Huffington Posts Flawed Move Your Money Campaign From Big Banks to Small Banks
Politics / Credit Crisis 2009 Jan 17, 2010 - 03:19 AMBy: Nadeem_Walayat
The Huffington posts campaign to get depositors to withdraw their cash from the too big to fail wall street banks and deposit the cash into small local community banks has become highly popular. as the vast majority of people clearly want the bankster's of Wall street to pay for their financial crimes instead of continuing to receive bonuses which are in effect tax payer cash paid out.
Move Your Money: A New Year's Resolution
Take the pledge to Move Your Money!
Too-big-to-fail banks are profiting from bailout dollars and government guarantees, and growing bigger. Tell us which community bank you use, and why.
Last week, over a pre-Christmas dinner, the two of us, along with political strategist Alexis McGill, filmmaker/author Eugene Jarecki, and Nick Penniman of the HuffPost Investigative Fund, began talking about the huge, growing chasm between the fortunes of Wall Street banks and Main Street banks, and started discussing what concrete steps individuals could take to help create a better financial system. Before long, the conversation turned practical, and with some help from friends in the world of bank analysis, a video and website were produced devoted to a simple idea: Move Your Money.
The growing campaign has even produced a video spliced with clips from the popular Christmas time movie "It's a Wonderful Life" to support the Move your Money Campaign.
I have been asked why don't I join the campaign and write articles on the topic promoting moving deposits into the small banks. However what Huffington Post proposes is not going to damage the Wall Street bankster's but rather the people that follow its advice, for the fact of the matter it is that it is the SMALL BANKS that WILL BE ALLOWED FAIL and NOT the TOO BIG to FAIL Wall Street Banks!
So as time goes on , more and more people depositing their cash into these small community banks that were in many cases just as reckless in their mortgage lending as any of the CDO producing Wall Street banks, will find that their banks go bust and their deposits within the FDIC limits are transferred to other LARGER institutions.
Yes, I understand that depositing cash strengthens the balance sheet of banks and withdrawing cash weakens the balance sheet of banks due to the reserve requirement, but we are not operating in a free market banking system, as at the end of the day the Tax Payer picks up the tab for BOTH failed small bank deposits and in keeping the too big to fail banks alive.
According to the FDIC website the deposit insurance arrangement is for upto $250,000 has been extended until 31st December 2013.
Deposits at FDIC-insured institutions are now insured up to at least $250,000 per depositor through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except for IRAs and other certain retirement accounts (including IRAs) which will remain at $250,000 per depositor. (This supersedes the October 3, 2008 changes.)
However there is so much small print in place surrounding the guarantee that the more I read it the more precarious the guarantee appears. The bottom line is the FIDIC is now insuring over $1.5 trillion of deposits but its Deposit Fund is in the red, i.e. it has no money. Therefore small banks going bust are NOT being bailed out by FDIC but the Tax payers.
So whilst "move deposits to these small banks" campaigns seem like a good idea, in actual fact are not going to work but greatly increase the risk of loss of capital for those depositors with more than $250,000 deposited and ALSO increase the risks to FDIC which will actually have to pay out more as a consequence of more deposits at risk in small banks that WILL be allowed to go FAIL, money that it does not actually have which means a Tax Payer Bailout of FDIC. Therefore ironically it is less costly to keep a few BIG banks alive where the deposits are protected than pay out on actually failing small banks.
Source: http://www.marketoracle.co.uk/Article16544.html
By Nadeem Walayat
http://www.marketoracle.co.uk
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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market . Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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