Today you will hear about the FDIC and it's involvement in the current bill on the senate floor. The proposed bill includes a resolution to increase the amount of FDIC Insured accounts to $250,000, up from $100,000. Well, this seems cool right? I mean, in an economy where everything seems unstable and the President is preaching doom and gloom, why not guarantee our hard earned savings in the bank? That will surely make the American people feel more comfortable with this whole Bail-out business... right?
Well, what is the FDIC anyways? And what do all these numbers mean? Let's take a look...
The FDIC is a United States government corporation created by the Glass-Steagall Act of 1933. It provides deposit insurance which guarantees the safety of checking and savings deposits (and a few other types of accounts). We all remember that symbol FDIC insured at our local bank, and we surely remember when we signed off on our 401k investment that it was not guaranteed.
So, if I have $100,000 in my saving account at TCF (I wish), and one day TCF went bankrupt, I would still get that 100k back right? Yes, if TCF was the sole bank that went bankrupt, that is the purpose of this whole FDIC plan. This seems reasonable. But, what if I had my 100k at TCF, and I had 4 other friends with 100k at their respective banks, let's say Wachovia, Washington Mutual, E-Trade and Wells Fargo. All of us would still get our 100k back, because it is "FDIC Guaranteed" right?
Well, let's take a look at the FDIC accounting books. If you read the bottom category you'll see that the FDIC "balance" available right now is $45.2 billion. Wow, that seems like a lot of cash... my money must be safe! But, hold on a minute... I wonder, how many other people out there think their money is safe like me? How many people has the FDIC extended this guarantee to? If you look at the very next number in the chart, you'll find your answer: $4.462 TRILLION, exactly 1.01% of the moeny that currently exists in FDIC insured accounts. So, who's to say who gets their money back? Does this all add up?
No, it doesn't. What it means, is that if there are a small amount of bank's that run into trouble your money will be reimbursed to you by the FDIC. But, doesn't it seem like there are more than just a few banks that are having problems today? Raising the amount of FDIC insured balances to 250k is PURELY A POLITICAL PLOY TO MAKE YOU FEEL COMFORTABLE.
