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Thread: Four banks fail, bringing 2009 tally to 44

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    Re: Four banks fail, bringing 2009 tally to 44

    Quote Originally Posted by Liz Peeps View Post
    So does anyone think that when the FDIC comes in and bails out the depositors this could actually lead to inflation as more banks fail in the future?
    It wouldn't lead to inflation since people were operating under the assumption that they had money in the banks. The FDIC giving them money wouldn't create inflation since the banks already did that via fractional-reserve. However, it does set a bad precedent and it puts the government on the hook for more debt.

    Who shall ascend the hill of the Lord? And who shall stand in his holy place? He who has clean hands and a pure heart, who does not lift up his soul to what is false, and does not swear deceitfully. Psalm 24
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    Re: Four banks fail, bringing 2009 tally to 44

    Quote Originally Posted by phattonez View Post
    It wouldn't lead to inflation since people were operating under the assumption that they had money in the banks. The FDIC giving them money wouldn't create inflation since the banks already did that via fractional-reserve. However, it does set a bad precedent and it puts the government on the hook for more debt.
    Well inflation will persist regardless of assumptions. It also creates distortions in the economy because when you loan someone out money and they can't pay it back, it's a real loss and can't be papered over. If done on a great enough scale it could lead to imprudent investments and economy chaos as we saw with the housing bubble.

    You make a good point with the fractional banking thing, that's kind of where I was going. I'm no fan of fractional banking or the FDIC.

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    Re: Four banks fail, bringing 2009 tally to 44

    Quote Originally Posted by Councilman View Post
    At the peak of the S&L banking crisis when more than 1,000 banks failed in 1988 and 1989, at a rate of more than 2 every business day for two consecutive years, the economy survived without going into a recession.

    Today we have to figure in the Amateur in Chief Obama and his personal prescription for disaster that will come with the passage of his Cap on Trade, Growth, and Jobs, Bill as it ends all hope of economic recovery.
    Look for many more banks to fail if Obama gets his way making the numbers from 1988 & 1989 look good in comparison.

    He is keeping one promise.

    January 2008... San Francisco Chronicle interview: Obama said: "Energy Prices Will Necessarily Skyrocket Under My Cap and Trade Plan"

    And he lied about everything else.

    Candidate Obama Sept. 12, 2008: "I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes."

    Recession is when your neighbor loses their job.
    Depression is when you lose your Job.
    Recovery is when Obama loses his job.

    "You can always count on Americans to do the right thing—after they’ve tried everything else".
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    I agree, in the few months Obama has been in he has single handedly crippled the U.S.A.

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    Suggestions for a speedy recovery:
    Buy perscriptions from Wally World.
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    Re: Four banks fail, bringing 2009 tally to 44

    Quote Originally Posted by Liz Peeps View Post
    Well inflation will persist regardless of assumptions. It also creates distortions in the economy because when you loan someone out money and they can't pay it back, it's a real loss and can't be papered over. If done on a great enough scale it could lead to imprudent investments and economy chaos as we saw with the housing bubble.

    You make a good point with the fractional banking thing, that's kind of where I was going. I'm no fan of fractional banking or the FDIC.
    Well of course we're going to have inflation, but I don't think that the FDIC is going to be a significant contributor to it. The Fed's low interest rate and quantitative easing are doing a lot more damage than the FDIC would do.

    Who shall ascend the hill of the Lord? And who shall stand in his holy place? He who has clean hands and a pure heart, who does not lift up his soul to what is false, and does not swear deceitfully. Psalm 24
    "True law is right reason in agreement with nature . . . Whoever is disobedient is fleeing from himself and denying his human nature [and] will suffer the worst penalties . . ." - Cicero

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    joke Re: Four banks fail, bringing 2009 tally to 44

    Quote Originally Posted by phattonez View Post
    Well of course we're going to have inflation, but I don't think that the FDIC is going to be a significant contributor to it. The Fed's low interest rate and quantitative easing are doing a lot more damage than the FDIC would do.
    I wouldn't entirely agree. One of the reasons I think the FDIC insurance program is such a bad idea is because it bails out depositors of insolvent banks. Nobody cares anymore what the banks do with our money once they have it, nobody cares because everyone thinks the FDIC insurance program will do that for us. We do more research on what kind of plasma TV to buy than what bank deserves our capital. This is one of the reasons the banking system is in such **** condition today. This is also instrumental in causing the malinvestments I'm sure you have read about. The Fed playing around with the interest rates is terrible, but they do that through the banks which would popping out of existence left and right if not for the FDIC program assuring everybody that no bank is necessarily safer than another. This allows ****ty banks with terrible business practices to remain in business at the expense of safer, more conservative banks. Not to say that safer conservative banks don't exist, but they are greatly outnumbered by the insolvent Fed pumped banks. We wouldn't have nearly a problem with fractional banking if we let depositors get wiped when the bank they chose made poor decisions with their savings.

