfuckingbelievable

Thanks for your guidance, btw.

[ann_american2004]

32. yup credit unions are the way to go

just be aware that even credit unions do not cover over 100K and that isnt per individual accounts- it's cumulative . For those who have more than that, you might consider paying off something, mortgage, credit cards, student loans (check whichever has the highest interest to see if it is worth it) or investing the remainder in silver/gold.

edit:spelling

[Pale Blue Dot]

21. In general that's true.

Unfortunately, just as many credit unions as banks have failed so far this year (11), so that's not a hard and fast rule.

[bemildred]

23. True, and thanks.

There is no substitute for knowing who you are dealing with, and keeping an eye on them anyway.

[eridani]

75. Plus they have a separate insurance entity n/t

[Pale Blue Dot]

19. Here's a place to start your research:

http://www.bankrate.com/brm/safesound/ss_home.asp

You can look for ratings on banks and credit unions by state, name or rating. It's been pretty reliable, although a bank failed a few weeks ago that had a rating of three stars. I would try to stick with 4 stars and above.

[libnnc]

22. Thank you so much

this is surreal

[snot]

66. thanks! but soundness of ING Orange? don't find any rating on this site. nt

[tpsbmam]

86. Great resource -- thanks! Glad to see that both of my banks

are rated "sound." I don't have much in either but I'd sure hate to lose what I have!

[melody]

36. I love my credit union

I recommend them all the time

[LeftyMom]

45. Credit unions are under a different deposit insurance scheme

It also protects to $100K, but since it's a different pool of money, that might be protective to some degree.

And if nothing else, the service is almost invariably a million times better than BofA, and they won't fee you to death.

[customerserviceguy]

54. FDIC insurance won't be worth a shit

if even five percent of the banks it covers fail. The amount of liquid reserves it has are way less than even two percent of what's covered. Of course, the federal government could just print money to give to people, but then inflation here would make this country look like Zimbabwe. Even a mattress would look lousy under those conditions.

[amandabeech]

58. Check the watch list.

Check the FDIC list that rates the banks capital by star ratings.

Look at the banks financial statements as filed with Treasury or the SEC.

Just 'cause they're small, it doesn't make them safe.

Plenty of small Savings and Loans were run by idiots back in the early '90s, and you know how that turned out.

[ejpoeta]

31. ok now i feel like an idiot!

i should have known. they were saying how bank of america was so solid because of all its deposits. i figured their buying merill lynch... then they must be ok at least. i do not have a bank of america account. i have M&T, so.... hope they are ok. this is freaking scary. makes you wonder what was going through folks minds in 1929 and during the depression. oye.

[Fiendish Thingy]

33. B of A (CA) has a 4 star rating

according to bankrate.com

[gmpierce]

40. I don't like it either, but...

Right now the community banks are under a lot of pressure because many of them put their money in Fannie Mae - a nice safe conservative investment.

Unless it is very well managed, your community bank may wind up being owned by the Bank of Ali-Baba.

Credit Unions tend to place their excess funds with their national association. It's not clear where the money winds up -- T-Bills or nice safe S&P rated Fannie Mae ??

Anyway, the FDIC is sound. If your bank goes under they will pay you back up to the 100,000 dollar max. This guarantees that you will be able to fill up your tank - if the gas station has any gas.

[mrJJ]

14. Banks in trouble

There are supposedly 100-150 Banks on the "Troublesome FDIC Bank List". Of Course there are no free documents available that name those banks.

I found a pay for site but who the heck knows...

http://www.veribanc.com/

[libnnc]

15. I'm watching CNBC and they just mentioned Wells Fargo

was "exposed to the Lehman situation..." I don't understand egghead talk so if someone could translate...

[Pale Blue Dot]

29. Note that that list is from a couple of months ago.

I'm quite sure it's worse now.

[jb5150]

24. What I'm storing under my bed...

Cans of pork n beans and extra ammo.......:yoiks:

[bemildred]

25. Likker and drugs should do well as barter items ...

[libnnc]

26. I could always sell my ass...

my partner and I joke about selling our bodies when times get tough....

:crazy:

[bemildred]

28. I don't think that's going to work for me.

Nobody wants my ass, except maybe my wife, and I think she is humoring me because of the advantages of keeping me around.

[Dr.Phool]

30. I could sell mine for scrap.

Nobody would want to buy my liver.

[MetaTrope]

63. Likker and drugs should do well as barter items ...

Only if you're planning to trade with the White House.

[ronnie624]

64. Don't forget good toilet paper.

Lots of potential value during hard times.

