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Listen, we know the FDIC is broke, there’s no use pretending they aren’t. But apparently we’re going to keep doing it so let’s stop for a moment and analyze the FDIC’s latest crackpot scheme to keep bad banks afloat and their balance in the black, shall we?
The summation up to now — for those of you with short attention spans — is that the FDIC is looking to tax banks’ asses based on the risks they take. On the surface that doesn’t sound like a bad idea until you consider the fact that the FDIC, by its very nature as a “safety net”, encourages the exact behavior they’re looking to “penalize”. Keeping in mind also that the Obama administration is coming down on banks from the other end with some tax scheme, it makes you wonder why the hell we bailed them out in the first place.
Blame the academics and these brainiacs in Washington who believe there’s nothing wrong with the fundamental framework of American banking, least of all that any of it could possibly be attributed to the attitude that Uncle Sam will always come to banks’ rescue. Here’s hoping the bankers paid attention in Econ 101 when they went over that whole “no such thing as a free lunch” part.
UPI:
FDIC Chairman Sheila Bair said there was “a broad consensus of academic studies,” that concluded “poorly designed compensation structures can misalign incentives and induce risk taking.”
Bair said called a study of “compensation structure, rather than levels of compensation,” a fair approach.
Maybe I just don’t have the auditor mind needed to wrap around a concept like this but WTF is that supposed to mean?! The FDIC epitomizes moral hazard so how in the hell is it that the FDIC is the one coming in to tap banks to cover said risks? I’m not rationalizing banks’ behavior (I remind dear reader here that the top 5 banks in America hold $275 trillion in notional derivative exposure) but, uh, just because Sheila needs to cover the next round of failed banks doesn’t make it appropriate to start regulating now.
Has she ever heard of too little too late? How about too much too late?
As I have already pointed out, we all know who is going to ultimately pay for this and it sure as hell isn’t the banks. Bend over, the next round is about to hit and it’ll hurt less if you’re prepared.