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Archive for September, 2009

Smoke and Mirrors at the FDIC

September 30, 2009 4 comments

” ‘Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,’ said Camden R. Fine, president of the Independent Community Bankers.” — New York Times, Sept 22, 2009

We learn today from the New York Times that the FDIC — the independent government agency that insures your bank accounts — is effectively insolvent. It is going to ask insured banks to prepay three years worth of deposit insurance premiums in order to raise $45 billion to replenish the FDIC insurance fund. Read more…

Categories: bailout, FDIC, financial crisis

Break the Buck!

September 21, 2009 1 comment

Here’s a wonderful idea for a financial product: raise trillions of dollars from investors, invest in a variety of risky assets, and then lie to investors about what the shares of the fund are worth. Just to make this easy, claim that each share is worth $1, even if it’s really worth less. To support this fiction, redeem shares at $1. If prices fall and investors suspect that the shares are actually worth less than $1, they will race to withdraw their funds. The first to withdraw receive $1, the last receive whatever is left, perhaps nothing.

You can be forgiven for thinking that I’ve just described Bernie Madoff’s investment fund. In fact, I’ve described the operation of money market mutual funds in the U.S. (Note that these are mutual funds, not insured “money market accounts” offered by banks.) Read more…

Categories: Uncategorized