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| Reader Feedback: FDIC-Insured Depositor's Bill Of Rights |
271 Views |
| posted on Monday, September 01, 2008 |
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Concerning this story:
FDIC-INSURED DEPOSITOR'S BILL OF RIGHTS (8/28/2008)
Christina Maris Writes:
I read a book about this many years ago, and most of what's given [in the article referenced above] is spin. Technically true in a letter of the law sense, but not true the way people think it is. The FDIC is a paper tiger; it's nothing more than an agreement between the Federal government and the banking industry intended to win the confidence of "depositors," as they call us. The banks in the FDIC network have agreed that if one of them fails, the others will pitch in and cover their losses; it doesn't involve a single dollar of Federal funds, and it isn't a pile of bank money sitting in a vault somewhere for a "just in case," either, it's simply a promise by a group of banks to shore up other banks if things go bad.
Given our economy for the last 30+ years, this hasn't been a risky enterprise for them; banks haven't been failing for the most part, and the few that have were easily covered by the other banks in the network
-- after which their partner FDIC banks passed along the expense to us, in the form of lower interest rates on savings, higher interest rates on loans, and fees for service. The FDIC is strictly a confidence-builder for the banking industry; if banks fail and people lose money, they'll stop giving banks their money and bankers will all have to go out and get real jobs and work for a living like the rest of us. THAT is why no one has ever lost a penny in an FDIC "insured" bank -- not because the bankers are all so concerned about our checking accounts, but because they're concerned about their profit margin.
Should a lot of banks fail at the same time, however -- and particularly big ones -- there's a very reasonable possibility that the system will fail on a larger scale and that people WILL lose their money; you can only stretch paper so far. At some point the banks involved will functionally declare bankruptcy (something they lobbied so hard for regular citizens to NOT be able to do) -- although they won't call it that -- and we'll all be left holding the bag.
Think about how banking works. You take your money and give it to the bank, for "safe keeping." They don't just hold it for you, there's no profit in that -- they invest it. They make X amount of profit on YOUR money, and then MAYBE give you a little bit of that profit back in the form of interest on your savings account. But what happens if their investments go bad, and they essentially lose your money in the process -- because your money is the only money in the bank, remember? They hope to make it up somewhere else... mortgages, maybe... but if the economy begins to collapse and all the investments go bad... what then? They can't make money appear out of thin air -- it has to come from somewhere. Banks are businesses just like any other; when the bottom drops out, they close their doors and go out of business.
When things get dicey in the banking industry, as they are now, you're better off burying your money in a fruit jar in the back yard than trusting the FDIC. As we have seen time and time again, BUSINESS runs this country, not "the government," and certainly not regular citizens like you and me. If the banks come to a point where they realize they're going to take a real beating, you can bet they'll find a way to pass it off to us. How many businesses have gone under in the last couple of years, leaving their creditors - "depositors" of a sort - screwed, blued, and tattooed? How about all those insurance companies who went "bankrupt" after Andrew and Katrina? Those people paid their premiums, month after month, year after year, because the insurance companies promised to pay them if anything bad happened. And then something bad happened... and they went belly up and left town. It's no different with banks; they've just had longer to indoctrinate us and get us to believe everything is fine and nothing can go wrong. After all, you're INSURED. Yeah, right. Just like the people in New Orleans.
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