What If TARP Had Passed the First Time?
I love historical counterfactuals, but I think I’m not buying this one from James Suroweicki:
What if Congress had passed the TARP bill the first time around, instead of voting it down on September 29th? While it’s certainly true that Lehman’s failure provoked a global panic, and in the days immediately after it went under we saw credit markets start to freeze up, stock-market sell-offs, and the like, it’s also true that the news that the U.S. government was working on a toxic-asset bailout plan for the banks actually did stabilize the markets. By Friday, September 26th, for instance, the S&P 500 Index was trading only slightly below where it had been before Lehman went under. At that point, it seemed, investors were reasonably confident that the government’s actions would bring some order to the chaos in the system.
That confidence disappeared, obviously, on September 29th, when the House of Representatives voted down the TARP. The S&P fell nine per cent on the 29th alone, and in the weeks that followed kept plummeting, falling almost twenty-five per cent in the next month, even though Congress did pass the TARP the second time around. In effect, the House’s failure to pass the TARP demolished investors’ confidence that they could rely on the government to act, and massively amplified the sense of panic that Lehman’s failure caused. This doesn’t necessarily mean that voting against the TARP was a bad idea (although I think it was): if you think government bailouts of big financial institutions are a mistake, then this was not a bill you could support. But I think it’s inarguable that the vote against the TARP did make things significantly worse in the markets. And I think it’s plausible that had the bill passed on the 29th, much of the chaos that followed over the next couple of months could have been averted.
I think it’s pretty clear that there’s no good case on the merits for having voted “no” the first time and then “yes” the second time. Nothing was gained by doing the flop, so this alternate reality would be all upside with no downside. Still, I think the basic reality is that there were large real losses. A lot of individuals and a lot of firms were making financial decisions that were predicated on false ideas about the value of real estate assets. When both the extent to which people were mistaken about those real estate prices, and the extent to which broader economic trends were predicated on those ideas became clear, some kind of substantial downturn became essentially inevitable.
I think a better counterfactual concerns the timing of the stimulus. What if ARRA had passed in late September when it became clear that massive stimulus would be necessary, or at a minimum in early November when it became clear that politicians who believed massive stimulus would be necessary would be governing the country by February? Instead, we had the three month transition period during which the economy just deteriorated. Faster stimulus wouldn’t have prevented the recession from happening, but it certainly might have made it shorter and somewhat shallower.
44 Responses to “What If TARP Had Passed the First Time?”
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September 14th, 2009 at 2:43 pm
Or what if the banks had been nationalized right away and the creditors forced to eat the losses?
And what if, instead of channeling public money through the banks, the government had lent directly through a new Home Loan Bank Board?
And what if a much bigger stimulus, focused on job creation and reindustrialization, had been pushed through congress?
I like my counterfactuals much better.
September 14th, 2009 at 2:59 pm
I don’t actually agree with this – the one thing that was gained was the government made a genuine statement to investors that a bailout was not a guarantee. It was something that was deeply controversial and might not pass. That statement came at huge cost over the past year, but it may ultimately pay for itself when investors act ever so slightly less ridiculous the next time around. Because there is absolutely no guarantee that Congress will again bail them out, esp. with the foaming at the mouth that has been coming from the right side of the aisle.
September 14th, 2009 at 2:59 pm
And what if we had actually tried to solve the problem rather than papering it over with TARP giveaways to bankers? In any event, the celebrations are premature:
FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=a7UTn7JFw1qk
“Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc….
“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary.”
September 14th, 2009 at 3:02 pm
My counterfactuals are repealing of the Gramm,leach,Bliley Act,NAFTA,GATT and RAY GUN NOMICS!!!!!!!
September 14th, 2009 at 3:08 pm
the house of representatives wanted to signal that support of the financial system was going to be soft and that they didn’t want to be taken for granted. this was new information to the markets and so they reacted. in the coming months the markets had the opportunity for testing the resolve of the government and did so repeatedly.
September 14th, 2009 at 3:08 pm
What if Banksters & Pals decided not to fuck up the economy in the pursuit of greater profits? What if the Democratic Party was not a subsidiary of the financial industry? What if the American economy was not based primarily on consumer spending?
September 14th, 2009 at 3:12 pm
[...] Matthew Yglesias on Surowiecki [...]
