Fec linked to several stories related to potential bank failures in the US. This bit from the US News & World Report really caught my attention:

“It’s our view that regulators are expecting 100 to 200 banks to fail”
over the next 12 to 24 months, says Jaret Seiberg, a research analyst
for the Stanford Group. Seiberg expects those failures to occur
predominantly in states like Ohio, Michigan, California, and
Georgia—where the construction lending market, which includes
residential real estate, is expected to weaken dramatically…

Washington Mutual lost $1.87 billion in the fourth quarter, hit by
mortgage defaults, write-downs and a substantial increase in the amount
it set aside for bad loans.

That got me to thinking about the FDIC.  My understanding is that it insures checking and savings accounts up to $100,000 per depositor and up to $250,000 per IRA account, so if these banks fail won’t it be on the hook to insure all those accounts?  How much moolah are we talking here?

When I set my fingers to typing this post I was going to ask "How much of the taxpayers money is at risk here?" but upon doing a little reading I discovered that the FDIC is funded by insurance payments from the banking institutions themselves.  So unless something catastrophic happens then taxpayer dollars shouldn’t be at risk right?  Something about this sounds spookily familiar.

Oh, yeah.  Right when I was getting out of college and beginning my life in the working world (that would be 1989) there was this little thing called the savings and loan crisis that I didn’t really understand, but seemed to have all the real adults spooked.  It happened to coincide with a real estate bust and a fairly decent recession, and it resulted in the birth of this new institution called Resolution Trust CorporationFrom the Wikipedia entry on RTC comes this: that ended up employing lots of people in DC to do something really important: bailing out the S&Ls and the morons who broke them on the shoals of a booming-busting real estate market.

According to Joseph E. Stiglitz in his book, Towards a New Paradigm in Monetary Economics, page 243, the real reason behind the need of this company was to allow the United States government to subsidize the banking
sector in a way that wasn’t very transparent and therefore avoid the
possible resistance. This is supported by the fact that the banks had
better information related to the loans than the RTC.

So pardon me if I don’t swallow whole the idea that taxpayer dollars may not come to the rescue of the current crop of morons who are breaking their banks on the shoals of the latest booming-busting real estate market.  Somehow the pinstripes always find a way to dump their problems on the denim crowd.

Update: Ed Cone links to an article about the feds getting ready to help out. From the article: The Federal Reserve, struggling to
contain a crisis of confidence in credit markets, plans to lend
up to $200 billion in exchange for mortgage-backed securities…it will hold
auctions of Treasuries in exchange for debt including AAA rated
mortgage securities sold by Fannie Mae, Freddie Mac and by
banks.  Ed then says, "I’ve made some rotten investments in my lifetime, it
would be nice if someone would swap me some Treasuries for them. "

That didn’t take long.