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No-Risk Insurance at F.D.I.C.
Key Excerpts from Article on Website of New York Times
Posted: April 14th, 2009
http://www.nytimes.com/2009/04/07/business/07sorkin.html?par...
The Federal Deposit Insurance Corporation was set up 76 years ago with the important but simple job of insuring bank deposits. Now, because of what could politely be called mission creep, its elbowing its way into the middle of the financial mess as an enabler of enormous leverage. In the fine print of Treasury Secretary Timothy F. Geithners plan to lend as much as $1 trillion to private investors to help them buy toxic assets from our nations banks, youll find some details of how the F.D.I.C is trying to stabilize the system by adding more risk, not less, to the system. Its going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisitions of toxic assets. These loans, while controversial, were given a warm welcome by the market when they were first announced. And why not? The terms are hard to beat. They are, for example, nonrecourse, which means that if an investor loses money, he owes taxpayers nothing. Its the closest thing to risk-free investing with leverage! around. But, as weve learned the hard way these last couple of years, risk-free investing is an oxymoron. So where did the risk go this time? To the F.D.I.C., and ultimately, to us taxpayers. A close reading of the F.D.I.C.s statute suggests the agency is using a unique some might call it plain wrong reading of its own rule book to accomplish this high-wire act. Somehow, in the name of solving the financial crisis, the F.D.I.C. has seemingly been given a blank check, with virtually no oversight by Congress.
Note: For a powerfully revealing archive of reports from reliable sources on the hidden realities of the financial bailout, click here.
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