September 14th, 2009 at 3:14 pm
NYC_Charles:
I don’t actually agree with this – the one thing that was gained was the government made a genuine statement to investors that a bailout was not a guarantee. It was something that was deeply controversial and might not pass. That statement came at huge cost over the past year, but it may ultimately pay for itself when investors act ever so slightly less ridiculous the next time around. Because there is absolutely no guarantee that Congress will again bail them out, esp. with the foaming at the mouth that has been coming from the right side of the aisle.
I agree with this. Still, I think they will forget soon enough thanks to our wonderfully uninformative go-with-the-flow corporate media and education system, unless the government gets more involved to remind them via regulations.
September 14th, 2009 at 3:18 pm
There’s a much more interesting counterfactual, which I haven’t thought through yet. When the real bad crisis hit, there was an election a few weeks away, and a change of power about three-four months away. There was no reason to think that Bush would be the one doing the heavy lifting on the big stimulus package, which is perfectly understandable. The counterfactual, which Matt hints at when he mentions the few months of delay, is, what would have happened if the crisis had hit with 10 months to go in Bush’s presidency, or longer? In other words, what sort of stimulus package would have occurred if it had really belonged to Bush? I shudder to think.
September 14th, 2009 at 3:21 pm
In other words, what sort of stimulus package would have occurred if it had really belonged to Bush? I shudder to think.
Or what if McCain/Palin had been elected. Last summer before Lehman Brothers, McCain said “the fundamentals of the economy are sound.”
Most clueless statement since Baghdad Bob.
http://en.wikipedia.org/wiki/Muhammad_Saeed_al-Sahhaf
September 14th, 2009 at 3:26 pm
Or what if the banks had been nationalized right away and the creditors forced to eat the losses?
With the amount of money owed to foreign creditors, I wouldn’t rule out a physical war breaking out. Something like the Franco-Mexican War.
September 14th, 2009 at 3:40 pm
With the amount of money owed to foreign creditors, I wouldn’t rule out a physical war breaking out. Something like the Franco-Mexican War.
Yeah. Maybe the Swiss-American War or the Lichtenstein-American War.
September 14th, 2009 at 3:42 pm
When both the extent to which people were mistaken about those real estate prices, and the extent to which broader economic trends were predicated on those ideas became clear, some kind of substantial downturn became essentially inevitable.
Yes, but there had already been a substantial market correction as of the relevant time, and much of the subsequent additional correction has now been reversed. So it is plausible that there was an avoidable component to the market correction in addition to the unavoidable component that Matt is describing here.
Oh well–it is water under the bridge, and not necessarily a bad scenario (at least for those who didn’t panic-sell sometime in early 2009).
September 14th, 2009 at 3:44 pm
I was really thinking a Sino-American war.
September 14th, 2009 at 3:44 pm
Or what if the banks had been nationalized right away and the creditors forced to eat the losses?
Judging from the losses the FDIC has been taking on its bank takeovers, it would have cost the taxpayers much, much more money.
September 14th, 2009 at 3:53 pm
Judging from the losses the FDIC has been taking on its bank takeovers, it would have cost the taxpayers much, much more money.
Please explain just why the FDIC would be liable for other than depositors losses.
September 14th, 2009 at 3:54 pm
What if dogs really could play poker?
September 14th, 2009 at 3:56 pm
If we had not done the bailout, the Republicans would now be sucking up to the Progressives in order to avoid being hung by the new Bolsheviks.
Sometimes you have to destroy the village in order to save it.
September 14th, 2009 at 3:59 pm
Re ron at 16: “Please explain just why the FDIC would be liable for other than depositors losses.”
———
In order to stop a massive run on the banks back in September, the government greatly expanded FDIC to cover all deposits in the known universe plus the fifth through eighth dimensions.
Fed’s Flow of Funds is now a Moebius strip.
September 14th, 2009 at 4:01 pm
re: the picture above
“Yond Cassius has a lean and hungry look; He thinks too much: such men are dangerous.”
September 14th, 2009 at 4:02 pm
I was really thinking a Sino-American war.
Why?
September 14th, 2009 at 4:04 pm
The stock market doesn’t have anything to do with the economy.
The economy is at least 4% smaller than it was during the events of last September. A couple more million are unemployed. So what’s the point of this inquiry? Well I know the answer. Will the elites maintain their wealth with the Fed and the Treasury working to prevent the deflation of their assets? So far the answer is a resounding yes. That was the question last fall because the election presented an unknown.
