Any help for uninsured depositors?
As Congress wrangles over the details of a proposed $700 billion market bailout, much of the debate has centered on whether taxpayers should foot the bill for bad decisions made by Wall Street executives and homebuyers who got in over their heads by taking out mortgages they couldn't afford.
The government plan is intended to give the economy a shot in the arm by taking bad debt off the balance sheets of banks and other financial institutions, thereby loosening up credit so that the economy can grow. Mostly, this means buying up troubled mortgages and mortgage-backed securities, but it could also include credit card debt, auto loans or just about any kind of debt that none of the big banks and Wall Street firms feel good about carrying in these troubled times.
While everyone's weighing the need to protect and preserve the nation's economy against the unpleasant possibility of rewarding those who endangered it, no one seems to be thinking of those people who lost big chunks of their savings accounts when their banks failed earlier this year.
What about them?
It wasn't too long ago that folks were lining up outside IndyMac branches throughout the San Gabriel Valley, fretting about whether they were going to get their money or not. Most did as the FDIC insures up to $100,000 in deposits per person. Turns out, however, that IndyMac had somewhere in the neighborhood of $541 million in uninsured deposits - far more than any other bank that has failed so far this year (nearest runner up is Columbia Bank and Trust in Topeka , Kan.
So far, 12 federally insured banks have folded, and while most of the deposits were covered by the FDIC, more than $660 million was not insured.
This is not money that Wall Street invested in faux triple-A securities backed by zero-interest, no-asset/no-income adjustable-rate mortgage loans made to people who never had a chance of making the balloon payment.
This is money that was supposed to be safe. It was life savings, retirement money, the college fund. It was in savings accounts and CDs.
Some might say those people should have been more prudent with their savings, ensuring all the money was insured by depositing it with different banks. But failing to understand the fine points of what the FDIC does and does not insure is a far cry from signing up for a $500,000 home loan when all you've got is a part-time job and then later claiming you didn't read the fine print. And it's even further from a financial expert's decision to wager the company's future on loans just like that.
It seems unlikely the people who had uninsured deposits will ever see that money. In fact, a Bloomberg story today quotes Torrance-based analyst Christopher Whalen as saying the FDIC will almost certainly need money from the Treasury Department by the end of next year - perhaps as much as $150 billion.
About this blog
Economic Alert is a daily blog on business and the economy in the San Gabriel Valley and beyond, featuring updates and observations from the staff of the San Gabriel Valley Newspaper Group. SGVN includes the San Gabriel Valley Tribune, Pasadena Star-News and Whittier Daily News.
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Kevin Smith is business editor for the San Gabriel Valley Newspaper Group. Over the past 15 years, Smith has covered development, housing, employment, technology and financial trends for a variety of newspapers.
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Ryan Carter covers business and the economy for the San Gabriel Valley Newspaper Group.
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Your hosts:
Kevin Smith is business editor for the San Gabriel Valley Newspaper Group. Over the past 15 years, Smith has covered development, housing, employment, technology and financial trends for a variety of newspapers.
Ryan Carter covers business and the economy for the San Gabriel Valley Newspaper Group.
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