LAT also points to problems of online bank deposits "disappearing" -- explains a lot in-person apperearances at branches.
It may not be the FDIC's fault, but if there is more of this "come back another day" to get answers stuff, it's going to start smacking of FEMA behavior.
y'know, basically, anyone who trusts a bank further than they can throw them is an idiot.
also, people get snippy about things when the COLOR of the non-fashion itemt hey get is wrong, or even not what they were expecting (my cd is TEAL goddamnit, not blue like it used to be. i don't care that it works just fine, change it back!).
I have lots of respect for the FDIC guys for not just whipping out the pimp hand and explaining to this gentleman in the only language he's likely to understand that, yes, once you essentially commit various forms of insruance twinkery, we're not terribly concerned with anything over the 100k we legitimatly owe you.
now get your money and go over there and wait for your check before we investigate and decide to give you 50 cents on the dollar for yoru overlimit stuff like we did the father of four over there.
but maybe that's just the customer service rage talking.
Mr. Bash's changes may have been "perfectly meaningless" in this case, but if he had added a spouse to the account, I don't think I would agree. The federal government says they'll insure everyone's basket, and it shouldn't penalize married couples that bank together. When you can add Mom and the dog, however, it does seem rather odd.
But the larger observation is a sound one: no one here appreciated the fact that the limits discourage you from putting all your eggs in one basket. Certainly not the banks, which want all of Mr. Bash's eggs, and not Mr. Bash either, for whom egg diversification would be a hassle. So they jointly agreed on this paper work-around of tacking new names onto his account, effectively defeating the purpose of the system.
Yet the only moral hazard anyone talks about presently is that which results from institutional bailouts. On the other hand, expecting school teachers to appreciate the logic behind banking regulatory policy is a lot to ask. I don't think there's an easy solution to this one.
Fodder for jokes, a lifetime event for Mr. Bash. Ha-ha.
I doubt that the teller actually made up the notion that adding names increased insurance - was this a bank policy to tell that to people? That may come out over the next few days if others tell the same story.
My bank tried to do the same thing with me about a year ago. Luckily I got Blogs religion many months before that.
LAT is to be commended for this -am wondering how well MSM will do in bringing this problem to light - I am sure this was probably standard operating procedure in many other banks.
Huh?
According to the FDIC site itself,
and LOTS of easy-to-find online corroboration, what Mr Bash did seems
very sensible. Add payable-on-death beneficiares (parents, spouse, children) and include the letters "POD" on the account title, and ... so it seems to me ... you can get extra coverage. Not a scam, not trying to exploit any loophole, but just the rules.
It's not clear the article itself realizes this (probably it does) but some of the commenters do not.
On the other hand, expecting school teachers to appreciate the logic behind banking regulatory policy is a lot to ask.
I'm mostly with FE on this one. In fact, I'd take it a step further: expecting bank tellers to know these things may be a lot to ask.
Which brings me to my real question: just who, exactly, told this bank teller to say that if someone wanted to withdraw their money over the limit? Am I wrong to think that it's probably not something the teller thought of themselves?
Tellers are taught to tell customers that they can get extra FDIC insurance by opening POD accounts (payable on death) accounts in addition to their regular accounts held in single or joint name. This is legitimate. But something gets lost in the translation.
what Mr Bash did seems
very sensible. Add payable-on-death beneficiares (parents, spouse, children) and include the letters "POD" on the account title, and ... so it seems to me ... you can get extra coverage. Not a scam
Workers real weekly earnings were down 0.9% m/m in June, and down 2.4% y/y. The have been below year-ago levels every month so far this year. When the rebate checks are all used up, which they will be soon under these conditions, there isn't gonna be much left to spend. JPM may have had that in mind yesterday when it published a note predicing an outright decline in spending in H2.
Not that I was deriding teachers in my comment above, by the way. It could have been any profession. Just that this fellow has no earthly reason to understand the fine points of federal banking regs (lucky him).
Andrew, it may indeed be that the teller came up with it on their own, but the bank had a natural interest at that time in coming up with whatever rationale it could to get depositors to keep their money in their account, so I would be inclined to think that at some level, management would have encouraged this.
Tanta, every bank account I've opened since I had kids is a POD account - the bankers just set them up that way. I'm not asking them to, they just do because there is a beneficiary. The statements come with "POD account" listed after my name. I close 'em all the time.
Was there an information assymetry between the bank and the OCC? Indymac was one of the most notorious mortgage lenders operating the last few years. The only thing surprising here is that they lasted this long.
Well, now... it looks like maybe we need some education here on the board. I can see that I do - I have no idea whay does and does not work here: can the names be added? must it be separate accounts? is there accurate or inaccurate info on the FDIC site?
the bank had a natural interest at that time in coming up with whatever rationale it could to get depositors to keep their money in their account, so I would be inclined to think that at some level, management would have encouraged this.
Of course they did.
This is the moral hazard on the other side.
The thing is, this kind of account change does not ever at any bank just get done with a keystroke.
At minimum, the bank has to verify that Momma Bash is a real person with a real SSN. The other side of this "red tape" thing are all the SOPs for anti-money laundering, anti-fraud, anti-"suspicious activity" regulations.
Of course the FDIC is going to want to review a flurry of transactions in the last days before takeover that suddenly jack up the insured account levels dramatically. We would prefer they didn't?
What I'm missing in all this (or perhaps I'm not) is when do the extra names on the account make a difference.
I've always been of the view that how many names you have on the account decides the insurance coverage at the point in time that the FDIC assumes control.
Dependency culture and total lack of responsibility from all involved, especially Mr Bash who basically proved he should've known better but followed the path of least resistance nonetheless.
Because someone he trusted to know their job told him to make one -- probably because they were ordered to in order to mitigate withdrawals. Seems to me more like someone took advantage of his desperation to rob him.
Tanta, every bank account I've opened since I had kids is a POD account - the bankers just set them up that way.
Well, your kids (I am assuming your kids are the beneficiaries) are better off being able to get their hands on your money in the event of your sudden death via a Totten Trust than having to go through probate.
My point was that it doesn't appear that the purpose of Mr. Bash's transaction was to protect his mother in the event that he died and then the bank failed. The purpose seems to have been to assure that the FDIC would write him a check for $180,000 instead of $100,000 if the bank failed.
If Mr. Bash is telling the truth, the bank (through it's employees, respondiat superior) told Mr. Bash that these actions were legit. Who's at fault here?
"One cannot lecture people like Mr. Bash about moral hazard and the costs of free insurance in the middle of a bank takeover."
No, one cannot. Not if the bank told him BEFORE the failure, when he came to take out his funds, that he could leave them and be perfectly safe. Although I don't trust anyone as far as I can throw them, most do. It's the essence of service business...we pay for advice on things that we are not experts.
On local drive time radio yesterday afternoon, in an interview with a line stander, the standee said that he went to IMB on Friday morning to close a CD that had matured. Less than $100k. The bank told him all was good and convinced him to roll the money into a new 1 year CD. This was not a teller, but one of those VP's in the lobby. A supposed expert in banking. He wanted his money back. If he sued for fraud, I'd back that.