There was the slight chance McCain would win and he was a true loose cannon. Would he join the sunshine populists in the congress and turn against the bailouts. Not likely but very hard to gauge. Obama was likewise a slight mystery but by inauguration day the answer was in. He was 1000% in with the bailout regime. Call it coincidence that GS’s secondary low off the fall crash was inauguration day. It took 6 weeks for the message to get through totally but when Bernanke announced the monetization flood the bottom was put in.
The events of last fall mostly had to do with the election. In actual fact TARP did absolutely nothing. It was a con. Of course the confidence game is everything they say. The deal has now gone down. There will be no reordering in any meaningfull way of an economy totally dominated by the drive to inflate their assets, to increase their control of more assets and to have ever more entre into the halls of power.
September 14th, 2009 at 4:05 pm
In order to stop a massive run on the banks back in September, the government greatly expanded FDIC to cover all deposits in the known universe plus the fifth through eighth dimensions.
The FDIC was only responsible for $100,000 per depositor account. Any other action was discretionary.
September 14th, 2009 at 4:07 pm
Williams:
In order to stop a massive run on the banks back in September, the government greatly expanded FDIC to cover all deposits in the known universe plus the fifth through eighth dimensions.
James Suroweicki believes had they passed the first TARP, Bernanke wouldn’t have had to pour money from helicopters? I highly doubt it.
September 14th, 2009 at 4:20 pm
TARP is a sham. Functionally it did two things. It saved AIG and the profits of the 12 banking giants on their swap bets and by extension a big part of the XXX trillion dollar derivatives tower. It save the auto companies because congress wasn’t going to. TARP did nothing for the bank behemouths but to boost ‘confidence’. So there it is a con game. Around half the TARP money is sitting idle now. A gigantic slush fund for Geithner. The congress could and should demand that it be put into the general fund for ordinary expenses. Instantly this years deficit would be reduced by that amount because it was money taken last year, from revenue and borrowing.
Have you heard anyone ask for that money back? Well if your an obsessive you heard 6 weeks ago some congress critters asking a Treasury flack at a hearing if Treasury thinks they have to give it back. He said, in essence, fuck you.
September 14th, 2009 at 5:00 pm
Anyone here think we will get more than window dressing in terms of new financial regulations?
September 14th, 2009 at 5:04 pm
Re ron at 23: “The FDIC was only responsible for $100,000 per depositor account. Any other action was discretionary.”
————
Well, “discretionary” provided you don’t want to stop a $5 Trillion run on the banks that would have destroyed Western Civilization.
See Paul Kanjorski’s infamous interview re how FDIC got greatly expanded (i.e., the taxpayers handed a smelly bag of cat shit.)
http://www.dailykos.com/storyonly/2009/2/9/234340/6189/142/695504
” I was there when the secretary and the chairman of the Federal Reserve came those days and talked to members of Congress about what was going on… Here’s the facts. We don’t even talk about these things.
On Thursday, at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two.
The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks.
They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened.
If they had not done that their estimation was that by two o’clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.
Now we talked at that time about what would have happened if that happened. It would have been the end of our economic system and our political system as we know it.”
———
I personally don’t see why they intervened. That would have destroyed the Republican Party. Maybe a quarter of the US population as well but omelets, eggs,etc.
September 14th, 2009 at 5:34 pm
Well, “discretionary” provided you don’t want to stop a $5 Trillion run on the banks that would have destroyed Western Civilization.
Sorry Don, but saying it doesn’t make it so.
The fact is that the US government can pay off every deposit account at $250,000 at anytime. They can also pay off all money market accounts if that becomes necessary. As soon as that becomes clear, the run stops. If you can get your money whenever you want it, you no longer feel the need to go get it.
September 14th, 2009 at 5:47 pm
The money market thing was classic panic. In a way the money market funds were and still are in better shape than the banks. The money market funds hold short term instruments and when the Reserve Fund had enough bad paper that they could no longer pay interest and in fact were losing principal they froze the fund. Some other funds were in the same boat but their parent companies ate the losses.
Reserve could have liquidated their holdings, flooding the market for short term paper and getting perhaps 50 cents on the dollar or worse and then paying off the account holders. If others followed the real collapse of the financial system would have been at hand. The Feds guarantee stopped any runs and in fact MM balances soared as the markets were roiled.
Relentlessly however MM deposits have been shrinking. It makes very little sense to take any risk for a .05% return. Some of it has gone into the markets to reinflate them. Some of it has been taken by people to meet expenses. Dipping into their capital. A lot of retirees are now quickly drawing down their capital at a fast rate.