    So who is causing inflation? The Fed obviously, but their inflation is only made possible with government backed insolvent banking practices. Again, people only support these insolvent banks because the FDIC removes the element of fear and tries to remove fear from the market. Greed drives people to do risky things, but their behavior is kept in check by their fear. If people actually had to think about where they should park their money (and those smart enough to figure out what the heck a Dow Jones Industrial Average is will probably not be lumping their savings into the US banks) then we might actually have a more stable economy.

    But, as I'm sure you already know, the Fed and the FDIC are just two of many, many problems with our economy. I'm sure you already know all of this, I'm just bringing this up for the benefit of the viewing audience who may not really be aware of this stuff.
    Last edited by Liz Peeps; 06-30-09 at 04:27 AM.

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    Re: Four banks fail, bringing 2009 tally to 44

    Quote Originally Posted by Liz Peeps View Post
    I wouldn't entirely agree. One of the reasons I think the FDIC insurance program is such a bad idea is because it bails out depositors of insolvent banks. Nobody cares anymore what the banks do with our money once they have it, nobody cares because everyone thinks the FDIC insurance program will do that for us. We do more research on what kind of plasma TV to buy than what bank deserves our capital. This is one of the reasons the banking system is in such **** condition today. This is also instrumental in causing the malinvestments I'm sure you have read about. The Fed playing around with the interest rates is terrible, but they do that through the banks which would popping out of existence left and right if not for the FDIC program assuring everybody that no bank is necessarily safer than another. This allows ****ty banks with terrible business practices to remain in business at the expense of safer, more conservative banks. Not to say that safer conservative banks don't exist, but they are greatly outnumbered by the insolvent Fed pumped banks. We wouldn't have nearly a problem with fractional banking if we let depositors get wiped when the bank they chose made poor decisions with their savings.
    I see what you mean now. FDIC leads people to put money in those banks with lower reserve ratios. We know that fractional reserve creates inflation. So because those banks will get bigger faster than the more conservative banks, and because FDIC removes any fear with putting our money in those banks, FDIC effectively adds to inflation.

    Who shall ascend the hill of the Lord? And who shall stand in his holy place? He who has clean hands and a pure heart, who does not lift up his soul to what is false, and does not swear deceitfully. Psalm 24
    "True law is right reason in agreement with nature . . . Whoever is disobedient is fleeing from himself and denying his human nature [and] will suffer the worst penalties . . ." - Cicero

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    Re: Four banks fail, bringing 2009 tally to 44

    Quote Originally Posted by Liz Peeps View Post
    So does anyone think that when the FDIC comes in and bails out the depositors this could actually lead to inflation as more banks fail in the future?
    Liz Peeps,

    The issue to which you refer is moral hazard, not inflation. An institution that expects to be bailed out if it runs into difficulty is, on average, more willing to engage in greater risk in the pursuit of marginal profits than one that does not expect a bailout.

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    Re: Four banks fail, bringing 2009 tally to 44

    Quote Originally Posted by donsutherland1 View Post
    Liz Peeps,

    The issue to which you refer is moral hazard, not inflation. An institution that expects to be bailed out if it runs into difficulty is, on average, more willing to engage in greater risk in the pursuit of marginal profits than one that does not expect a bailout.
    They're both connected and the FDIC does cause inflation. When it takes over a bank and bails out the depositors new money has to either be created or taken from the FDIC funds (which will get lower and lower as more banks go out of business). Keeping in mind the FDIC funds come from banks which are already a channel for inflation by borrowing money from the Federal Reserve at killer rates and keeping low reserve ratios while at the same time making bad decisions with their depositors money. So the insurance program creates a moral hazard, but the end result is more inflation. Especially when those funds run out. They raised the cap of FDIC coverage to a quarter million and Congress had to authorize a half trillion line of credit to the FDIC, which if of course being financed by our foreign creditors. Once our foreign creditors bail out and stop throwing their value away into the toilet of the US government and US dollar, then the inflation will be very apparent.

    FDIC Fund Running Dry - Yahoo! Finance

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