Seems like POD accounts are a pretty acceptable way for getting more FDIC insurance. It is in the bank's best interest to inform customers of this alternative to withdrawal of any balance above the limit. And in my reading of the FDIC website, FDIC: Error 404 - Page Not Found it seems like the FDIC itself considers it pretty standard practice.
Yes, it may be extra work for the bank and for the FDIC, and more costly for taxpayers, but not how the majority of depositors would interpret the information they are given.
The changes aren't actually meaningless, rather they are specifically legitimate under the FDIC rules and have a real purpose: Its estate-planning on the cheap. A married couple should always have the kids listed as benefitiaries, if only to save hastle.
And you DON'T trust the banker when they say it: MY dad put $400K in Countrywide under this interpretation which the bank person said, I nearly flipped when I found out, so I went and verified it with the FDIC website that the banker wasn't lying.
Its do you trust that the FDIC would actually honor its commitments?
The POD transaction was clearly not meant to set up protection in the event of the depositor's demise; it was meant to increase the available insurance. Point taken. But that, by the rules, appears to be a perfectly legal way of doing so. Are you questioning the legality, the morality or the logic of writing a rule ("100K limit") that can be circumvented that easily?
Beyond that, Bash's complaint about the hold is silly. I get holds when I deposit or shift very large sums, and that's at institutions that are functioning well. He's being a whiner on that score.
I wouldn't be so hard on Mr. Bash. It seems like there were many many people who were told misleading things by IndyMac re: their deposit insurance.
On CNBC yesterday they interviewed a man who was told that he would be covered if he split his account into 5 separate accounts under $100,000 - which is of course false.
I think this is something that ought to be investigated. It seems as though IndyMac was systematically misleading customers in order to retain deposits over $100,000
It's depressing T. Bash is such an easy mark. Dude, you were going to the bank to withdraw the amount you had over the limit, if not your entire nut, because you were worried the bank was going to fail. Remember? But five minutes with the teller, and all your worries go away?
Do you really trust anything anyone over there is saying? This is a failing (failed) institution! A little advice: next time you're in New York, and the nice man at the airport offers you a ride in his "taxi," please, for the love of God, don't do it.
Oh the irony of this: the bank wanting to make sure that the CUSTOMER is not committing a fraudulent transaction?
Not exactly.
Those anti-fraud handling requirements are regulatory. It is the bank regulators who force the banks to do those checks. Not the bank just "wanting to."
And yes, the checks that the FDIC is doing now, on its own behalf, that are creating additional delays, are intended to make sure the bank wasn't the fraudulent party.
All this cynicism about IndyMac is great and everything, but what would you all prefer? That we eliminate automated holds on certain account transactions because our sense of irony is pained by it?
Go ahead, Tanta, blame the poor teacher. While you may be the world's leading expert on moral hazards and insurance policies, the average person is not. I am not.
Don't set up a system where con-games like this can go on, and then blame the victim.
BTW, this is not a sub-prime lender story. Here is a person who actually wanted to withdraw his money, and was conned into adding names. How was he supposed to know?
Mr. Bash is the member of a rapidly diminishing demographic: people who trust their bank. This is exactly the kind of "panic" the FDIC is trying to prevent. And they're failing miserably.
BTW, this is not a sub-prime lender story. Here is a person who actually wanted to withdraw his money, and was conned into adding names. How was he supposed to know?
Oh, baloney.
What "con"? Nobody is saying he won't end up getting a check from FDIC for $180,000. He apparently was eligible to withdraw the $100,000 on Monday, but the part that was in an account with a recent name change is "on hold." So he has to wait a couple of days. That's pretty cheap insurance coverage.
I don't get this response that this guy was taken advantage of. He got offered a free lunch--keep your money in a bank you are afraid is going to fail, without loss to you--and he took it. So it turned into more of the "mail in rebate" process than the insta-credit at the cash register.
I can see that a press release from the FDIC saying, "weeell, what your bank told you about safety of deposits might not be exactly true come FDIC-seizure time, or "such accounts will come under a review that will take X number of days/weeks" might cause depositors to withdraw funds, but so be it.
Obfuscation is the greater enemy here, and can only cause greater distrust and more panic. The FDIC has to level with its new customers about bank disinformation, not just throw out the "all will be protected" line.
OH help, now I need an Uber on bank accounts. Are we assuming these Bash accounts are POD because the mother and sister weren't there to sign the cards to make them joint accounts? I'm assuming all the holds would still apply in this latter case but the FDIC insurance will still go up.
Tanta writes:
Oh the irony of this: the bank wanting to make sure that the CUSTOMER is not committing a fraudulent transaction?
"No other depositories of power [but the people themselves] have ever yet been found, which did not end in converting to their own profit the earnings of those committed to their charge." --Thomas Jefferson to Samuel Kercheval, 1816. ME 15:71
Heh! I do believe that the legality and "ease of circumvention" beefs are mutually exclusive, though. If it's that easy to do, it's legal. If it isn't legal, it isn't that easy to do. As to the morality, De Gustibus Non Est Disputandum
The OTS Supervisor says it was irresponsible of a US Senator to say that this bank might be weak but Joe-on-the Street is supposed to be savvy enough to know better?
Getting a bit Alice in Wonderlandy here this morning. Barry is grouchy today, too. Must be something in the water.
Mr Bash has a point: it says right there on the FDIC web page that joint accounts are protected to the value of $200,000. So are they, or are they not? adding a name (with signatory card) to an account makes it a "joint account", right?
It seems to me to be no different to follow the FDICs own advice and add your wife or whatever to your account, as it does to take out $100k and move it to another institution. Both cases are 'free insurance'. Neither case is breaking any rules. It isn't even clear that one is safer than the other - after all, if the big C went under, would the FDIC have the funds to cover? no it would not..
so if I was someone with a joint account with indymac i'd be upset at the situation as well.
Alo, the situation only arose because the transaction to add the beneficiaries happened on July 8, and the bank was seized on July 11.
And the transaction only happened on July 8 because news reports--especially featuring the Shumer letter--were raising questions about the safety of that bank.
I can't quite wrap my mind around the FDIC putting out a press release to explain to people that if they kind of panic but don't quite panic enough a few days before a bank failure, they might run into operational glitches.
The FDIC cannot say shit about shit until the day the close the bank. That is just the sad fact of how you manage a bank shut-down.
Anybody who opened a new IndyMac account on July 10--assuming anyone was that feckless--will have run into the same problem, btw. Have none of you ever opened a new account and found you couldn't access it for five business days? Made a large deposit and found a temporary hold on it? Do you think this changes in the midst of a takeover?
"And the wretched boy ought to have burnt his fingers. Well, he hasn't. You're all men of the world, you tell me how I'm to deal with the situation now."
But they none of them could.
"Well, Henry, if I were you I wouldn't worry... My belief is that your boy's born lucky, and in the long run that's better than to be born clever or rich."