The shrinkage of the MM deposits and the collapse of the Commercial Paper market are continuing apace. Short term credit is shrinking relentlessly. Of course demand is as well. The credit system is a shambles. The Fed and Treasury will now have to backstop much systematic credit, forever. The Treasury has absolutely no problem borrowing whatever it needs so far so borrow they will. They system needs them to borrow $2tillion a year minimum. The GSS’s and now the FHLB are supplying virtually 100% of new mortgage money. The financial system is not fully socialized explicitly. The Dow could soon go to 11K, even 13K. Why not? Corporations have been socialized.
September 14th, 2009 at 5:51 pm
Had it been up to me, I’d have downed TARP the first, second, and all additional times it came up as well. I’d have let the bandits endure the failure that they brought forth upon themselves. I’d like to think that maybe my charitable side would have been willing to appropriate enough federal funds to help the City of New York finance scraping-off-the-sidewalks the remains of those who chose to leap rather than endure the disgrace, but the total would likely have been far less than the average single AIG ex post facto bonus.
Next, after the dust settled, we’d start over: this time with a regulated system that instantly and forever disallows shenanigans such as those that brought on the crisis.
I know, I’m mean spirited and anti-American. True story.
September 14th, 2009 at 8:02 pm
Please explain just why the FDIC would be liable for other than depositors losses.
They’re not. And they have still been taking huge losses on their takeovers, because they are not recovering enough from the assets to cover the deposits.
Of course this basic situation has been pretty obvious since IndyMac.
September 14th, 2009 at 9:05 pm
I dont think the finacial system would have failed as there were some 13 trillion in loans and gurantees other than TARP 750 billion.
Not only that, I dont think they should have been bailed out at all:
William K. Black – the senior regulator during the S&L crisis, and an Associate Professor of both Economics and Law at the University of Missouri – says that the Prompt Corrective Action Law (PCA), 12 U.S.C. § 1831o, not only authorizes the government to seize insolvent banks, it mandates it.
September 14th, 2009 at 9:16 pm
They’re not. And they have still been taking huge losses on their takeovers, because they are not recovering enough from the assets to cover the deposits.
The FDIC pays for depositors losses from their insurance fund, which is funded by fees from member banks. That fund is solvent.
Any losses you may be referring to are the result of discretionary actions by the FDIC, not legal requirements.
September 14th, 2009 at 9:49 pm
The FDIC pays for depositors losses from their insurance fund, which is funded by fees from member banks. That fund is solvent.
The DIF is down from $52.8B as of March 2008 to $10.4B as of June 2008, despite the FDIC increasing the banks’ contribution rates. If the FDIC had tried to take over the big banks, it would long since have blown through the DIF and would have required a huge bailout to deal with the deposit obligations.
Any losses you may be referring to are the result of discretionary actions by the FDIC, not legal requirements.
I’m not sure what you mean. The FDIC is taking losses because it can’t get enough from the assets it is seizing to cover the deposits. What exactly do you think they should be doing differently that would change this result?
September 14th, 2009 at 10:07 pm
They’re not. And they have still been taking huge losses on their takeovers, because they are not recovering enough from the assets to cover the deposits.
So you admit that the deposit fund is still solvent?
I’m not sure what you mean. The FDIC is taking losses because it can’t get enough from the assets it is seizing to cover the deposits. What exactly do you think they should be doing differently that would change this result?
Again – deposits are covered by the insurance fund and it still has money, i.e. the FDIC is covering the deposits.
Are you being purposely obtuse?
September 15th, 2009 at 12:23 am
So you admit that the deposit fund is still solvent?
I’m not sure what you mean by “solvent”. I’ll “admit” the DIF has lost “only” 80% of its original value so far, so hasn’t been exhausted–yet. Again, that is after the FDIC has taken over only relatively small banks. If it had tried to take over the big banks, the DIF would long since have been exhausted.
Again – deposits are covered by the insurance fund and it still has money, i.e. the FDIC is covering the deposits.
This is imprecise. The FDIC initially tries to cover deposits out of the bank’s assets. If it can’t do so, it has to draw down the DIF to make up the difference. So far, the FDIC has had to charge over $42.5 billion to the DIF during the current crisis. Again, that charge to the DIF has been caused by the cumulative gap between the assets and the deposits of the banks the FDIC has been taking over.
