Sunday, April 19, 2009

FDIC: National Emergency

Sheila Bair, chairwoman of the private FDIC, has introduced another non-recourse loan program (meaning no repayment is ever required; another daylight rape of American Citizens) that is "equivalent in size to TARP2" according to the NY Times.

How are they doing it? By invoking a special provision in the FDIC Charter that, they say, allows them to do anything they want when a documented "emergency" exists that presents systemic risk:
(i) Emergency determination by secretary of the treasury.--Notwithstanding subparagraphs (A) and (E), if, upon the written recommendation of the Board of Directors (upon a vote of not less than two-thirds of the members of the Board of Directors) and the Board of Governors of the Federal Reserve System (upon a vote of not less than two-thirds of the members of such Board), the Secretary of the Treasury (in consultation with the President) determines that--
(I) the Corporation's compliance with subparagraphs (A) and (E) with respect to an insured depository institution would have serious adverse effects on economic conditions or financial stability; and
(II) any action or assistance under this subparagraph would avoid or mitigate such adverse effects, the Corporation may take other action or provide assistance under this section as necessary to avoid or mitigate such effects.
If, in fact, the FDIC and 2/3rds of the Federal Reserve Board, the President, and the Secretary of Treasury have agreed in writing that a National Emergency exists, we need to see that document immediately. The FDIC's website says the document does exist:
Temporary Liquidity Program. The FDIC issued its Interim Rule following a determination of systemic risk pursuant to section 13(c)(4)(G) of the Federal Deposit Insurance Act. As a result of this systemic risk determination, and in an effort to avoid or mitigate serious adverse effects on economic conditions or financial stability, the FDIC is establishing the Temporary Liquidity Guarantee Program.
The existence of such a document is critical, because it fundamentally alters the FDIC's mission. The reference to ignoring (E) in passage (I) above, removes the only law preventing the FDIC from funneling unlimited funds to the world's wealthiest bankers (item (II) below) at the direct expense of payment to depositors:
(E) Deposit insurance fund available for intended purpose only.--
(i) IN GENERAL.--After December 31, 1994, or at such earlier time as the Corporation determines to be appropriate, the Corporation may not take any action, directly or indirectly, with respect to any insured depository institution that would have the effect of increasing losses to the Deposit Insurance Fund by protecting--
(I) depositors for more than the insured portion of deposits
(determined without regard to whether such institution is liquidated); or
(II) creditors other than depositors.

In summary, the actions of the FDIC reflect the declaration of a documented National Emergency, one of systemic risk, and that fundamentally changes their charter from protecting depositors to protecting creditors.
In televised interviews, Bair stated that bank account holders have nothing to fear as long as they get all account balances under the FDIC insurance limit immediately.

In related news, Christopher Dodd introduced a laundry bill to pay the private FDIC $500B in non-recourse loans backed by the taxpayer, presumably anticipating at least that much in FDIC losses over the coming year.


  1. The public appetite for more bank bailouts is getting thin. Maybe the FDIC will have to levy additional assessments to cover the losses. This would in effect penalize the good banks for the behavior of the bad banks.

  2. Now *this* could indeed cause currency deflation on a massive scale. But only if they stop paying depositors.

    At the very least, this raises the chance of that happening by quite a lot.

    FDR: during the Great Depression, were there some banks that were given "special" treatment in the sorts of ways we're seeing now (or any special handling by the government that would massively increase their odds of surviving while the rest of the banks burned)?

  3. wow! Impressive analysis FDR! Thank you very much for this info!

  4. The daylight rape of our country continues as the cows watch american idol and get all teary eyed about the lastest 'dixcovery'.

    Rome is burning and the entire population of this country is sitting on their butt and strumming their fiddle.

  5. Ouch for the gold shorts today.

    And at the end of a week of financial reports that showed all of the big banks basking in quarterly profits, all are big-time losers in the markets today.

    Profit taking or collusion to pump and dump?

    Are we at the point of EW wave 5 down FDR?

  6. Wow - great post FDR.

    Yes, where is this "National Emergency" document? Somewhere in Goldman-Sachs corporate files I'm guessing.

  7. Exactly, the government owned insiders are trading on it.

    After all, as government-owned trading desks, all this insider info is legally theirs, it is no longer the property of the people.

  8. WAMU may get their out of court settlement soon than I thought! One for the Gipper!

  9. Senator Dodds Statement and Inroduction of S.541 along with the sweet letters from Sheila Blair, FDIC, Ben Bernanke, Chairman, Federal Reserve System and last but not least Timothy Geithner, Secretary of the Treasury ought to give you a warm and fuzzy. Get yourself ready for the ultimate suprise. This one should end all----Call the Medics!

  10. Hey anon, your link doesn't work

  11. Hey djrichard, This is the link to the Congressional Record Site and S.541

    This is the straw that breaks our backs.
    Tea Parties will be the wave of the future.


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