I don't think POD should provide extra insurance. If two people are banking together at an institution, sure, there should be double insurance. But that's a joint checking account. If an account is POD to his kid, the kid isn't banking there. IMO only accountholders with withdrawal privileges should count for extra insurance. If the Mr. Bashes of this are willing to take the risk that their kids are going to take a trip to Phuket on their dime to get extra insurance that's fine.
Tanta, what the FDIC did say was "all would be normal on Monday" - and nothing else. What in the world did they expect in this time of record government distrust?
They should have said shit the minute they closed the bank. They should be saying it right now. The longer they wait, the worse it's going to get.
Isn't it strange that people will purchase a savings account without checking the salesman's(banker's) claims, but would not purchase a car without doing at least a little checking on a salesman's claims?
No checking even though the amount involved is much greater.
Come on Misean, that bank teller didn't know the FDIC were hiding out in nearby hotel rooms, putting the local pizza joints on speed-dial, about to descend on Indy-branches in a sudden attack of pepperoni. I don't see why people expect instant access to all cash during what is essentially an unplanned for change in management. Granted, it probably could have gone smoother but they'll (FDIC) probably get back in practice over the next few months.
Tanta, what the FDIC did say was "all would be normal on Monday" - and nothing else.
And I am trying to say that this little thing with the hold on the account is probably perfectly "normal."
I will bet you that people who added beneficiaries to their accounts on or before, say, July 3, are not experiencing any unusual delays.
The other thing they meant by "normal" was that they were operating Indy as a bank, effective with that announcement. Not shutting it down. Not sending accounts to a new bank the customers would have to go to to get money.
You realize this means that nobody actually is being forced to liquidate their IndyMac accounts? As long as the FDIC is operating it as a bank, you can just leave your accounts there. The whole idea of the FDIC announcement was that they wanted to keep it operating until they found a buyer.
This is about people wanting their money TODAY. Not about people not getting their money at all.
"Isn't it strange that people will purchase a savings account without checking the salesman's(banker's) claims, but would not purchase a car without doing at least a little checking on a salesman's claims?"
You REALLY believe this? People buy cars because they saw a sexy ad on TV. Don't think so? Well as a quick spit take, ask your self why the car companies spend all that money on ads.
Okay, I'm in more or less the same position as Mr. Bash (and so are a lot of other people). I've been to the bank twice (Wachovia). I've spent significant time on the FDIC website. I'm thinking of calling their 800 number though I'm afraid of what an exercise in frustration that would be.
The two people I talked to on my two separate trips to the bank couldn't have been nicer, more helpful, understanding of my position etc. On my second trip the bank representative (not a teller) and I walked through my situation on the FDIC website step by step.
The FDIC website said unequivocally that I was fully insured. The bank person gave me an FDIC pamphlet that contained a grid showing that a person in my situation is fully insured. Based on this information it is clear to me that the score is: banks 1, customer 1, FDIC ZERO.
Both the bank and I are acting in good faith based on information from the FDIC itself. It appears that where the rubber meets the road the FDIC is equivocating.
Tanta, please, how will this play out? Will they or will they not give Mr. Bash all of his money? And, if the answer here is no they will not, then the villain is not the bank or the customer. It is emphatically the FDIC.
Oh, it is not my experience that SoCalers throw lawn furniture on a regular basis. Some like to hook balloons to them and go for a brief flight, but I am unaware of them being used regularly as weapons.
Since everyone is discussing "safety", I thought I would throw in a few things I notice reading the prospectus for Fidelity's U.S. Treasury Money Market fund (FDLXX). These are direct quotes from their on-line (and printed) prospectus:
"A fund may in its discretion restrict, reject, or cancel any purchases or exchanges that, in FMR's opinion, may be disruptive to the management of that fund or otherwise not be in the fund's interests."
"But I want my money!", said the investor. "Ok, if you insist", said the customer service rep. "Your shares in Indymac will arrive in two days." "WHAT?!!", yelled the investor. The response from Fidelity was, per the prospectus, "Redemption proceeds may be paid in securities or other property rather than in cash if FMR determines it is in the best interests of a fund."
"Will they or will they not give Mr. Bash all of his money? And, if the answer here is no they will not, then the villain is not the bank or the customer. It is emphatically the FDIC."
The FDIC insures depositors against bank failures, not their own (or anyone else's) stupidity.
Non-rhetorical question for anyone out there who can answer: why would anyone keep more than the $100K limit at a single institution? Am I missing something here?
I think that condemning Mr. Bash demonstrates a misunderstanding of the purpose of deposit insurance. The entire purpose of the FDIC is to insure that depositors do not run to withdraw their money from banks that are endangered. Complacency about the safety of your savings in an insured bank is exactly the point. We distinctly do not want depositors to have a "let the buyer beware" attitude, because that attitude leads to panics and runs on banks that contribute to the contagion of any financial crisis or failure.
Mr. Bash's trust that the bank is telling him the truth about the safety of his deposit is a precious thing that took many years and a very successful government program to create. If economists and analysts believe that every Mr. Bash in the country is a fool who deserves to lose their money for not following rumors about the solvency of their banks and flying to cash as soon as they hear such a rumor, then those analysts are saying that the pre-FDIC world was prefereable.
Deposit insurance is one side of the bargain. The other side is regulation of the risk profiles that banks are allowed to have. The trinity of the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC have all failed (I leave out state regulatory authorities because they have largely been rendered powerless) in this second and complementary task that makes deposit insurance function. This has created incentives for banks to take on risks with their depositors' funds that are dangerous. This was done because regulators were concerned that limiting the kinds of investments and risks that banks could take would disadvantage them relative to non-bank financial institutions. This process has been going on since the 1960's and offers at various points classic examples of both regulatory capture and a race to the bottom among competing regulatory bodies. This has produced an unstable financial system that must be re-regulated in order to restore the viability of deposit insurance (there are other possible solutions, but this seems to be the least costly and most compatible with a return to long-term stability).
This regulatory failure, however, is not the fault of depositors like Mr. Bash, who are doing exactly what the deposit insurance system was created to encourage them to do: not panic.
Turning to the specifics of the amount of deposit insurance and the listing of multiple account holders to increase the value guaranteed, this is a fairly minor point. The fact is that the FDIC allows depositors to gain additional coverage through the mechanism of multiple names on a sheet of paper. If you think that this is bad policy and there is something sacrosanct about the $100,000 limit on insured deposits, then the stupidity lies in the rules-writing of the FDIC, not with the low-information depositors who follow those rules and expect that this will not put them at risk.
Again, Mr. Bash's trust in what he is told by the bank and the FDIC is not a bad thing, it is in fact the entire point of the system.
A number of comments boil down to "never trust your bank" - and for readers of CR, the idea of due diligence, careful attention to financial institution health, etc. is a familiar concept.
But let's remember, the vast majority of people spend their time focusing on American Idol, The Bachelor, their Xanax prescription and their tan. They've been "educated" by schools and media to ALWAYS trust the banks and the feds. They've also been "educated" to expect immediate customer service. And things ran well enough for many decades, so it seemed like their "education" was adequate.
