FDIC Broke? World Bank Broke in 12 Months?

by Roy C | October 4, 2009 at 05:17 pm

390 views | 8 Recommendations | 3 comments

"Promise her anything, but giver her Arpege!" was something I heard every Christmas as a child. I understood that to give Arpege, though, you had to have the coin in hand. It seems that bankers, of all people, have forgotten this lesson of promises and cash in hand.

The banking and financial institutions, along with national governments and even international NGOs, have been making promises, "Arpege" and otherwise, of solving the world's financial problems, with nothing to back it up because there has been no ROI, return on investment, on their half-baked policies in the recent past.

The World Bank, instead, can count on bailouts from the world's economic powerhouses, and they feel free to pursue whatever course they want because there is no need to really produce results.

Meanwhile, the bankers here in the US feel free to "create" money, which is exactly what they do, kicking some of the value upstairs to the Capo di Tutti Capi (Boss of All Bosses) of the Federal Reserve, while not watching well enough to see if the loans will be made good because the loans are insured by Uncle Sam's FDIC?

Anyone here remember the Savings and Loan crash of the 1980s?

When I was young, I learned about the FDIC, the Fed's Deposit Insurance Corporation, a government sponsored entity designed under the FDR administration to stop bank runs.

Bank runs occurred when people feared that a bank was going under financially (how else?) and that they had to go and get their money out pronto.

Banks, of course, lend out money and therefore cannot give all depositors the money in their accounts if everyone shows up at the same time. So, the FDIC "insures" your deposit up to certain limit.

But, I had to be the kind of kid who thought to himself, "What if the FDIC runs out of money because too many banks go under at the same time?"

It was one of those annoying thoughts that I used to pepper my teachers with, sans mustache, of course. My parents were periodically treated to unpleasant lines of reasoning as well. :)

But, here it is:

FDIC Is Broke, Taxpayers at Risk, Bair Muses: Jonathan Weil

Sept. 24 (Bloomberg) -- The FDIC’s insurance fund is going broke, and Sheila Bair is wondering aloud about how to replenish it. This means one thing for taxpayers: Watch your wallets.

Bair, the Federal Deposit Insurance Corp.’s chairman since 2006, says the agency has many options. One way to boost its coffers, now running low after a surge in bank failures, would be to charge banks higher premiums. It could make them pay future assessments in advance. Alternatively, the FDIC could borrow money from the banks it regulates. Or it could borrow from the Treasury, where it has a $500 billion line of credit.

“There’s a philosophical question about the Treasury credit line, whether that is there for losses that we know we will have, or whether it’s there for unexpected emergencies,” Bair said Sept. 18 at a Georgetown University conference in Washington. “This is really a debate for Washington and for banks,” she added.

Far be it from me to intrude on this closed-circuit conversation. The question Bair posed should be a no-brainer. Borrowing taxpayer money to bail out the FDIC should be an option of last resort reserved for unforeseen emergencies. That the agency would consider this now underscores how dire its financial condition has become.

Whatever path it chooses, we shouldn’t lose sight of this: The FDIC has been mismanaged, and its credibility as a regulator is in tatters. Its insurance fund wouldn’t be in this position today if the agency had been run well.

Now, we follow up with something that really makes me laugh: the World Bank is running out of money!

Am I mean or cruel? No, I just think that World Bank policy has helped bankrupt the world and now it is their turn.

Really, when we used articles about the World Bank in ESL courses with Milanese bankers, and we read their prescriptions for fostering prosperity in Russia after the collapse of the Soviet Union, we, banking students and ESL teacher, had to wonder what kind of fluids ran in their veins, and, when the programs failed, what the real state of their cerebral cortices was.

The World Bank seemed to understand how the game was played, let us say, but they didn't seem to have a clue as to how that game evolved and how to develop the economic system.

They believed entirely in mechanisms and didn't grasp human culture and institutions contribution.

Their theories are for a world of objects. Real "reification".

World Bank could 'run out of money' within 12 months

The World Bank is close to running out of money, its president, Robert Zoellick, has disclosed.

By Edmund Conway, Economics Editor in Istanbul

he Bank, whose job it is to support low-income countries, has had to hand out so much cash in the wake of the financial crisis that its resources could run dry within 12 months.

“By the middle of next year we will face serious constraints,” said its president Robert Zoellick, as he launched a major campaign to persuade rich nations to pour more money into the Washington-based institution.

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He conceded that such a task was likely to be extremely difficult, given the difficulties facing countries in the wake of the developed world’s biggest recession since the Second World War. However, Mr Zoellick, speaking at the opening of the IMF and World Bank annual meetings in Istanbul, said the Bank needed a capital increase of as much as $11.1bn (£6.9bn) to keep functioning. He said he hoped that its shareholders, including the UK and other leading nations, would decide on resources before its spring meeting next April.

The money would be shared between the International Bank for Reconstruction and Development – the key part of the bank, which lends to poor nations – and the International Financial Corporation (IFC), which lends to companies.

Mr Zoellick said: “We recognise that all countries are under budgetary strain and it is not an easy time to be asking for these things”.

He said that a shortfall of cash for the IFC was a cause for particular concern, Mr Zoellick added, “because one of the issues in this recovery is the hand-off from government stimulus programs to private-sector development.”

The Bank has had to lend significantly more cash than the three-year $100bn programme it committed to last year because of the virulence of the financial and economic crisis. The majority of the money has been spent ensuring the survival of the most vulnerable nations.

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Babel-Fish

at 18:47 on October 4th, 2009

lol. Knowing the full picture why the banks where asked for funding instead of government and why the World Bank is making big noises on its funding knowing the factual full reports. I really want to sit back and see the comments on this wonderful right wing presentation of a problem that well really is not a problem.

In the world of finance and politics nothing is what it really seems as when political based views are made by the media a worst or better scenario is expressed according to the medias political stance. Mild propaganda can even turn into very strong propaganda.

I personal hate propaganda of all kinds and prefer the more balanced truth.

Hugh Askew

at 02:18 on October 5th, 2009

Bloomberg is right wing? The Telegraph is right wing?

PIM of SPAIN

at 08:27 on October 7th, 2009

The FDIC had to save this year already 96 banks compared with last full year 35 and in 2007 only 8. No wonder that it goes broke. But B&B (Ben & Barack) have the solution ready. Just more of the same, let the printing press running, or even better and faster add digital zeros to the accounts and the problem is solved. No banker apart from Lehmann goes broke. Let the taxpayer pay and offer him the anvil to keep his head out of the water! The whole of financial industry is already broke, why bother about the FDIC and World Bank! All this has nothing to do with right or left wing the system is kaput. Buy gold!