Monday, September 8, 2008

The Next Bailout

With all the FNM, FRE news this weekend I didn't even post on the eleventh bank failure of the year "Silver State Bank in Nevada is shut". Apropos of nothing-
Andrew K. McCain, a son of Republican presidential nominee John McCain, sat on the boards of Silver State Bank and of its parent, Silver State Bancorp, starting in February but resigned in July citing "personal reasons," corporate filings with the Securities and Exchange Commission show. Andrew McCain also was a member of the bank's audit committee, responsible for oversight of the company's accounting.

The younger McCain, who is the chief financial officer of Hensley & Co., the beer distributorship of which Cindy McCain is chairwoman, is the Arizona senator's adopted son from his first marriage.

Now the real news, from Option ARMageddon:

The Federal Deposit Insurance Corporation is on the brink of bankruptcy and taxpayers may be forced to pony up hundreds of billions to bail it out—for the second time in a generation.

All the while banks like Washington Mutual are deliberately putting taxpayers at greater risk. But more on WaMu later.

Created during The Depression, the FDIC protects depositors from bank failures by insuring deposits up to $100,000. To fund itself, the FDIC charges insurance premiums to member banks.

It ran out of cash once, in the early 90s, due to the savings and loan crisis. Back then S&Ls advertised high interest rates to attract deposits, which they used to fund everything from speculative land deals to risky derivative trades. Their marketing pitch to depositors was compelling: high interest rates on deposits backed by federal insurance, for which the banks themselves paid little. When their risky investments lost money, they’d simply offer higher interest rates to bring in more deposits. Like any Ponzi scheme, eventually the S&Ls went bust. And taxpayers were left holding the bag.

Regulators, and Congress, still haven’t learned their lesson…..

FDIC reported last week that its assets stand at $45.2 billion, a puny 1.01% of the nation’s insured deposits, the lowest level since its bankruptcy twenty years ago....MORE