Now, we expect the vast majority of folks to behave like reasonably sophisticated financial players and not whiny juveniles? Why should we?
It comes back to the macro side of Moral Hazard. Not to sound moralistic in this brave new era of pragmatism, but frankly we are reaping what was sown for over two decades.
If, in the end, depositors actually start paying attention to their bank's health and practices, then this adjustment will have net positive consequences, but until then, expecting fools to act like wise men, when all their lives they've been coddled, lied to and protected from the consequences of foolish behavior is ridiculous.
"On CNBC yesterday they interviewed a man who was told that he would be covered if he split his account into 5 separate accounts under $100,000 - which is of course false."
The FDIC website is confusing on this point... I can see how someone might get this impression:
"FDIC deposit insurance covers the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing." FDIC: Your Insured Deposits
This sounds like each individual account is covered up to 100K (so up to 200K coverage if I have a savings and checking acct).
Reading on, you get a different picture
"The basic insurance amount is $100,000 per depositor, per insured bank."
But wait, didn't the FDIC just tell me each of my accounts is covered dollar-for-dollar up to the limit?
haven't these people ever heard of this thing called a wire transfer???
Guess not if they still had money in that bank....see at some point it won't matter if it is insured because the FDIC and then the SDIC (or whatever it's called) will have been tapped out.
Tanta, please, how will this play out? Will they or will they not give Mr. Bash all of his money?
I'm at the point of hoping they don't. Someone needs to be made example of.
Come on, folks. Read the article.
But after IndyMac was seized, an FDIC hotline operator said the extra insurance wasn't necessarily valid, Bash said. That landed him in line Monday.
Dude makes account changes on Tuesday, July 8. FDIC seizes bank at close of business on Friday July 11.
At some point after 5:00 pm ET but before 8:00 am ET Monday morning, this guy freaked out, called the FDIC hotline, told them we don't know what kind of coherent story, and the hotline operator could not verify that the additional insurance was already validated.
So he got in line on Monday with a bunch of other panicked people, and apparently never got all the way to the teller line.
On Tuesday, he went back to talk to someone, and found out that there is a hold on part of his account balance. "A hold" does not mean "gone forever." It means the account is still pending verification of the beneficiary change.
OK, fine. This is just a horror. In the process of taking over the biggest depository it has ever had to take over, the FDIC shoulda had those holds cleared Friday night by 8:00 pm because, dammit, somebody might have added beneficiaries on Tuesday because they were afraid of bank failure but not afraid enough. Shame on the FDIC for not offering the kind of flawless customer service you get at a fully functional bank.
Look, if your bank fails and you have to get a check from the FDIC, you might find the experience inconvenient. Depending on how self-absorbed you are, this could be a very big worry for you. I don't know what to tell you; my own moral hazard threshold is a bit different.
I'm sorry but I have really no idea what all this fuss is about at all. As Tanta said, this is a bank being operated as a bank by the FDIC. In fact, as I've said elsewhere, this is now the safest bank in the country, so I don't understand what all of these people are thinking. People laughed when I said buy that Countrywide CD at the redonkulous rate they were offering. That CD is now living happily at BOA earning nice nearly risk-free interest. They laughed when I said buy that CD at Indymac for the redonkulous rate of interest they were paying. Now that is snoozing happily REALLY risk-free in the arms of the FDIC earning that interest.
FDIC deposit insurance covers the balance of each depositor's account,
I read "each" as modifying "depositor", not "account".
It's ambiguous, but as you point out the ambiguity is cleared up later. I don't see this as particularly confusing--I certainly wouldn't have come away with the impression that I could simply open five accounts and get $500k in insurance.
Bash returned to the bank Tuesday more confident, but when he finally talked to a teller, she showed him that more than $80,000 was missing from one account. Why? The teller didn't know. She referred him to an FDIC official in the branch, who also couldn't tell him what happened, he said.
"One person finally suggested that maybe there was a hold on my account, but when I asked if it was a hold, why wouldn't they just say there was a hold? . . . Nobody could give me any answers," he said.
Then there's the whole "bank" versus "branch" ambiguity. I'm assuming bank means "company" not "nice little building on the corner of 5th and Main" but can see people assuming otherwise.
Now come on Tanta, that would take effort and it is just easier to blow your fingers off in a thread. Because, you know, like if they'd have read anything in their lives about banks, you know, the same banks they use every day, they'd know what the rules are. But perhaps because they are so self-absorbed about the yield they are chasing all the time on here, they didn't have time. One wonders what these people think about the money in their IRAs, 401Ks, or brokerage accounts. Heaven forbid they trust any funds to hedgies.
Perhaps some should stop posting and go read and process. Then they wouldn't sound like Mr Bash.
This regulatory failure, however, is not the fault of depositors like Mr. Bash, who are doing exactly what the deposit insurance system was created to encourage them to do: not panic.
I have to disagree with you a little there.
On Tuesday, Bash did not panic. He accepted that FDIC insurance of his whole $180K was an OK risk.
On Monday, standing in line for 8 hours to get that check from the FDIC, he did panic.
Another great post, T. You must be eating your Wheaties.
I just hope that, after getting a letter yesterday informing her that she has ownership in an account with a $180k balance over at IndyMac Bank, Momma Bash decides to skip out on canasta today and instead stands in line over at the branch in Encino. Momma Bash gets in, and withdraws everything in advance of son Todd.
I just called ING direct. None of their accounts are POD. They don't have that facility. The customer service representative assured me a joint account is good enough for upto 200K.
ipodius - i agree, but the issue for me at first was the amount over the limit. why anyone would have more than 100k earning that high interest at a failing bank was beyond me, so I thought, well: (a) Bash is a fool or (b) the bank was being sneaky and tricked him or (c) Bash is very clever or (d) the bank is very clever or (e) my head hurts.
But apparently no need to panic. Everyone gets made whole. I like your strategy. Banks still accept those coin roller things, right?
Now you call them back and ask them to explain to you why if its already a JOINT ACCOUNT (two "depositors" instead of one) it doesn't need to be a POD account to qualify.
All the money in all your accounts at any one bank (not per branch) is insured up to the totalled limit of $100k if you are the sole individual owner of the accounts.
Add your spouse as a joint owner and each account owner/depositor is insured up to $100, meaning you and your spouse can keep up to $200k insured at one bank. If you have more money, put it in another bank or make arrangements for beneficiaries in trust accounts. All this is explained on the fdic web site.
Also, you can check your bank's health on bankrate.com.
I read "each" as modifying "depositor", not "account".
At a certain point, you just have to eat, shoot, and leave, you know.
The FDIC routinely uses the basic rules of English syntax to confuse people.
Next year at this time we will be discussing why the FDIC brochure on deposit insurance is now 27 pages long and the definition of a "depositor" is not in bold cap italics on the top of the document. Bet me.
Maybe they don't trust or don't want to be troubled by the FDIC.
After blowing 10% of its load already, "trust me, I'm from the government" just isn't going to cut it. Why should anyone believe that the same people who have been yawning "no bubble," "containment," and "permanently high plateau" now that they're claiming to "have our backs."