[dixiegrrrrl]

34. Remember that Paulson and Bernanke both said

exactly the same thing over and over at each of the proceeding problems
that led to this crisis.
Remember?

By now I have figured out that whatever this government says,
it means the opposite.
In everything.
Always.

I used to laugh when I read about the old Soviet Union and how
its citizens would put so much effort in deciphering
the cryptic nonsense that came from their government.

Now I get it.

[natrat]

77. amen to that-love is hate, war is peace

[downindixie]

35. I just moved all my money

to the Bailey saving and loan! It's a wonderful life to those who don't get it!

[melody]

37. Oh, god, you didn't give it to Uncle Billy did you?????

:)

[lse7581011]

41. And May Zuzu

keep it safe!

[aimee]

38. Republicans keep trying to blame the "Democratic" Congress...

I get so tired of hearing Republicans blame the Democrats for this financial crisis saying that they "control" the Congress, so it is all their fault... The news anchors (Wolf Blitzer being the most recent example I have seen) do not try to correct them by saying that Democrats do not truly "control" Congress when they do not have enough of a majority to ride a Republican president's veto... Why are they allowed to get away with hoodwinking potential Democratic voters into thinking our party is to blame because they have a majority in each house...??? I wish we could have an add to correct this misconception if the news anchors will not point it out... I am really getting frustrated...!!!
Aimee

[superconnected]

43. Well that headline ought to spark a run on the banks.

[lse7581011]

44. It's Already Beginning To

IMO!

[Pale Blue Dot]

46. And there's the catch-22

Many of us have seen this coming for a while now. I remember posting about this 6 months ago and being told that I was going to cause a run on the banks merely by suggesting that such a thing was possible. I believe that this is the main reason why our Democratic leaders have not been totally honest about the economy - they're afraid that they'll get blamed for the crash.

The truth, however, is that the crash is going to happen. No amount of cover-up or wishful thinking can stop it now. It is far, far past time to admit this to ourselves and to finally start to deal with the consequences of our national decisions.

[PM Martin]

47. This is bad.

Bad, Bad, Bad.

This is going to cause a major problem across the globe.

[depakid]

48. Roubi has made a living out of being a doomsayer

but of course, some assholes who want to push panic buttons probably don't knbow that. Or don't care.

[Pale Blue Dot]

49. Here's the problem: He's been right.

Every step of the way.

[depakid]

50. No, not every step of the way

and not going back years.

This is classic panic behavior- which ends up not helping anyone.

[Pale Blue Dot]

51. Where has he been wrong in the past, say, two years?

Links would be appreciated.

[depakid]

52. If not Roubini- it would be someone else

to fulfil your prophesy.

Query: why are you pushing this? Do you really NOT give a shit who you hurt?

[Pale Blue Dot]

53. OK, now I'm pissed.

I am a teacher with more than 100 students this year. I have 1 son and 4 stepchildren, plus family and friends all over this country.

It is people like YOU who are hurting then by not overcoming your cognitive dissonance and admitting to the problems that are as plain as the nose on your face. Had we, as a country, faced up to the facts YEARS ago we could have prevented this disaster. Now it's too fucking late and people like you are trying to blame the very people who tried to alert everyone to this YEARS AGO.

I don't know anymore if my students have a real future in this country. They SHOULD, because they're bright and eager and NONE OF THIS IS THEIR FAULT. My son is supposed to go to college in 5 years, and I don't know what the future holds for him either, and it's NOT HIS FAULT.

It is not my fucking fault that I saw this coming. It is not the fault of several brilliant economists that they saw this coming. It is not the fault of several highly intelligent DUers who followed the news, asked the questions, and didn't delude themselves, and therefore saw this coming. This is the fault of people like you who desperately wanted to believe in things that weren't there because it made you feel better. I will go to my grave blaming people like you for giving my family and my students a future THEY DON'T DESERVE.

I'm done here. Enjoy your last few weeks in fantasyland. Goodnight.

[depakid]

55. If you're a teacher then you know about not promoting panic

and how to behave responsibly.

Yeah, some of us have seen some things- some of us have taken a few econ classes, lived through crashes of one sort or another and know how to read the financial pages. We critically think- and we don't always have popular opinions.

Problem here is much the same with any situation like this one:

Some will try to toss the baby out with the bathwater.

People who panic do that sort of thing. Unable to step back and have a look- think about and deal with a nasty situation, they freak out- maybe have a go at their neighbors.

Look, what we have here at the moment is a lot of bad debt- and bad risk management. We're learning who has it- and who doesn't.

It's kinda scary- but not the end of the world- and not a situation that requires running on banks or or hoarding food, etc.

