More on the plight of Joe Sixpack

[finknottle]

So there are some here who believe that losing 20k because of that market drop isn't representative of the middle class. Fine - how representative it is is a legitimate question.

 

I was just listening to an NPR interview of Democrats, who were bragging that their bill includes a key provision to protect the middle class: raising the FDIC insurance limit from $100,000 to $250,000.

 

That's a federal guarantee on your deposit, even if the bank goes belly-up. It applies to savings, checkings, and money market accounts, but not stocks, bonds, and T-bills. My question is this: how many Joe Sixpacks have $200,000 in their savings account? I would venture none. Or at least, far far far far far fewer than the numbers who have 200k in their 401k's. It's not a middle class problem at all, as far as I can see. If you have that much money, you are probably investing it in something with a return. The only people this helps are the ultra wealthy who have a lot of loose change lying around between investments. And even they can secure themselves by simply divoiding it up between a couple of banks.

 

So what's the agenda here? Am I missing something?

[Booster4324]

So there are some here who believe that losing 20k because of that market drop isn't representative of the middle class. Fine - how representative it is is a legitimate question.

 

I was just listening to an NPR interview of Democrats, who were bragging that their bill includes a key provision to protect the middle class: raising the FDIC insurance limit from $100,000 to $250,000.

 

That's a federal guarantee on your deposit, even if the bank goes belly-up. It applies to savings, checkings, and money market accounts, but not stocks, bonds, and T-bills. My question is this: how many Joe Sixpacks have $200,000 in their savings account? I would venture none. Or at least, far far far far far fewer than the numbers who have 200k in their 401k's. It's not a middle class problem at all, as far as I can see. If you have that much money, you are probably investing it in something with a return. The only people this helps are the ultra wealthy who have a lot of loose change lying around between investments. And even they can secure themselves by simply divoiding it up between a couple of banks.

 

So what's the agenda here? Am I missing something?

 

Seems a completely meaningless gesture actually. If there is a huge run and the majority of banks close, could they even cover the 100k? Or will the dollar be so meaningless they can easily cover it all. I am curious as to what the financial types think.

[blzrul]

So there are some here who believe that losing 20k because of that market drop isn't representative of the middle class. Fine - how representative it is is a legitimate question.

 

I was just listening to an NPR interview of Democrats, who were bragging that their bill includes a key provision to protect the middle class: raising the FDIC insurance limit from $100,000 to $250,000.

 

That's a federal guarantee on your deposit, even if the bank goes belly-up. It applies to savings, checkings, and money market accounts, but not stocks, bonds, and T-bills. My question is this: how many Joe Sixpacks have $200,000 in their savings account? I would venture none. Or at least, far far far far far fewer than the numbers who have 200k in their 401k's. It's not a middle class problem at all, as far as I can see. If you have that much money, you are probably investing it in something with a return. The only people this helps are the ultra wealthy who have a lot of loose change lying around between investments. And even they can secure themselves by simply divoiding it up between a couple of banks.

 

So what's the agenda here? Am I missing something?

Window dressing.

[finknottle]

Seems a completely meaningless gesture actually. If there is a huge run and the majority of banks close, could they even cover the 100k? Or will the dollar be so meaningless they can easily cover it all. I am curious as to what the financial types think.

 

I think the latter.

 

And I heard some financial commentators opine that this opens the USG up to tremendous liabilities without doing anything to help the current crisis.

[blzrul]

I think the latter.

 

And I heard some financial commentators opine that this opens the USG up to tremendous liabilities without doing anything to help the current crisis.

I don't think this legislation is going to help in the short run. There are substantive weaknesses that may or may not be addressed but until investors and the populace in general recovers confidence, we're in a pickle. The fact is that the the GOP couldn't sell this to its own party without sweetening the pot. But people overall still believe that this is a bailout of Wall Street - they are believing the McCain-Palin pap that THEY have no blame in this, it's all those nasty [friends of the GOP] banks and Wall Street people who cheated them.

 

Both sides are responsible, although I tend to fault the institutions more because they knew better.

