Extinction As A Corrective Measure

 

We've recently watched several banks (Silicon Valley Bank and Signature Bank) suddenly go 'casters up' in IT-speak, and the government in the guise of the FDIC has jumped in to assure their depositors (and investors... let's not forget the investors) that all will be well.

Just kidding...  All is not going to be well... except for those depositors and investors.  You?  You're going to pay the butcher's bill.  'FDIC', let's keep in mind, is the Federal Deposit Insurance Company.  Normally, banks pay premiums to FDIC based on the number of deposit accounts at their respective institutions and the value of those accounts up to insured limits.

Suddenly, bank depositors are being reimbursed well above the limits that were insured.  Actuarily, that's a losing business model — for the FDIC.  (It's great for the banks.)  If deposit insurance rates are being set correctly, we should expect that the FDIC will end each fiscal year with a small surplus or a small deficit.

Small.

So, when the FDIC comes up short by a huge pile of loot (and I use that term deliberately), where does the FDIC — which cannot go out of business — find the funding for its sudden and unexpected (heh heh heh) flood of red ink?

I know, Dear Reader, that you are way ahead of me on this.  You have already guessed, haven't you, that the U.S.Treasury is going to write a nice fat check to FDIC to help them over their sudden and unexpected (heh heh heh) 'difficulties', and you already know that you fund the U.S.Treasury.

Extinction, they say, is the engine of evolution.  When a species goes extinct, it makes evolutionary 'room' for a successor species that, we hope and expect, will be 'better' however that term is defined.

When a banking species is artificially protected from the consequences of Natural Selection, things don't get better.  That is why I can confidently predict that the 'failures' of SVB and Signature Bank will not only not be the last such, but that we should expect more of the same within The Planning Future.

Get out your checkbook.