‘No-Risk’ Insurance at F.D.I.C.
The Federal Deposit Insurance Corporation was set up 76 years ago with the important but simple job of insuring bank deposits.
Now, because of what could politely be called mission creep, it’s elbowing its way into the middle of the financial mess as an enabler of enormous leverage.
In the fine print of Treasury Secretary Timothy F. Geithner’s plan to lend as much as $1 trillion to private investors to help them buy toxic assets from our nation’s banks, you’ll find some details of how the F.D.I.C is trying to stabilize the system by adding more risk, not less, to the system.
It’s going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisitions of toxic assets. The program, extraordinary in its size and scope, is the equivalent of TARP 2.0. Only this time, Congress didn’t get a chance to vote.
These loans, while controversial, were given a warm welcome by the market when they were first announced. And why not? The terms are hard to beat. They are, for example, “nonrecourse,†which means that if an investor loses money, he owes taxpayers nothing. It’s the closest thing to risk-free investing — with leverage! — around.
But, as we’ve learned the hard way these last couple of years, risk-free investing is an oxymoron.
So where did the risk go this time?
To the F.D.I.C., and ultimately, to us taxpayers. A close reading of the F.D.I.C.’s statute suggests the agency is using a unique — some might call it plain wrong — reading of its own rule book to accomplish this high-wire act.
Somehow, in the name of solving the financial crisis, the F.D.I.C. has seemingly been given a blank check, with virtually no oversight by Congress.
“Nobody is paying any attention to how they’re pulling this off,†said a prominent securities lawyer who has done work for the government. Not surprisingly, he, along with others I asked to review the program, declined to be quoted by name. “They may not be breaking the letter of the law, but they’re sure disregarding its spirit.â€
more at link:
http://www.nytimes.com/2009/04/07/business/07sorkin.html
Well at least we don't have to waste time calling our congressional reps and tell them to vote against more spending.
That is the beauty of loopholes...and having the right people in power to find them and exploit them.
How many people even know the Trillions of taxpayer dollars this admin is gambling with...Ohole and his 60% approval while he robs the country.
