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Why we need to shut down the FDIC.

Throw this one into the rapidly mounting "duh" pile.  FDIC is reporting of a rapid increase in distressed banks, highest in 16 years to be exact.  On top of that and you can throw this one into "government manipulated statistic" pile, FDIC claims their account dipped further into negative territory. 

Looks like our ruling elite are following a directive of extend and pretend, because a negative account does not exist.  There is a much more apt and straightforward term for negative account and that would be the term bankrupt.  As this little blurb suggests, the situation is dire and getting worse. 

The FDIC reported that its Deposit Insurance Fund dropped further into negative territory, reporting a $20.9 billion loss in the fourth quarter, worse than its $8.2 billion loss in the third quarter. The agency hopes to make up that loss through advance payments by banks of $45 billion in fees

In fact, as reported here some time ago, FDIC has been broke for quite some time.  Just because they have an unlimited access to the US Treasury does not grant the FDIC solvency status.  This is of course a great opportunity to discuss the FDIC or what I refer to as the mutated offspring of the Glass-Steagall act. 

The FDIC must be shut down and the people must demand this!  Of course this requires education because my sense is that the vast majority of the population believe the FDIC is one of the greatest government programs 'evah'.

What is FDIC in a nutshell?  It is a program that socializes losses of banking institutions.  To understand why the FDIC hurts us we must, as Thomas Sowell puts, look past stage one.   Most people get sexually excited at the prospect of having their 100k or 250k "guaranteed" in case the bank goes out of business, what a wonderful concept, right?   But I am sure you realize there is no such thing as a free lunch, so who is paying for these losses then?  Well, you are, you dodo bird.  The FDIC as you can see is funded by banks fees imposed on them by the FDIC, these extra fees that amount to tens of billions of dollars, are ultimately coming out of you.  If a restaurant suddenly had to pay 10% of it's profits to a government agency responsible for the restaurant's solvency, rest assured that prices and services in this restaurant would suffer. These of course are just the direct costs, the costs of doing business.   Been to BofA recently?  They charge you for just entering past the door. 

But there are more significant costs, the costs that comprise the implicit "guarantee" and the reason the FDIC can claim they have always paid depositors.  As an arm of government they will get whatever funding is required, or more succinctly, the government will borrow whatever money is necessary via further debt monetization.  Last thing anyone needs is a mob of angry people upset at losing the FDIC guaranteed deposits.  These costs are translated into more federal debt for us, your children and now your grandchildren.  All in the name of deposit protection.  Debt is toxic and will destroy any institution or government body if the servicing of this debt becomes prohibitive. 

Lastly and more importantly, the FDIC is an insult to the free market and a perversion of a system that is completely intertwined with federal control.   Consider for a moment, what other industry enjoys the "benefit" of an implicit guarantee from the government that clients' money is always protected.  Consider for a moment how absurd that is, on it's face and in practice.  We have as a country formed a protection safety net for banks with the implicit backing of the American taxpayer and then somehow manage to insinuate that our banking failures are due to the free market.  What free market?  

Banks are a business, pure and simple.  They take your money and then invest it, this is why you get to collect a modest interest.  Sometimes these investments fail and if enough investments fail then the bank will find itself in a very tough situation if the remaining customers decide to withdraw their money.  Yet somehow we have all grown accustomed to the fact that a bank cannot fail or rather the bank can fail, but nobody invested in this bank should suffer the consequences.   Nope, forget personal responsibility and money management, everyone expects and demands their investments be protected!  Go figure.

The tragic consequences of course is that people no longer hold banks accountable and take comfort in the blanket of protection offered by the supreme arbiter of safety - government.  Yet a bank that has made unwise investments and issued loans in excess of the reserves it actually possess is SUPPOSED to fail, this is what happens when you take risk.  Yet risk is neutralized and done so at the expense of every single individual that uses a bank.  Bank runs that plagued the country in 19th and 18th centuries are portrayed as tragedies, but were nothing more than responsible citizens punishing banks for unwise investments and shoddy business practices.  Banks runs kept the fractional reserve banking system in check and as you can guess, put many banks out of business.  People lost a portion of their deposits, but the losses were direct and quantifiable.  Now the losses are obfuscated by the comforting label of FDIC prominently displayed on every bank door.  Imagine how much money you don't make because the banks are forced to pay fees and imagine how much damage the country experiences as the FDIC is forced to borrow more and more money from the US Treasury.

Shutting down the FDIC is the first step on the long road to sound money.


  • Kent McManigal- 5 years ago

    FDIC- just another example of government counterfeiting.

  • Stacy Litz 5 years ago

    Join our Libertarian Examiner Facebook page!

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