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Years ago, when weak banks suffered runs by public depositors, instead of seizure by the Federal Deposit Insurance Corporation, a liquid balance sheet constituted a competitive advantage. When James ("Sunshine Jim") Stillman, National City's dour chairman, correctly forewarned his associates in early 1907 to prepare for a panic that fall, he was able to anticipate a competitive silver lining:
What impresses me as most important is to go into next Autumn ridiculously strong and liquid, and now is the time to begin and shape for it. If by able and judicious management we have money to help our dealers when trust companies have suspended, we will have all the business we want for many years.
If, however, one's institution is beyond failure, it hardly makes business sense to build reserves against an unpredictable day of reckoning. What it makes sense to do is lend, and so banks have lent.
Economist Rothbard has written a brief ode in prose to the bank run:
It is a marvelously effective weapon because (a) it is irresistible, since once it gets going it cannot be stopped, and (b) it serves as a dramatic device for calling everyone's attention to the inherent unsoundness and insolvency of fractional reserve banking.
The Federal Reserve Act of 1913 was hailed as a gift to the nation, in part because it seemed to promise a run-free future. Because the reserve banks would lend in times of crisis, commercial banks could afford to become a little less liquid — a little more expansive — in good times.
Things did not work out exactly that way, and the 1930s saw a marathon of bank runs. Rejecting conservative counsel, the Roosevelt administration created the Federal Deposit Insurance Corporation to furnish still more federal assurances to bankers and depositors. Over the next several decades, the conviction took root that enlightened legislation had eliminated the possibility of another national banking crisis.
The strategy has worked, and it hasn't worked. There has been no great deflation, no national bank holiday, and no prairie-fire run on the members of the New York City Clearing House Association. On the other hand, there has been the thrift snafu and the Third World crisis. Each is an emblematic event, as each has lingered for years, not months, and the cost of each is measured in the scores of billions of dollars, nothing less. It is hard to imagine a free banking system getting itself into scrapes like those in the first place.
Commenting on some of these trends some months ago was none other than the Chairman of the Federal Reserve Board. Alan Greenspan delivered an unusual speech at a remarkable time. The date was October 16, 1989, the Monday following Friday the 13th, and the audience was the American Bankers Association. Greenspan proceeded to describe the 150-year odyssey by which American banks have become more leveraged and less liquid.
-The railroads were put together almost entirely by political interests. The railroad builders would give the politicians stock in the construction firms responsible for building the rails – which were paid by the mile, not based on how efficient the route they created was. The construction was then heavily subsidized by tax dollars.
-The railroad owners were then granted huge amounts of land through eminent domain. All the land within 100 miles on either side of any track they laid was handed to them for free.
-If people wanted to live close to the railroad (which was like a highway today), they had to buy the land from the railroads.
-The railroads themselves were all money losers, but all the money generated from their construction went directly into the pockets of politicians and rail tycoons.
Originally posted by Segador
I cannot wait to live in complete poverty honestly.
Originally posted by mnemeth1
The existence of a commercial bank is perfectly fine - as long as there is no central bank, legal tender laws, or other government interventions in the market such as FDIC and other bailout mechanisms which socialize losses and risk to the tax payer.
99.9% of people in this country don't even know where money comes from or how it is created.
Sept. 24 (Bloomberg) -- The FDIC’s insurance fund is going broke, and Sheila Bair is wondering aloud about how to replenish it. This means one thing for taxpayers: Watch your wallets.
Bair, the Federal Deposit Insurance Corp.’s chairman since 2006, says the agency has many options. One way to boost its coffers, now running low after a surge in bank failures, would be to charge banks higher premiums. It could make them pay future assessments in advance. Alternatively, the FDIC could borrow money from the banks it regulates. Or it could borrow from the Treasury, where it has a $500 billion line of credit.
FDIC Insurance Fund Is Broke To The Tune Of Nearly $21 Billion
The FDIC is estimated it will need $70 billion to cover bank failures through 2013 — about 5X recent cash holdings of $13 billion. Through March 2009, the FDIC recorded over $19 billion in losses. The most recent failure is Texas Guaranty Bank, at a cost to the agency’s insurance fund of $3 billion dollars.
The FDIC is one of those rare regulatory agencies that operates, for the vast majority of the time, without taxpayer funding. Bank fees pay for the insurance of the Federal Deposit guarantees.
Given the enormous increase in bank failures — some estimates are for more than 300 this year — we will very likely see some taxpayer support of the deposit insurer.
This was all but inevitable:
Looking to the future, although some subsequent
policy changes should help forestall such scenarios,
breakdowns that would expose the taxpayer to losses
remain possible. The likelihood that in the event of substantial
bank failures taxpayer funds would have to bail
out the deposit insurance fund has been used as an argument
for continuing regulatory controls on what activities
may be affiliated with banks.
The inadequacy of the FDIC DIF fund can be seen when compared to the amount of deposits it protects. The FDIC’s latest report at March 31 shows the DIF reserve at negative $20.7 billion while insuring deposits of $5.5 trillion at 7,932 FDIC insured institutions. In addition to providing deposit insurance, the FDIC has also guaranteed $618 billion of debt issued by banks under the Debt Guarantee Program (DGP) and an additional $834 billion of deposits under the Transaction Account Guarantee Program (TAGP). (Both the DGP and the TAGP are part of the Temporary Liquidity Guarantee Program (TLGP) established in October 2008.) The FDIC has also guaranteed a large portion of $600 billion in assets that it received from failed banks as receiver, under loss-share agreements with acquiring banks.
The FDIC’s line of credit at the Treasury was increased in May 2009 to $100 billion from $30 billion.
...
Should extraordinary circumstances arise, the FDIC also has the authority to borrow up to $500 billion from the Treasury with the consent of both the Federal Reserve and the Treasury Department.
Originally posted by mnemeth1
Boy, you don't look so smart now do ya Ms. Smarty Pants.
I think at that point in time more than silver and gold one will need a skill, knowledge and ingenuity most. Just my .2. A lot will be bartering when the currency calamity comes. Growing crops to barter for other things, etc. That is what I am talking about.
Originally posted by jontap
mnemeth1 you are OUTCLASSED here big time!
Time to wrap it up I think.
Originally posted by mnemeth1
Originally posted by jontap
mnemeth1 you are OUTCLASSED here big time!
Time to wrap it up I think.
Outclassed by what?
A Keynesian socialist that is defending the federal reserve system?
Originally posted by mnemeth1
Originally posted by jontap
mnemeth1 you are OUTCLASSED here big time!
Time to wrap it up I think.
Outclassed by what?
A Keynesian socialist that is defending the federal reserve system?
Originally posted by whaaa
No by someone that hasn't let their ideology over ride their common sense.
Originally posted by buddhasystem
Originally posted by mnemeth1
Boy, you don't look so smart now do ya Ms. Smarty Pants.
Well, you just showed that premium for bank will size. True, due to catastrophic nature of events, government will bail out some depositors like you and I. Failed banks will be in receivership. So I do look totally smart. FDIC is for people's protection, not bankers'.
Originally posted by mnemeth1
Originally posted by whaaa
No by someone that hasn't let their ideology over ride their common sense.
Common sense tells me that if something is good, it doesn't need to be rammed down the publics throat at gun point.
Gun Point?