There are a lot of very solvent and forward looking companies out there around the world.

There are lot of good people invested in them.

The WAMU's, the AIG's, arrogant fucks on CNBC- they're getting a bit of comeuppance.

As well they should- after all, that's what markets do.

On the other hand, gold bugs and the like, they have their own agenda- and my bet is that neither you or I would like to live in the world that they envision,

[PassingFair]

65. It's called R-E-A-L-I-T-Y, Depakid.

You will not be able to avoid it much longer...

[depakid]

68. Reality bites and begs questions

for socities.

Some unwittingy go here:



Is that what you want?

[Hannah Bell]

71. Yeah, some poster on the internet has the power to send us back to the stone age.

Presidents & financiers tremble before the mighty power of the internet commentator!!!

Get real.

[PassingFair]

76. If they had faced facts, perhaps they would have built boats before

clearing all of the land.

Perhaps they DID.

[Hannah Bell]

70. Um, no, they're not. They're being bailed out. By teachers & other taxpayers,

for starters. Others are losing jobs because of the situation created by the folks with the golden parachutes, & others will lose the value of their savings because of the destruction of the power of the us economy & dollar. Not to mention 401K's, etc.

But according to you, if we put on a happy face, all will be well.

Pfft.

[Hannah Bell]

69. Why don't you save your outrage about people being hurt for the financial fraudsters,

instead of someone posting on an internet board?

You have a rather distorted view of where the power lies in this situation.

[Merlot]

56. Today I noticed TWO new banks on our busiest street

They are in storefront locations. Once is called Kaiser Bank (hopfullly not related to Kaiser Permanente) the othero ne I don't remember the name. Never heard of either bank.

Any ideas why these banks are springing up? Anyone else seen this?

[Occulus]

59. .

nevermind

[amandabeech]

60. The FDIC (IIRC) often "encourages" mergers of wobbling banks with solvent ones.

The regulators keep it as quiet as possible, but the merger is inked after the close of business on a Friday and the troubled bank opens up under new ownership (and often with the name of the rescuing institution) on Monday.

Your deposits transfer automatically, and become part of the capital of a solvent bank.

In the SNL crisis, the Feds set up Resolution Trust Company, which would take some of the bad assets of failing SNLs in an inducement for solvent institutions to merge and take the deposits. RTC then sold off the non-performing assets in an orderly manner which avoided a real fire sale.

Poppy Bush also waived the $100,000 ceiling on insurance, but I don't think that will happen this time.

The upshot is that the FDIC will not be paying out on deposits from all failing banks, but may end up with some junk. My recollection is that insurance premiums went up at least until the fund was replenished and paid off any loans it received from the Feds along the way.

While it makes sense to investigate the health of your bank, and divide your cash among two or three institutions so that you will have immediate access to some of it should one institution fail, there is no need for panic over whether or not you will get your money back. Of course, those dollars may have lost ground against the Euro and Yen, which will make oil and your next vacation abroad more expensive, but they'll still buy some bread and bologna at the grocery store.

[wordpix]

78. "FDIC has about $50 billion to insure $1 trillion in assets" - and that, in a nutshell, is why our

financial institutions are in ruins, not to mention our Treasury, with the US debt at $10 trillion. These BushCo cronies who've gotten so rich while they've flushed US down the tubes need to be investigated, pronto.

[AngryOldDem]

81. Okay, what should I do?

I have kind of a sizeable sum in one account. (Not hundreds of thousands, mind you, but more than $1.) The bank now and then calls me and bugs me about this account. But there is NO WAY IN HELL I'm going to let them play with my funds. Still, I'm starting to get somewhat concerned. Not nervous yet; not worried. Just nagging thoughts in the back of my mind that I should have some plan of action if the worst truly happens.

Advice?

[Sophree]

87. Crap- my Financial Aid money!

My financial aid money for this semester is sitting in a WAMU account. I'm wondering the same thing. Should I close the account and keep all that cash on hand? Open another account, but at what bank? My university has a credit union, maybe I should put it there.

Having been in grad school for the last year or so, I have not been paying as much attention to political or world affairs as I would otherwise. I used to be a DU regular, I just haven't had the time.

This is really bad.

[apnu]

94. I'm not, there's nothing left after the bills are paid. I got nothing to loose! Yay me! (nt)

[anarch]

97. ha! I'm in even better shape than you...

I can't even pay the bills. What, me worry?

[harun]

101. Sort of the way I look at it.

[Zorra]

96. I use only underground banks. Yuban, Folgers, Maxwell House, etc.