Are you being purposely obtuse?
No, are you?
The DIF is not an infinite pot of money. Again, the basic situation is that the FDIC had drawn the DIF down about 80% so far as of June 2009 (counting both charges against the DIF and increase contributions). That 80% drawdown has been the result of relatively small takeovers. If the FDIC had also tried to take over the big banks, the DIF would have been exhausted long ago.
As far as I can tell, you are citing the fact that the DIF still has about 20% of its original value as proof that somehow the DIF could always cover deposits no matter how many banks of what size the FDIC takes over. That simply isn’t remotely true.
September 15th, 2009 at 1:10 am
1. The FDIC is not obligated to take those losses on assets.
See: http://online.wsj.com/article/SB125166830374670517.html
2. If necessary, the FDIC can obtain funds from the Treasury. The total of all insured deposits is slightly under $5 Trillion. The FDIC can also assess extra fees on member banks.
The government certainly can cover the losses of all banks. That is why it serves as the lender of last resort. If necessary the government could nationalize the entire banking system.
September 15th, 2009 at 2:01 am
The FDIC is not obligated to take those losses on assets.
First, the FDIC is “obligated” to take the losses I have been noting when the deposits it has to cover are bigger than what it can realize from the assets in question. So the loss doesn’t come from the assets alone, it comes from the gap between the deposits and what the FDIC can get for the assets.
Second, that article isn’t about the billions in losses the FDIC has actually taken so far. It is about its exposure under loss-share agreements.
Third, part of the reason the FDIC is giving out loss-share agreements is to get better prices for the assets it is disposing. So if it hadn’t provided these loss-share agreements, it would have realized even greater losses to date on its takeovers, perhaps to the point the DIF would have been exhausted already.
If necessary, the FDIC can obtain funds from the Treasury. The total of all insured deposits is slightly under $5 Trillion.
Right, when the DIF runs out the FDIC would have to go to the Treasury (aka the taxpayers). And given the observed loss rates in question, the FDIC may have had to go to the taxpayers for a $1 trillion or more if it had taken over the big banks. That is way more than the relevant part of the financial system bailout is likely to cost the taxpayers, which was my point.
The FDIC can also assess extra fees on member banks.
Yeah, except it can’t assess fees on banks it has taken over. So in this mass-nationalization scenario, it is the taxpayers left holding the bag, because there is no one else left to pay.
The government certainly can cover the losses of all banks. That is why it serves as the lender of last resort. If necessary the government could nationalize the entire banking system.
Yes, the federal government COULD have done this. My point was simply that it would have cost the taxpayers much, much more to bail out the financial system in this way.
September 15th, 2009 at 9:48 am
DTM-
The FDIC takes over FAILED banks, i.e., banks that have negative net worth, banks that owe more than they can pay. Therefore, there are NO assets available to pay depositors.
The FDIC pays off depositors and the bank goes through a process similar to bankruptcy. Bank creditors are paid to the extent there are funds available. Shareholders generally get nothing.
First, the FDIC is “obligated” to take the losses I have been noting when the deposits it has to cover are bigger than what it can realize from the assets in question. So the loss doesn’t come from the assets alone, it comes from the gap between the deposits and what the FDIC can get for the assets.
Your statement makes no sense. If the bank had assets available to pay depositors, it wouldn’t be subject to FDIC takeover. The FDIC was created to protect depositors when a bank failed. The FDIC is not there to protect creditors.
The fundamental issue is: Who takes the losses? The government protects depositors but creditors are on their own. Otherwise moral hazard comes into play.
September 15th, 2009 at 10:46 am
The FDIC takes over FAILED banks, i.e., banks that have negative net worth, banks that owe more than they can pay. Therefore, there are NO assets available to pay depositors.
OK, to be blunt, you obviously have no idea what you are talking about.
The definition of a failed bank is actually quite complicated, and as a result the FDIC can seize a bank before it is insolvent. But we can leave that aside and note that even if all failed banks were balance sheet insolvent, that wouldn’t mean that failed banks had “NO assets available to pay depositors”. Rather, it would simply mean their total liabilities were greater than their total assets, not that they had no assets at all.
With that understanding in mind, covered deposits are a liability, and the FDIC is finding disposing of the failed banks’ assets is providing insufficient funds to cover that liability. Again, though, that doesn’t mean there are NO assets: it just means they are insufficient to cover this liability.
