Morning Coffee: FDIC Fund Dwindling

Grab a good strong cup of coffee this morning and ask yourself if you really feel confident with the current state of the economy or for that matter, the current leadership in America? Take a couple of swigs and ask yourself, who you think will bring change to Washington, D.C. and America. You know the answer and it isn’t John McCain.

The latest news on the economy and Wall Street is bleak, and looking bleaker by the minute.

The Fed has bailed out A.I.G. to the tune of $85 billion, “fearing a financial crisis worldwide,” while “effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.” 

What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe.

If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with A.I.G. securities, could have been hurt, too. And some insurance policy holders were worried, even though they have some protections.


Massachusetts Representative Barney Frank (D), who serves as chairman of the House Financial Services Committee, said “Mr. Paulson and Mr. Bernanke had not requested any new legislative authority for the bailout at Tuesday night’s meeting.”
 

The secretary and the chairman of the Fed, two Bush appointees, came down here and said, ‘We’re from the government, we’re here to help them,’ ” Mr. Frank said. “I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.”

What a freakin’ mess. The corporate ho’s have all but robbed America blind and now America is paying for it. The F.D.I.C.’s “insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation’s largest thrift, or another struggling rival fails.”

AP News reports that “Eleven federally insured banks and thrifts have failed this year.” Eleven. And “additional failures of large banks or savings and loans companies seem likely.”

Christopher Whalen, the senior VP and managing director of Institutional Risk Analytics said, “We’ve got a … retail bank run forming in this country.”

Do you know where your money is?

Politico reports that House Speaker Nancy Pelosi has “ordered a broad, swift investigation of Wall Street and will demand testimony from Bush administration officials and captains of finance.” Wonderful, but in the meantime we can all sit around and watch our financial system crumble deeper into the muck and mire.

The only bright spot in the financial picture in recent days is the price of oil, which has dropped below $93 a barrel thanks to falling demand. Of course the demand is falling — Who the heck can afford to fill up their gas tanks in the midst of this mess.

[Originally posted at TaylorMarsh.com]

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