Christians, Moral Hazard, and troubled, FDIC-insured banks
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Christians, Moral Hazard, and troubled, FDIC-insured banks - 9/9/2008 8:24:03 PM
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blessedinnyc
Posts: 1957
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Question:
A lot of banks are offering really high FDIC-insured CD rates. Problem is, a lot of these high rates are being offered by banks who are in trouble. Putting more money in may mean it will cost the FDIC (read: taxpayers) more money when the banks become insolvent.
Is moral hazard something Christians should consider before putting money in a bank with really high interest rates? I am just noticing that as someone who follows corporate debt, it makes a boatload more sense for a bank to borrow money at FDIC-insured CD rates than to issue bonds- even puttable ones- at likely double-digit rates. I am also not as familiar with regulation on the traditional banking side of things as I am with the investment banking side, so I welcome any input from any commercial/personal bankers. Maybe the FDIC has a lot of say over how many deposits troubled banks can take, and the FDIC would only allow high CD rates from certain banks if it were in its interests.
In other words, is it OK to put money into banks where you're seriously concerned that the FDIC will have to bail you out? This is a question that, unfortunately, occurred to me after I set up a small CD with a bank, but I am wondering if I should just hold off on putting more money in.
< Message edited by blessedinnyc -- 9/9/2008 8:34:03 PM >
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FDIC Insurance Limits - 9/9/2008 11:16:10 PM
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InfoCentral
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Your fine as long as your under $100,000. If the FDIC insured bank fails and you invested in a FDIC insured account then you will get 100% of your money back. But be patient as it can take weeks. Over $100,000 and your not insured for loss but the FDIC has been giving depositor's 50% of this too. At least this is what the news reported when IndyMac was taken over.
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RE: Christians, Moral Hazard, and troubled, FDIC-insure... - 9/9/2008 11:26:59 PM
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ta_mosquito
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Hmmm. How moral is it to get big interest rates at the (possible) expense of the taxpayers/government? Good question.
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"There's a fine line between being open-minded and empty-headed." ~Michael Coren
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RE: Christians, Moral Hazard, and troubled, FDIC-insure... - 9/9/2008 11:57:29 PM
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blessedinnyc
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quote:
ORIGINAL: ta_mosquito
Hmmm. How moral is it to get big interest rates at the (possible) expense of the taxpayers/government? Good question.
Well, another question is whether this moral hazard may be intentional- and what protections the government has from banks offering 11% interest rates with FDIC insurance.
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RE: FDIC Taxpayer Liability - 9/10/2008 12:00:30 AM
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blessedinnyc
Posts: 1957
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quote:
ORIGINAL: InfoCentral
Your fine as long as your under $100,000. If the FDIC insured bank fails and you invested in a FDIC insured account then you will get 100% of your money back. But be patient as it can take weeks. Over $100,000 and your not insured for loss but the FDIC has been giving depositor's 50% of this too. At least this is what the news reported when IndyMac was taken over.
Yup. You can even increase this insurance by setting up Payable-On-Death informal revocable trusts, but you'd want to consult with a lawyer about this, first. However, the question is whether we have a moral obligation to not participate in banks that may harm the FDIC beyond the protection we're really paying for. My thinking is that if a deposit hurts the FDIC (even if the FDIC may not realize it yet), and there's a good chance we'll have to rely on the FDIC, we maybe shouldn't make the deposit.
On the other hand, I am not even sure my deposit hurts the FDIC. I am just sort of surprised by the arbitrage situation the banks have; with short-term arbitrage, it's usually a zero-sum game.
< Message edited by blessedinnyc -- 9/10/2008 12:20:15 AM >
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RE: FDIC Taxpayer Liability - 9/12/2008 11:35:30 AM
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DayStar43
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Credit Unions are federally insured by the NCUA. Their insurance is comparable to the FDIC. So: A joint account is insured up to $200,000; a single party account with no beneficiary is insured up to $100,000 ; a single party account with a beneficiary is insured up to $100,000 (the NCUA considers this type of account to be a revocable trust). With this being said, a husband and wife could have all these types of accounts and have $600,000 of coverage. This is only the "tip of the iceberg". A couple could also have accounts the same way with their children and grandchildren and vice versa and have even more coverage.
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RE: FDIC Taxpayer Liability - 9/12/2008 11:46:29 AM
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P31W
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quote:
A couple could also have accounts the same way with their children and grandchildren and vice versa and have even more coverage.
My banker said by doing the above mentioned she has gotten up to 1.7million insured.
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RE: Christians, Moral Hazard, and troubled, FDIC-insure... - 9/12/2008 11:47:39 AM
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P31W
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quote:
Putting more money in may mean it will cost the FDIC (read: taxpayers) more money when the banks become insolvent.
should you have said "if"?
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RE: FDIC Taxpayer Liability - 9/12/2008 12:54:05 PM
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blessedinnyc
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quote:
ORIGINAL: P31W
My banker said by doing the above mentioned she has gotten up to 1.7million insured.
Problem is that for Wamu, you need the beneficiary's SSN to set up a Payable on Death account.
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RE: FDIC Taxpayer Liability - 9/12/2008 1:13:15 PM
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P31W
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I don't know why you would consider that a problem? Unless you are like me and have seen too many TV shows where the family murders one another for the inheritance. 