The FDIC pays off depositors and the bank goes through a process similar to bankruptcy. Bank creditors are paid to the extent there are funds available. Shareholders generally get nothing.
Again, to be blunt, you clearly have no idea what you are talking about.
When the FDIC seizes a failed bank it will use one of two processes to deal with the covered deposits. In the “purchase and assumption” process, it will transfer the covered deposits to another open bank, and that bank may also buy some assets. The remainder of the assets will be sold. The problem is the FDIC basically has to pay the open bank to assume the deposits (they are a liability after all), and so if it doesn’t get enough from selling the assets to cover this charge, it has to draw on the DIF. If it actually gets more for the assets than it had to pay to the assuming bank, it will then start paying off the failed bank’s other creditors.
In the payout method, the FDIC simply pays out the depositors, then again sells the assets. Once more, if it doesn’t get enough for the assets to cover the payouts it draws down the DIF, and if it gets more than enough from the assets to cover the payouts it pays off other creditors.
Your statement makes no sense. If the bank had assets available to pay depositors, it wouldn’t be subject to FDIC takeover.
To repeat, you are actually incorrect about when the FDIC can take over a bank. But holding that aside, your conceptual mistake is that you seem to think there are only two possibilities: either the failed bank’s assets can be sold for enough to cover the deposits, or it has no assets at all. But of course there is a huge middle ground, where the bank does have some assets (and they all have some assets), but where the assets cannot be sold for enough to entirely cover the deposits. And that is what is happening: the gap between the proceeds from assets and the deposits on average has been quite large for the failed bank taken over so far.
The fundamental issue is: Who takes the losses?
This oversimplification is what is leading you astray. The losses aren’t actually fixed, but instead depend on how we deal with these situations.
In fact, the FDIC process isn’t designed to minimize losses: it is designed instead to resolve the situation with respect to the depositors of failed banks as quickly as possible, thereby (hopefully) preventing bank runs. In ordinary circumstances that tradeoff between rapid resolution for the depositors and minimizing losses is fine from the taxpayers’ perspective, because any extra losses are supposed to be absorbed by the banking industry itself through their DIF contributions.
But in the hypothetical we are discussing, the DIF would have been quickly exhausted, and so the extra losses from using the FDIC process would have been absorbed by the taxpayers. And so now it would no longer be so fine that the FDIC process isn’t designed to minimize losses.
By the way, none of this has anything in particular to do with other creditors. Again, my point is that using the FDIC process to take over the big banks would likely have been very expensive for the taxpayers, even if the only liabilities being taken on in that process were the covered deposits.
September 15th, 2009 at 11:09 am
In the payout method, the FDIC simply pays out the depositors, then again sells the assets. Once more, if it doesn’t get enough for the assets to cover the payouts it draws down the DIF, and if it gets more than enough from the assets to cover the payouts it pays off other creditors.
This is untrue. The FDIC is not responsible for anything other than deposits. Any workout it undertakes is at its discretion.
To be blunt, you have no idea what you are talking about.
September 15th, 2009 at 11:48 am
An additional benefit of them not passing it the first time is that I made a bunch of money.
September 15th, 2009 at 3:21 pm
This is untrue. The FDIC is not responsible for anything other than deposits. Any workout it undertakes is at its discretion.
Section 11(c)(2)(A)(ii) of the Federal Deposit Insurance Act, codified at 12 USC 1821(c)(2)(A)(ii), provides:
So you are quite wrong: the FDIC has to accept its role as receiver whenever one of the federal banking agencies call upon it to do so.
To be blunt, you have no idea what you are talking about.
Right back at you. In this thread, you have made several basic mistakes when it comes to the nature of the FDIC process. I really think you need to go back and learn something about the FDIC before you opine further on the subject.
September 15th, 2009 at 4:56 pm
A receiver is responsible for managing the settlement when a bank is liquidated. That does not imply that the receiver is FINANCIALLY responsible.
Again, this statement is untrue:
In the payout method, the FDIC simply pays out the depositors, then again sells the assets. Once more, if it doesn’t get enough for the assets to cover the payouts it draws down the DIF, and if it gets more than enough from the assets to cover the payouts it pays off other creditors.
The FDIC, as receiver, pays the depositors and then administers the apportionment of the other assets among the creditors. The FDIC itself has no liability for those other assets, it pays only for the deposits even if there are losses beyond that.
Your contention that the FDIC is responsible for other losses if flat wrong.