Banks going broke? Charge them more
Today's Financial News - Posted March 4, 2009
The banking-sector crisis is getting better by the minute. What was a financial disaster has turned into some first-rate political entertainment. Our nation’s leaders are putting in an award-winning performance.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): I guess the theme of the day is “circular logic.” It does not matter whether we look at the real estate industry or the banking sector, as long as the government is involved, things just won’t make sense.
As if the nation’s bankers do not already have enough on their plates, the FDIC’s chief, Sheila Bair, is telling the nation her agency’s insurance reserves could run out later this year. That could be a major Great Depression-era problem.
But have no fear. She has an answer.
The FDIC merely tends to force the nation’s banks to put more into the reserves. That’s right, ask the companies that are failing to pay more for the insurance that protects them.
Needless to say, the industry is going ballistic. Just as the Obama administration wants to increase taxes during the worst recession in many of our lives, Bair wants to raise the price of doing business for the nation’s most-desperate industry.
I am on the edge of my seat waiting to hear how this turns out. It’s gonna be good.
Tax them for being poor
In a recent letter to the banking industry, Bair wrote, “Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative.”
Her answer to the solution is to generate another $27 billion for the insurance fund in increased fees. The money would be added to the $19 billion or so currently waiting to go the customers of failed banks.
With Uncle Sam working overtime at the cash-printing machine, bankers are wondering why the FDIC simply does not tap the $30 billion line of credit the Treasury created for such emergencies.
Bair had a good response when she said going to the Treasury would paint all banks with the bailout brush. Taxpayers, she says, will not be happy.
And just like that politics enters the debate.
What Bair is overlooking is the fact that taxpayers are going to pay for this mess one way or the other, whether it comes out of taxes or increased interest rates and banking fees. But, like any good politician (you cannot deny Bair does not have political ambitions), the FDIC head knows it is better to give the banking sector a nasty black eye than let the government take the heat.
If we want the banking sector to start lending again, the last thing we need to be doing is increasing its expenses. It makes absolutely no sense.
Unless, that is, you are a politician.
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