Wednesday, October 01, 2008

Deposit Insurance

Haven't our legislators ever heard of moral hazard? Deposit insurance is a terrible idea to begin with. It's not even insurance. It's a guarantee to the banks that they will not be held accountable for "insured" deposits if they engage in risky behavior that causes them to fail (think S&L crisis). Raising the limit to $250K simply means that cash strapped banks will need to put more of their cash into federal hands to meet their reserve requirements, which leads to higher fees from the banks and higher taxes from the government to cover the failures. Talk about these guys not understanding basic economics and only playing to their constituencies. Nanny state indeed.

The FDIC should be dissolved and we should be forced to invest our money with banks the same way we do with stocks, bonds, etc. Risk vs. return.

And yes, I realize that I suggested that moving money to insured and nearly insured (Treasuries) short to medium term investments would be a good idea. I don't make the rules, but I do play by them. Call me an idealistic pragmatist.

No comments: