September 10, 2007

Why is the FDIC still insuring Countrywide and Indymac bank deposits?



Now that nobody will lend them money, these two toxic mortgage lenders are paying the highest rates on 1-year CD's in the US in a desperate attempt to draw in new deposits to shore up their imploding access-to-cash situation.

And you, the taxpayer, via the FDIC, insure the bank deposits at these two toxic lenders up to $100,000 per account.

My question is - why? Don't the folks at the FDIC know that there's already been a run on the bank at Countrywide? Didn't they see the Merrill report that Countrywide faces bankruptcy? Don't they understand that they called them "Liar's Loans" for a reason, and that Indymac can no longer sell their junk - that they're the bagholder?

Well, HP'ers, at least you can say you saw it coming. And when your tax dollars are going to bail out these two mismanaged toxic lenders, and their naive depositors, you can be even madder than the rest.

Note - I'm short CFC via Oct puts. And I don't have more than $100,000 with any bank.

13 comments:

Anonymous said...

Does the FDIC or other banking regulators not regularly audit FDIC insured institutions? Now would be the time for an extra audit at CFC and other mortgage banks, to see if they still fulfill reserve requirements or are not rather INSOLVENT, to be closed down immediately?

chris g said...

I work at a gov't agency that is similar to the FDIC. The reason the FDIC insures these deposits is for two reasons:

1) The banks have paid their insurance premiums to FDIC. Therefore, they are entitled to coverage. It's that simple. This isn't State Farm....the FDIC doesn't get to choose their customers, so to speak. If they meet the criteria of a deposit institution, that institution is required to pay premiums and the FDIC is required to insure depositors (see #2). Even if the bank got in trouble and didn't pay all of the premiums, I bet the FDIC would insure anyway.

2) The insurance is meant to protect the depositors, not the banks. Don't assume that every old grandma out there knows what is going on with Countrywide and Indymac. Some of them are losing their minds, you know.

Anonymous said...

Anyone drive by a Countrywide bank today and see a line of people outside take a picture and send it in!

Anonymous said...

Who insures the FDIC?

Anonymous said...

When I was in business school almost 20 years ago, I wrote a paper for a statistics class showing a strong correlation between an S&L's interest rates, whether it was in Texas, and whether it was in financial trouble. I can see that Uncle Sucker still hasn't learned a single damn thing.

Laurie said...

Here's an interactive map that shows the relationships between the IndyMac board members:

http://muckety.com/business/091007indymac.html

Anonymous said...

Anonymous said...
Who insures the FDIC?

September 10, 2007 11:32 AM
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The Taxpayer

Anonymous said...

Amen to keeping under $100k per bank. Any idea how long it takes to get paid back by the FDIC if a bank goes tits up? Re. Countrywide and Indymac, I realize FDIC has to insure them if they pay their premiums, but don't they in return have to follow federal guidelines designed to ensure solvency?

Anonymous said...

Well, HP'ers, at least you can say you saw it coming. And when your tax dollars are going to bail out these two mismanaged toxic lenders, and their naive depositors, you can be even madder than the rest.
---------------------------------
My tax dollars are always being used to provide socialism for the rich. The non-rich, of course, get capitalism.

Anonymous said...

I am not defending CW Bank here as I think it is a one trick pony likely to be bought up by one of the majors waiting to vulturize its depositors and locations.
However, one should be assured that the FDIC coffers are fat. Banks have been paying into this fund for years with no major mishaps. Even if CW went totally belly up and had no assets to pay off depositors, the payoff from the FDIC would barely impact the FDIC funds. CW Bank is not that big of a bank folks. Don't confuse it with the morgtage company.

Also, the Federal Government (us the taxpayer) would backstop any failure in FDIC.

And, yes the bank is heavily audited on a monthly basis. If the bank is below its minimum capitalization (6-8% of certain deposits) then there would be full time monitoring.

devestment said...

Who insures the FDIC?

The full faith of The United States Government.

Anonymous said...

'The full faith of The United States Government.'

I think you deliberately left out "and credit"?

Anonymous said...

Now that Countrywide's had a mini-run on their California bank, they're advertising in the Seattle papers hot and heavy on their CDs. I never even knew they *had* banks in Seattle til 2 weeks ago. Now it's quarter page ads all the time.