This government is criminal. They do not represent the citizens, they represent the owners of capital.
The little people will get just enough cake to keep them from storming the Bastille (if they could ever find what to storm).... and nothing more.
Further to my post above and Tanta's response - Tanta, you are focusing on WHEN he did what he did. The more germane issue is will the FDIC abide by its own rules or not.
If they don't make it very clear that people with POD beneficiaries (who meet their own established criteria) are covered, then they're flirting with a generalized bank run.
I'm sure that's a baseline fear of Tweeldedum and Tweedledee.
"And, if the answer here is no they will not, then the villain is not the bank or the customer. It is emphatically the FDIC."
No, it is most emphatically NOT the FDIC's fault. If you get hit by a drunk driver going the wrong way on the freeway late at night on New Year's, it might be slightly your fault for being on the freeway at an extremely dangerous hour, and it might be slightly the police's fault for not keeping the roads clear of drunk drivers, and it most certainly is the drunk driver's fault, but it is NOT the paramedic's fault.
"The entire purpose of the FDIC is to insure that depositors do not run to withdraw their money from banks that are endangered."
No, the purpose of the FDIC is to help limit the damage from bank failures. It is also, ostensibly, to protect small depositors while leaving larger depositors (who presumably are more "sophisticated") with a bit more risk. That's why there's the $100,000 limit. I'm with Tanta, I'm having a hard time sympathetic toward someone with over $100,000 who's trying to slide under the protection limit by some last-minute changes to the account.
Actually, I'm having a hard time being sympathetic toward anyone with over $100,000 period, if you have that much in cash you need to do your homework, and if you don't "get" finance then you need a financial advisor.
Hamburger - just because I'm a bear of small brain and need things spelled out. Does the joint account owner have to be a spouse for the insurance to kick in? I didn't notice that bit when I was at the FDIC page. And I intend only to admit to being bear of kapok, not finances, because I can't wrap my head around selling cars I don't own while wearing or possibly not wearing underoos.
"What in the world? A 43-year-old teacher with $180,000 in hard cash?"
Peripheral Visionary | 07.16.08 -
Why is this suprising? I have friends who have never made more than the average income for the area they live in who have way more than that at a younger age. Not everybody spends like a drunkin sailor...
I don't find Mr. Bash's behavior wrong in any sense except he was a little late on acting in that he left it till 8th July ; FDIC insurance isn't free to him or anybody - there's a levy on banks to fund it, which in a sense results in a reduced interest rate to Mr. Bash - he should have known the rules and followed them, created suitably protected accounts as soon the amount of money exceeded 100K.
Sure, a hold is a hold is a hold - I hope he was told that the changeover would be "pending" hold - that's what happened to us - we accept we have to wait 5 - 10 days depending on institution before the whole thing is approved.
The FDIC has a reputation of "business as normal after closure". So long as he gets his money ( IF he's done the joint account set up correctly ) by the 18th July its all ok - otherwise the FDIC takes a knock and I and others will evaluate exactly how much the FDIC insurance is worth - you have to discount the loss of interest or other opportunity costs that arise for lack of immediate availability of funds.
The FDIC cannot say shit about shit until the day the close the bank. That is just the sad fact of how you manage a bank shut-down.
That sounds to me like the moral hazard of regulation. Everything's fine until a regulator says it's not fine, even if the regulator knew things weren't fine for months.
You can tell people that regulation isn't a substitute for doing your own due diligence, but when people are clamoring for more regulation they are indeed asking for government to take over more of the due diligence.
You seem to be certain, Tanta, that he will get his $80,000. He's not sure. I'm not sure. A lot of well-informed people who post here do not seem to be so sure.
I think Mr. Bash should panic. As for comments that he should be aware of the risks his bank was taking - those are simply absurd. The bank itself did not know, the regulators did not know, other banks with whom they did business did not know...
Tell that to the 1400 or so depositors of Superior Bank FSB who, apparently to this day, still haven't seen $50 million of their deposits when the FDIC closed Superior back in 2002.
"Now come on Tanta, that would take effort and it is just easier to blow your fingers off in a thread. Because, you know, like if they'd have read anything in their lives about banks, you know, the same banks they use every day, they'd know what the rules are. But perhaps because they are so self-absorbed about the yield they are chasing all the time on here, they didn't have time. One wonders what these people think about the money in their IRAs, 401Ks, or brokerage accounts. Heaven forbid they trust any funds to hedgies.
Perhaps some should stop posting and go read and process. Then they wouldn't sound like Mr Bash."
"What in the world? A 43-year-old teacher with $180,000 in hard cash"
Part time teacher. Full time california real estate speculator. Same as just about everyone else in CA. Ahnold, the Donald Trump protege says go for it.
I dunno what all this POD stuff is but this is the category my spouse and I fall under to make sure we are protected up to 200K (2x100K):
Joint Accounts
A joint account is a deposit owned by two or more people. To qualify for insurance under this ownership category, all of the following requirements must be met:
All co-owners must be people. Legal entities such as corporations, trusts, estates, or partnerships are not eligible for joint account coverage.
All co-owners must have equal rights to withdraw deposits from the account. For example, if one co-owner can withdraw deposits on his or her signature alone but the other co-owner can withdraw deposits only with the signature of both co-owners, the co-owners do not have equal withdrawal rights.
All co-owners must sign the deposit account signature card unless the account is a CD or is established by an agent, nominee, guardian, custodian, executor or conservator.
If all of these requirements are met, each co-owner's share of every account that is jointly held at the same insured bank is added together with the co-owner's other shares, and the total is insured up to $100,000.
The FDIC assumes that all co-owners' shares are equal unless the deposit account records state otherwise.
Where is it in the article to suggest
that Mr Bash is upset at a "hold" or at "several days of red tape" ???
The problem seems to be no one could
tell him what his situation was.
Eventually someone suggested
that "maybe" there was a hold.
(But he asks if that is actually true,
no one will in fact tell him "yes there is a hold"). For all we know, he'd be 100% understanding if he was told there was a hold while things were checked. That doesn't seem to be what happened.
It's not, IMO, unreasonable to expect to be told, by someone knowledgeable, how to expect things to play out.
If they don't make it very clear that people with POD beneficiaries (who meet their own established criteria) are covered, then they're flirting with a generalized bank run.
How clear can they make it for you? I really want to know.
The FDIC has never and is not saying that people with POD accounts do not get coverage.
They just said in this particular case that nobody gets paid until the beneficiary is validated. So, say, anybody thinking about trying to get $500,000 insured by adding his other four wives to the account is probably SOL. Good on FDIC.
Everybody else can just calm the hell down.
I am not willing to blame the FDIC for future bank runs because some not very sad story in the LAT gave some not very attentive readers the wrong idea about POD accounts.
Let me suggest for everyone who still can't stop being afraid here: go to your bank and try to withdraw all the funds from any account you have with a POD.
If the teller says "okie dokie," your account does not have some hold on it and you are fully liquid.
