no third solution

Blogging about liberty, anarchy, economics and politics

The FDIC Does Not Protect You

August 17th, 2009

You may hear more about recent bank failures, looming bank failures, and the FDIC in the coming days or weeks. I’ve seen predictions for “bank holidays” as early as Monday, August 24. Although I do not take such predictions seriously, I do not believe that everything is AOK. In my estimation, the best-case scenario is that the FDIC is dangerously overextended.

Excluding the stress-test list, banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That’s almost 15 times the size of the FDIC’s deposit insurance fund at the end of the first quarter.

And a number of sources are reporting that the FDIC is bankrupt. But the spokesmouth for the FDIC, one Sheilar Bair, says there’s nothing to worry about.

The FDIC continues to stand by the nation’s insured deposits with the full faith and credit of the U.S. government. No depositor has ever lost a penny of their insured deposits

Although the plain facts may be in accord with Ms. Bair’s claim that “The FDIC continues to stand by the nation’s insured deposits with the full faith and credit of the U.S. government. No depositor has ever lost a penny of their insured deposits,” the truth of the matter is somewhat more complicated.

If losses exceed the amount of reserves held by the FDIC, the FDIC will simply ask the Treasury to print some new currency in order to satisfy insured depositors during a bank failure. Whatever amount of money is created out of thin air in order to satisfy the “insurance” obligations of the FDIC is “lawful money” according to legal tender laws which require private citizens to honor such fraudulent notes for “all debts, public and private.” A more accurate statement from Ms. Bair would say something like: “The FDIC ‘insures’ the nation’s deposits with the full force and violence of the U.S. government.”

And what else? Whatever new money is printed or digitized into existence does not add materially to the well-being of any individual in society. It merely devalues any existing currency and redistributes wealth in real terms. Whatever happens, those most responsible for the problem (the bankers, and to some much lesser extent, their customers) will not be punished for the financial collapse, while the rest of us will be. Although no physical diminution of deposit balances takes place, in real terms, the value of these deposits will be decimated.

So the government says “put your money in a bank and don’t ask any questions about where it goes or what it does, we will protect you.” This creates a moral hazard, virtually ensuring that the banks will misappropriate your money. The banks like this arrangement because most of the time they can get away with it, and when they can’t, the government bails them out on the backs of the taxpayers. Rest assured, some of these banks will fail, and the other well-connected banks (like Goldman Sachs) will get to acquire them with your money, for pennies on the dollar, and if they’re not able to turn a profit, they’ll simply unload the non-performing assets/divisions on the government.

Why would the government — your government — play along with this game? The obvious answer is that it’s not your government. Never was. But that fiction sounds nicer than the truth, so just go right on believing it, if it suits your fancy.

You need to understand that everything you’ve ever been told about government is a lie; it’s all a ruse. The FDIC isn’t there to protect you, it’s there to protect the fucking Ponzi scheme of a banking system by providing a shroud of legitimacy and credibility.

Comments

4 Comments

RSS

no third solution

Blogging about liberty, anarchy, economics and politics