 

Anyway - now that the 90-year old lady in Cleveland got her mortgage forgiven simply by shooting herself (and the poor thing is probably on Medicare or Medicaid) we all know what to do. Next time I can't make my Neiman-Marcus payment, I'm gonna blast away. Small price to pay for buying things I can't afford.

 

[that's sarcasm people - I've never shopped at N-M]

[Live&DieBillsFootball]

There are a lot of people that keep their life savings in their local bank. Every bank has some customers whose accounts exceed the FDIC limit of $100,000. They are providing cheap money that the bank can loan to other customers.

 

Most of these customers have probably never worried too much about their bank going under and losing some of their money. I'm sure they are getting nervous about it now. As the FDIC raises their limits, the banks are hoping to keep this cheap source of funds available rather than have their customers move their excess funds to other banks.

 

A depositor can get around the FDIC limits by retitling their accounts. A couple can safely keep $300,000 in a bank by simply putting $100,000 in each of their names and $100,000 in a joint account. They can do the same thing at every bank in town and effectively keep all of their funds insured by the FDIC.

[Lurker]

how many Joe Sixpacks have $200,000 in their savings account? I would venture none. Or at least, far far far far far fewer than the numbers who have 200k in their 401k's.

About two-thirds of banking system deposit accounts fall below the $100k threshold. It would rise to about 75% at the $250K level.

 

I guess it depends on how you define Joe Sixpack. If he's a small businessman with maybe 3-4 employees, he could easily have a $250K operating account. Same with a person who's sold their house and waiting to buy another.

 

Raising the FDIC coverage is more of a symbolic move, IMO, to help the public confidence in the banking system. In the two weeks before Wamu was seized by the FDIC, depositors had withdrawn 9% of the bank's total deposits. Those kind of runs can kill any bank, even a strong one.

[Lurker]

Seems a completely meaningless gesture actually. If there is a huge run and the majority of banks close, could they even cover the 100k?

Just like the Fed, the FDIC would turn to the Treasury for short-term funds if payouts were to ever exceed the $45 billion it now has in the insurance fund. Banks will soon be paying more in deposit insurance assessments to help replenish the fund as well.

 

As to the possibility that a 'majority' of banks would ever close, you may as well have the bunker stocked up good and keep your amunition dry...

[stuckincincy]

I don't think this legislation is going to help in the short run. There are substantive weaknesses that may or may not be addressed but until investors and the populace in general recovers confidence, we're in a pickle. The fact is that the the GOP couldn't sell this to its own party without sweetening the pot. But people overall still believe that this is a bailout of Wall Street - they are believing the McCain-Palin pap that THEY have no blame in this, it's all those nasty [friends of the GOP] banks and Wall Street people who cheated them.

 

Both sides are responsible, although I tend to fault the institutions more because they knew better.

 

Anyway - now that the 90-year old lady in Cleveland got her mortgage forgiven simply by shooting herself (and the poor thing is probably on Medicare or Medicaid) we all know what to do. Next time I can't make my Neiman-Marcus payment, I'm gonna blast away. Small price to pay for buying things I can't afford.

 

[that's sarcasm people - I've never shopped at N-M]

 

The Dems have a majority in the House. They could have passed it without a single GOP vote.

 

Right?

[ExiledInIllinois]

There are a lot of people that keep their life savings in their local bank. Every bank has some customers whose accounts exceed the FDIC limit of $100,000. They are providing cheap money that the bank can loan to other customers.

 

Most of these customers have probably never worried too much about their bank going under and losing some of their money. I'm sure they are getting nervous about it now. As the FDIC raises their limits, the banks are hoping to keep this cheap source of funds available rather than have their customers move their excess funds to other banks.

 

A depositor can get around the FDIC limits by retitling their accounts. A couple can safely keep $300,000 in a bank by simply putting $100,000 in each of their names and $100,000 in a joint account. They can do the same thing at every bank in town and effectively keep all of their funds insured by the FDIC.

 

They are.

 

I was in my local bank yesterday and I overheard the receptionist advise a lady to the FDIC website... I wonder what that was all about...

 

FDIC... That was always a pretty fancy window sticker at the drive-thrus and teller counters. Not no more.