If the teller says, "I can't do that; you just changed beneficiaries three days ago and the hold won't come off until next Tuesday," then you should go back Tuesday and re-test.
How long will the FDIC remain solvent? IndyMac is just the first of a number of regional bank failures and it alone will cost the FDIC $4B to $8B, 9% to 18% of FDIC's reserves!
"My friends there is good news and bad news. The good news is that the full faith and credit of the FDIC and the U.S. government stands behind your money at the bank. But the bad news is that you, my fellow taxpayers stand behind the U.S. government."
Do I understand it ? I found "don't put more than 200K in a joint account at a single FDIC protected institution- spread it about " MUCH easier to understand and followed THAT !
As I walked into my local Washington Mutual branch on Monday, two police officers were dragging out a distraught, well-dressed, middle-aged man.
Branch employees would only say he was "upset." Perhaps he was attempting the impossible, like early withdrawal of an uninsured CD, or reinstatement of a frozen HELOC.
To their credit, the police let him go. This occurred at the Baker Street branch, near Harbor Blvd in Costa Mesa, CA.
I'm not sure I would want to invest in CD's from bank about to go under.
"FDIC deposit insurance covers the balance of each
depositorÂ’s account, dollar-for-dollar, up to the insurance
limit, including principal and any accrued interest
through the date of the insured bankÂ’s closing."
There is acontradiction here: She referred him to an FDIC official in the branch, who also couldn't tell him what happened, he said.
yet
FDIC spokesman David Barr said most of the problems stemmed from trust accounts that have been put on hold until the agency determines that beneficiaries have been properly named. In most cases, those funds will be released in full after the depositor confers in person with the FDIC, he said.
Uhh, Mr Bash reported that he DID speak to an FDIC representative, and it did no good at the time (Why the representative didn't at least go "Call this phone #"?)
Wally - you're saying inconvenient things here. People don't like that. They might have to actually think it through and realize that there IS ambiguity here.
All co-owners must sign the deposit account signature card unless the account is a CD or is established by an agent, nominee, guardian, custodian, executor or conservator.
Question: I don't remember my wife signing up for any signature card, at least for my current bank accounts. Due to id-theft fraud I opened up a new account and was able to put her as a joint account on the phone. I bank at a credit union so the rules might be different...?
If they actually enforced the original written rule then that would mean nothing. Bryne (Overstock) may not know how to run a profitable company but he has some well researched points that just got validated by this.
With the "limits" they are now saying that naked shorting was ok....and is now not.
Yeah, I checked that out ages out - for CDs you don't have a problem as per the text above, but what about money market accounts and savings accounts or current accounts?
There was the announcement of no naked shorting yesterday that is undoubtedly causing some funds to pull in their horns. It's also expiry week which exaggerates all directional moves. WFB reported what look like decent earnings on the surface...etc
Re: NCUA website
Well my wife has equal rights to withdraw money, so I'm not concerned. I don't have anywhere close to $100k in cash right now, but I'll be coming into money when my grandfather passes.
Kind've ominous on the NCUA brochure: legislation that increased NCUSIF coverage for retirement accounts also has a provision for potential increases in the insurance limits on all share accounts every five years...
I imagine Congress will be re-visiting the 100k limits if the bank-runs continue, and it wouldn't surprise me if they change the rule to only insure $75k... and I can see a number of people getting behind it since it "costs too much to bailout depositors".
Did my snark misfire? I was implying TPTB need to prop up financial stock prices for bank depositor confidence and F&F capital raising. I assume everybody else is thinking about the same thing.
who would have thought all those americans that did not save were actually on to something. while people are lining outside indymac im reminded of an old saying..."he who dies with the most debt wins!"
The cash and securities (such as stocks and bonds) held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are NOT protected by SIPC are commodity futures contracts and currency, as well investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.
Does this mean futures ETFs are not covered by SIPC?
I shouldn't have said futures ETFs. How about something like USO, would that be covered by SIPC? I think I'm being a rube again... but that is an ETF that represents a commodity contract, but itself is bought and sold like normal stock.
They might have to actually think it through and realize that there IS ambiguity here.
No, actually, there isn't. Dude set up a revocable trust with his mother and sister as beneficiaries. He did so at the last minute, and is now sniffy because somebody needs to verify that the trust is valid before they put the money in the insured basket.
The fact that the front line troops and the guys who get pinged by reporters looking for answers have different replies isn't anything more than the standard chaos that happens when something big and complicated happens quickly: the grunts know the answers to the simple questions, but for anything complicated (like why can't I withdraw money that won't be insured if I named my dog as the beneficiary of the trust I set up yesterday) you need to find an officer.
The real bottom comes when your casket hits the bottom the grave for most. Cremation probably isn't going to stop a permanent bottom either as eventually the partials from your burning corps will fall back to earth. I”m going to try and put that off as long as I can but if your looking for THE REAL FINAL BOTTOM ones own death is probably a good place to look. The bright side is you won't be worried about it.
At risk of the slapdown, of note for me on WFC was 90 days ago the consensus estimate was $0.57/share, today the 'beat' was $0.53 vs. current consensus estimate of $0.50...
IfSoSmartWhyNotRich writes:
As I walked into my local Washington Mutual branch on Monday, two police officers were dragging out a distraught, well-dressed, middle-aged man.
Huh... I'm not predicting we switch to the panic emotion until the Fall... These bank failures could expedite the process.
I can't believe this. The publication time of Tanta's post is 8:14AM, which means she posted it at 5:14AM PDT out here on the Left Coast, which means she started writing it, when? 4AM? Or is she so brilliant she only needed 15 minutes?
We'd have to get up pretty early in the morning to do what Tanta does, and even then we could not do it.
Tanta, I split my sides laughing from some of your responses. Now I need to go to the emergency room. I'll be damned if have to wait for them to handle people who had heart attacks from the market's gyrations, or be delayed while they find out if I'm allergic to penicillin that could kill me. Can't they just push some buttons? I mean, its one thing to make some people wait for clean water and food in the Superdome in New Orleans, but I deposit my money in sounds banks in amounts covered 100% by FDIC. Why should I have to wait?
Phil Gramm said we're a nation of whiners. Well, its not like we're a couple of million Iraqis upset because we can't flee our country after George W Bush sent the troops to help us. Ingrates.
Stitch up my sides, pronto, doctor. I need to get back to day trading.
In regards to WFC, and banks in general, anyone thinking of bottom fishing should look at their historic patterns during recessions. WFC hit a low of 15 in 2000, and that recession had nothing like this credit crunch, and mortgages hardly suffered at all.
Banks valuations were just phenomenally high relative to the economy.
Amazingly, I think Meredith Whitney is right again, banks have a lot further to fall.
It's not, IMO, unreasonable to expect to be told, by someone knowledgeable, how to expect things to play out.
I, on the other hand, continue to think that it is reasonable to expect a fair amount of operational glitches in a large bank takeover.
I think of large bank takeovers as kinda bad things that everyone should be doing their part to try to avoid. I think if they do happen the FDIC needs to be there to deal with it.
