San Diego Housing Bubble News and Analysis

This is the flag that you should probably move your funds out of bank deposits and put them in credit unions. NCUA seems to be more solvent.

Don't kid yourself. The NCUA is not more solvent than the FDIC, it's merely much smaller and thus under the radar. The NCUA's insurance fund is almost down to zero which is why it recently charged a premium on all retail credit union share accounts (re: deposit accounts) to recapitalize the share insurance fund.

The FDIC knows it's broke. The FDIC knows that everyone else knows it's broke as well. This is not a secret. The issue is one of recapitalization and cash flow; that is, where do we best get the cash we need? I think having the banks prepay their insurance premiums is a good idea, so long as the FDIC doesn't think that this gets them completely out of the woods - it's just a stop gap measure. And the banks would capitalize the one-time prepayment over three years so that it wouldn't represent and undue hit to capital all at once. Doesn't it make sense that the banks should have to recapitalize the FDIC insurance fund with their own money, as opposed to going begging to the Treasury (that is, We the People)? This makes all kinds of sense to me. The only people who aren't going to like this plan are the banks that are on the ropes, who deserve little sympathy.

"the banks should have to recapitalize the FDIC insurance fund with their own money"

you mean the taxpayer's money that the banks were bailed out with?

To some extent and in some cases, yes. Money's fungible, after all. All the more reason to have the banks use "their" capital to shore up the insurance fund. Do you want to double down as a taxpayer by having the FDIC borrow from the Treasury? That's a rhetorical question.

FDIC Discloses Deposit Insurance Fund Is Now Negative
http://www.zerohedge.com/article/fdic-di...

"Pursuant to these requirements, staff estimates that both the Fund balance and the reserve ratio as of September 30, 2009, will be negative"

"Do you want to double down as a taxpayer by having the FDIC borrow from the Treasury?"

nope - I want the whole stinking, fraudulent mess to collapse so we can get on with our lives

"When you find yourself in a hole, stop digging" - Will Rogers

how deep should we dig the bank / FDIC bailout hole?

So, let me get this straight. You want to not replenish the FDIC insurance fund and therefore void all FDIC insurance (after all, there won't be any money for insurance)? I just want to make sure I'm understanding you.

Austrian economist Ludwig von Mises (1881 - 1973) said:

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

"You want to not replenish the FDIC insurance fund and therefore void all FDIC insurance (after all, there won't be any money for insurance)?"

I've arranged my finances and investments such that FDIC insurance isn't an issue for me - I've encouraged friends and family to do the same - people who can't (or won't) see what is coming will get the results they deserve - remember, if you choose not to decide, you still have made a choice (Rush's song, Freewill)

the collapse is inevitable - the only question is timing

personally, I'll take the collapse now so my children have a chance of a brighter future

just how much does the FDIC need? i guess it's unknowable. i guess they ahve to get it. I guess FDIC insurance is a good thing. kind of.

maybe not.

lots of free insurance encourages risky behavior.

what would happen if we kept all dollar amounts currently insured but said no more insurance on new deposits.

[Hat tip to Neil Peart. You made Rich very happy.]

So, if FDIC insurance "isn't an issue for you" and you advocate letting the insurance fund go unfunded (all of which is fine, by the way), then you have no cash whatsoever in banks or other financial institutions. I must admit, that's quite a bold cash management strategy you're executing.

Yes... I was going to comment more, but I thread jack too often...

Two points to ponder:

1) The banks that prepay don't have to show this expense on their books until the quarter in which the payment would have been due. I believe that means that the money will simultanously show as an asset on the books of the bank AND as an asset in the Deposit Insurance Fund. It's an accounting version of the Miracle of the Loaves and Fishes. (My guess is the banks will be allowed to call it 'encumbered cash', or something).

2) With tongue firmly in cheek, I ask why the FDIC doesn't take a page from California's playbook and give account holders of failed banks a warrant that can be exchanged for actual money at some point in the very, very distant future?

.

This is basic accrual accounting. No funny business required. The bank's balance sheet will reflect an asset called something like "Prepaid FDIC Insurance Fees." This number will likely be capitalized quarterly over three years down to zero. Without getting into accounting language, on Day 1, Cash will decline, and Prepaid FDIC Insurance Fees will increase. So, the bank's balance sheet balances.

Over at the FDIC, cash will increase and equity will increase. So, again, the balance sheet balances. Now, in reality, the FDIC will need to understand that "Future FDIC Fees Receivable" will decline by the amount collected up front, but that's a theoretical adjustment. Also, recall that at the end of the day the FDIC can just keep collecting fees from the banks, even if it hampers their profitability for years to come. That's the way it works.

While you're right that there will be a double-counting of "assets" (in the generic sense) under this accounting, there will NOT be a double-counting of CASH. Cash leaves the bank and goes to the FDIC. The new asset for the bank - Prepaid FDIC Insurance Fees - is not cash.

Anyhow, there's nothing particularly unusual about the accounting if this is the road they go down.

Think of this the other way:

The most effective anti-bonus program so far has been the proposal by Sheila Bair at the FDIC that all the big banks (or is it all banks?) must prepay their FDIC insurance for 2009-Q4 to 2012 at the end of 2009.

That ought to put a real crimp on all the recent and new-found bank profits, and therefore also the bonus programs, one can hope. I think Sheila Bair is being very clever — she knows what the bankster bounus thieves are up to and at the same time has a valid need for the insurance premiums because the FIDC insurance fund is running low. For her and the American public it is a win-win situation to grab the profits while we can.

It’s the ultimate clawback, so to speak.