You didn't answer my other question. It's an honest one.
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RE: FDIC Taxpayer Liability - 9/12/2008 3:03:20 PM
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blessedinnyc
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quote:
ORIGINAL: P31W
You didn't answer my other question. It's an honest one.
Hang on here, the next bank becoming insolvent isn't an "if", it's a "when". Banks aren't perfect, and even in the good years, the FDIC has to bail a lot of banks out.
Now, I don't know how much (if any) trouble wamu- in this particluar case- is, but I do know that it has much higher borrowing costs from the capital markets than 5%. This means that smart investors see a lot of risk in wamu that the FDIC is covering, and this risk is more expensive than whatever Wamu is paying the FDIC to insure its deposits, I'm sure.
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RE: FDIC Taxpayer Liability - 9/12/2008 3:05:13 PM
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blessedinnyc
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quote:
I don't know why you would consider that a problem? Unless you are like me and have seen too many TV shows where the family murders one another for the inheritance.
You didn't answer my other question. It's an honest one.
I don't mind the POD part. The thing is that it's sort of an odd thing to ask for. In any case, I would get nervous setting up a POD; I wouldn't want to risk messing things up. When I am 300 years old, and have enough money to hit the $100K FDIC limit at one bank, I will likely just have to find a second bank to put my money in.
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RE: FDIC Taxpayer Liability - 9/12/2008 5:27:35 PM
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DayStar43
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Rumor: FDIC just recently shut down Silver State Bank located in Nevada; FDIC taking over WaMu, too. It's located in Nevada, also.
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RE: FDIC Taxpayer Liability - 9/12/2008 6:55:31 PM
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blessedinnyc
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quote:
ORIGINAL: DayStar43
Rumor: FDIC just recently shut down Silver State Bank located in Nevada; FDIC taking over WaMu, too. It's located in Nevada, also.
Gaah! It's dangerous to spread rumors specific to a certain bank like that. WaMu might get bought out. The CEO reported that it has enough money to continue operations for a long time, so it may be able to turn things around.
There is a fair amount of risk in Wamu, but it's still rated much higher than Ford and GM- which aren't going to BK anytime soon.
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RE: Christians, Moral Hazard, and troubled, FDIC-insure... - 9/16/2008 8:39:58 AM
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P31W
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quote:
In other words, is it OK to put money into banks where you're seriously concerned that the FDIC will have to bail you out? This is a question that, unfortunately, occurred to me after I set up a small CD with a bank, but I am wondering if I should just hold off on putting more money in.
One of the risk for you and me when putting money into these types of banks is the "risk" of not getting our money when we want or need it.
This is what I do and some people laugh but I simply don't care.
EVERY BANKER and even my now BoA broker tells me their bank is OK. They are sound and not to worry! ROFL what a bunch of bologan. They have never simply trusted the words out of my mouth or what I have typed on a sheet of paper in fancy form! Why they think I am going to trust them is beyond me. 
I have first cash. I am talking real cash that I can get my hands on within minutes.
Then I have my main bank that I have most of my business checking accounts with. 100K is not a lot of money when you have a business.
Then I have my money spread out in several other banks.
If one or two banks close it's not the insurance that I am worried about (FDIC) for me I am more concerned with my ability to pay my suppliers, pay my employees, taxes and the like with the idea in the back of my mind that many who owe me money have have their tied up in a bank that they cannot get their money out of yet.
For me this is not a moral hazzard issue because I don't believe the gov is going to stop my suppliers from charging me interest if I cannot pay them on time, my employees from walking off the job, the company I have a contract with to complete by a certain date to charge me fees for being late, my insurance carriers from dropping me or other things to occur that are much worse for me than losing my entire principle in a few banks.
I am not sure what the IRS, SSA, or State gov. would do to me if I was not able to make payments to them on time? Not sure at all!
< Message edited by P31W -- 9/16/2008 8:47:42 AM >
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RE: Christians, Moral Hazard, and troubled, FDIC-insure... - 9/26/2008 8:09:51 AM
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DayStar43
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WaMu failed...taken over by JP Morgan.
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RE: Christians, Moral Hazard, and troubled, FDIC-insure... - 9/26/2008 5:35:55 PM
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blessedinnyc
Posts: 1957
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quote:
ORIGINAL: P31W
I am not sure what the IRS, SSA, or State gov. would do to me if I was not able to make payments to them on time? Not sure at all!
My Dad deals with this. Typically, they find a checking or savings account and put a lien on it, preventing you from withdrawing certain monies.
Maybe they'll be nice and put the lien on the one in FDIC conservatorship.
As for my money at WaMu, the website is still up and the bank seems to be functioning normally. Typically, the FDIC takes over a bank overnight, and if you have less than $100K in deposits, life continues as if there was just a merger or change in management.
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RE: Christians, Moral Hazard, and troubled, FDIC-insure... - 9/29/2008 1:05:50 PM
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GroupW
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quote:
ORIGINAL: ta_mosquito
Hmmm. How moral is it to get big interest rates at the (possible) expense of the taxpayers/government? Good question.
I've often wondered the same thing. I have no brilliant answers (which is nothing new here ....)
BT
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"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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