On the other hand, if it's too smooth and non-disruptive and calming and "normal," then by God something's wrong.
I'm sure everyone at the FDIC prefers that this confusion/glitch hadn't happened. But there comes a point where the expectation that an FDIC takeover will be seamless and trouble-free just blows me away. If it wasn't broke, the FDIC doesn't need to be there to fix it.
What I am hearing on this thread is just reinforcing my sense that the moral hazard is getting pretty bad. People seem to think that FDIC insurance should guarantee them insulation from the effects of interrupted systems, unscheduled shut-downs and reboots, staff attention being diverted to handle legit and crazy people both on a first-come basis in the line on Monday morning. Why? Because "eventual but reasonably timely" payment of accounts isn't good enough. We need "instant" payment of accounts or else we'll panic. There must be NO PAIN AT ALL to bank depositors, or else we think our insurance isn't good enough. Is what I'm hearing.
And this troubles me because it creates a classic kind of moral hazard: even when you have good reason to believe that your bank is in trouble, you keep your accounts there because you are insured.
I thought the point of FDIC insurance was to protect you from info asymmetry: when you don't know--you have no information or ability to know--that your bank is at risk, you are not punished by losing all your money.
But if you do get this warning shot, and you leave your accounts there anyway relying solely on deposit insurance, then you are increasing your risk-taking because you believe someone else will bear all the costs. That is classic "moral hazard."
To then complain because someone else bears all the costs but fumbles the customer service a little seems to me to take it to yet a higher level of fecklessness. That's all.
Yup, Phil Gramm and his buddies Leach and Bliley, AKA the guys who pushed to do away with Glass-Steagell and leave more of the show to go on behind the curtain than could be done before.
Also the same Phil Gramm who financed soft-core porn.
Maybe he can go back to that line of work and do a spoof on the real estate bust. Lots of people looking for extra cash these days.
Oh, yeah, the same Phil Gramm who was glued to McCain's side as his chief economic advisor . . . until that unfortunate quip about whining.
"I thought the point of FDIC insurance was to protect you from info asymmetry: when you don't know--you have no information or ability to know--that your bank is at risk, you are not punished by losing all your money."
The time stamps on the blog posts are now all ET. They used to be PT, meaning that CR (who lives in California) didn't change his time stamps when he posted, but I changed mine.
We went to ET blog post times so that it would match Haloscan, which apparently thinks everyone is on ET.
Oh. I guess I missed some news a while back. In that case, why only one sterling essay this morning, and not two? I mean, its not like you're standing on line battling with the mob.
black dog writes:
I'm not sure I would want to invest in CD's from bank about to go under.
"FDIC deposit insurance covers the balance of each
depositorÂ’s account, dollar-for-dollar, up to the insurance
limit, including principal and any accrued interest
through the date of the insured bankÂ’s closing."
THIS MEANS THAT the FDIC covers your deposits, CDs, whatever, INCLUDING any interest (on a savings account or CD e.g.) earned up until the day that they take over the failed bank. So you MIGHT be out some interest that you expected to get on a CD, e.g., if the maturity date is subsequent to the day the receivership takes place. Of course coverage of your total has the 100k limit (unless you have a joint account, etc.).
"I, on the other hand, continue to think that it is reasonable to expect a fair amount of operational glitches in a large bank takeover."
Granted. A reasonable observation. However, nobody wants to be the poor bastard who gets caught in the gears and I do have sympathy for him and her. This guy, if the 'i' and't' are not proper in the view of the FDIC, might lose $80,000.
Horse-poop yourself! I just deposited 200K a few weeks ago and got hit with a 10-day hold. Showed up on the account balance instantaneously, but the funds became available for withdrawal over that period. And it's not the first time. To be honest, I'd worry a little if they didn't do something along those lines; I can see much potential mischief.
The hysteria in the comments at this very fine blog is driving me nuts. A surprisingly large number of commenters seem to be searching for some vast scandal and malfeasance in every story and every news item. Aren't no-doc mortgages ENOUGH? How much more scandal do you need?
Tanta's right, everyone needs to calm down.
Last year the FDIC put on a big push to set up the website explaining the rules, make sure that banks knew about it, and verify in exams that people had been trained. They were worried that people would lose their savings, and they had found that personnel at some institutions really didn't understand the rules either.
Mr. Bash will get the money as long as his beneficiary is legit.
It is true that the FDIC went through a lot to basically show people how to maximize their insurance. But on the other hand, the FDIC has a vested interest in making sure that depositors don't get hysterical in the first few closures. If they do, then panic could take down perfectly viable banks and you could see a nationwide bank run. Put that way, Mr. Bash's extra $80,000 of insured funds are cheap at the price. Nor is it somehow improper for the bank to tell people about this, because in all honesty, the entire insurance system operates to prevent widespread bank runs. It's meant to prevent people from removing their funds from banks on rumors, you know?
For those who are still baffled - when you change the titling (ownership) in an account, it is a new account, it will run through scrutiny, and in most banks the majority of the funds will be on hold for a while. That's where the disclosure called "Funds Availability" comes in! The FDIC most definitely will verify the beneficiary to prevent fraud. The balances being shown in online accounts are the ones available to the depositors RIGHT NOW.
Tanta is simply pointing out that once again, Trained Journalists(TM) have managed to create a hysterical cloud of misinformation.
The law about payment by the FDIC is "as soon as possible" - and the FDIC says that historically its paid up on the insurance within a few days..
What's a few days ? I can't see why its moral hazard if people expect to be paid for the insured portion in a few days. Refusing to put up with delays and snafus and glitches isn't moral hazard, its just being a demanding customer - and since we have "PAID" for this FDIC, indirectly sure but paid, for it. The FDIC isn't doing any favors, its doing its JOB and it has to be a quality job.
Of course, personally, I didn't want the potential hassle of FDIC administered closed banks so I closed out our CDs at CountryWide and Corus as I watched their stock price tank. I didn't wait for them to get closed ( they haven't been either ); but this wasn't because of an elevated sense of morality - its because of an elevated sense of "better things to do than waste my time extricating myself OUT of a (potential) crash especially when I get out of the way NOW".
I think you are being too hard on the commentators.
Yes, no-doc mortgages were a bit annoying. But lets not forget setting the middle east on fire, torture, letting New Orleans drown, ballooning the national debt for crap worse than all the Option ARMs put together, and ditching 800 years of precedent on habeus corpus.
But damn if I can't instantly get 100% of my money plus interest out of an investment that I knew was too risky and could go under. That's just going to far. Time to get my pitchfork.
It's just the zeit bleeding into the innertubz. One thing that really struck me in that video yesterday was the reporter walking down the line of customers standing in line asking why they were angry. Lead questions much there dude? Would a leash help you? Well, I guess if it makes a better story. Add in the local (sub) zeit that no govt agency can do things correctly (no matter that I can't imagine any corp. running a change-over of this sort without issues - we live locally in abject fear of a planned move a half-year in advance!) and there's bound to be a lot of arm-waving.
hey, y'all. You can add my name, too. Just post your phone number and I'll call you to give you my real name.
Oh, and I think I can set you up with some life insurance and accidental death and dismemberment, too . . . insurance, that is.
Plus there's this bridge in Brooklyn. It is in a hot neighborhood on the Brooklyn side. And the city's best brick over pizzeria is under its base. I can give you a great deal, and free pizza for life.
Rest assured that if there's even a whiff of bank closure at any more banks, people won't wait until AFTER it's seized to withdraw funds. Rumor can now bankrupt banks.
Tanta writes:...if you do get this warning shot, and you leave your accounts there anyway relying solely on deposit insurance, then you are increasing your risk-taking because you believe someone else will bear all the costs.
Bearing this in mind, what changes should be made in the FDIC insurance?
It's one thing to read in the WSJ that your bank's lending activities may be jeopardizing its safety and soundness--to the point of Congress asking some nasty questions about it in public..
Re: I fail to see where any member of Congress has done anything nasty, save for perhaps the effort by Schumer, but every other member on his committee was silent and for the most part they all are dressing up like whores to see if they will be picked to become The Next VP of America......do your own DD, like I have done!
I, for one, am completely content to spread rumors. National City is next!
It's high time we culled the corruption from our midst. The legal system won't do it.
Oh wait - they are ALL crooks. These are the real American values - greed and corruption at every level. I'm sure they are all good church-going folk too!
anonymous: "what Mr Bash did seems
very sensible. Add payable-on-death beneficiares (parents, spouse, children) and include the letters "POD" on the account title, and ... so it seems to me ... you can get extra coverage. Not a scam, not trying to exploit any loophole, but just the rules.
It's not clear the article itself realizes this (probably it does) but some of the commenters do not."
This was exactly my reaction. Why criticize Mr. Bash? He's just following the rules. If you don't like the outcome, blame the people who made the rules.
Don't put all your eggs in one basket, as the saying goes. My husband and I have maintained totally separate credit union accounts since before we were married, and I always refused to get joint accounts. Staying under insured limits at any one place makes sense to me.
But then, I wouldn't go near a bank. Been at credit unions since the 80s, when the S and Ls all failed.
Bearing this in mind, what changes should be made in the FDIC insurance?
I'm not sure that you can make any changes to solve this exact problem.
The reason why many of us were really kind of shocked by the Schumer leak is that we have it ingrained in us that you only have two choices with the banking system: say nothing publically or shut it down. I'm not saying those are great choices, just that they're the only ones you have.
The weird thing about this particular situation is that the fear we all had when the Schumer leak hit the press was that Indy would be brought down by a bank run and we'd find out later that it could have made it. (Not saying that it could have, just that that's why we fear bank runs.)
As far as I can tell, there wasn't much of a run on IndyMac. If Bash is any kind of typical of the most worried depositors, he was pretty easy to reassure. All he wanted to know was that he was insured. Which isn't exactly the same thing as wanting to be reassured that IndyMac wouldn't fail.
The "run" here is a post-shutdown mashup, not run on a functioning institution. So to that extent the deposit insurance system "worked" the way it was supposed to. People didn't get overly antsy until they had really good reason to (namely, until they heard that the FDIC had shut 'er down).
But things like the Schumer leak aren't "supposed to" happen. So the system isn't built to deal with this kind of additional moral hazard, having access to "good authority" information that your bank is in trouble but seeing it continue to operate, and having to decide what to do in the interim.
My point wasn't to criticize the deposit insurance system as much as to observe that it has possibly worked too well. We no longer should be most afraid of runs on solvent institutions that destabilize them, since people are too reliant on insurance to do that anymore. Now we just have to fear that there isn't anything you can tell people that will scare them enough about a given institution short of "the feds shut it down today."
There are conflicting reports as to whether the depositors have received any money. A quick Google of "Superior Bank $50 million 1400" pulls this up: "Superior Bank" $50 million 1400 - Google Search
That said, regardless of motivation, would an attorney representing the Superior depositors make a statement such as this if his clients had, in fact, recovered their funds already?
The Consortiumnews.com As an owner and board chair of Superior, Penny Pritzker also was named in a RICO class action suit on behalf of the more than 1,400 depositors at Superior, who initially lost over $50 million of their life savings.
"This is a story of two Americas with two sets of laws, one for the rich and powerful and another for the rest of us,” said Clint Krislov, the depositors’ attorney, in a recent interview. “My clients will all be dead, before they get back their money, given the Supreme Court’s recent decision to uphold the lower court, which put the predatory owners on the front of the line, if any money is recovered.”
well, there's one occurence of "rob" and 1 of "con" and both are attacking IMB and its employee for persuading him to change his mind by dangling the proper applicable FDIC insurance in front.
The moral hazard is not in the commentators nor Mr. Bash, its at IMB; not in the conventional sense but in the immorality of the employee not letting the depositor just take his money and run.
Of course the point that the moral hazard, in the conventional sense of deposit insurance for both banks to lend irresponsibly and for depositors to keep money with them since neither fears a bank run and keeps a eye on their money is conceded by me and often brought up by pure free market economists.
I'm as big a moral scold as anybody, and frankly have a hard time staying out of the "schadenfreud" camp that Tanta likes to regularly lecture.
But here's the thing that tempers my approbation at Mr. Bash and the like: I think the 100K insurance limit dates back to like the Andrew Jackson administration. It seems rather small - even before the dollar cratered - for any middle-class person that is a careful saver.
Not that there seem to be many of those in the US, but still.
Now the whiners can be told that they weren't attentive enough to bang on their Congresscritters like, many years ago to do something like this, but OTOH we had cable TV blaring at us 24/7 that if we weren't "in the market" we were total losers. Any Joe-from-the-street who showed up on cable and said "I got 180K in the bank> for my retirement" would have been laughed off the show before finishing the sentence, in the go-go 90's.
Still, I don't mind pointing an additional angry finger* at the government for this, wacko leftist that I am I feel that the gummint should be taking care of stuff like this without my needing to kick them in the arse, I have enough crap to attend to in my life. I can't think of everything.
Shame the guys at the counters have to bear the brunt of the anger.
All I can say is that Mr. Bash better max out his contribution to Chuck Schumer's next campaign. Because plainly he would have left his $180,000 all in his own name without the extra warning.
Maybe it wasn't the Jackson admin, but I'm thinking really hard and I swear I remember when I opened my first passbook savings acct (5 1/4 pct!) I was told - for no obvious reason, as I was a teen with like $80 to put away - about the 100K limit.
At that time that would be 5x what my Dad's solidly middle class house was worth. 100K meant you were rich. It was only a few years after the entire US fainted over Joe Namath's 400K contract for "playing a game". A contract that nobody seems to know actually had a coaching (scouting?) job for a relative as part of it.
Yes, the more I think about it the more I cannot get mad at Mr. Bash:
One cannot lecture people like Mr. Bash about moral hazard and the costs of free insurance in the middle of a bank takeover.
Sorry, look:
This guy's a 43yr old TEACHER in savings-starved CA who managed to rack up 180K in savings. There are about 299 million Americans whose financial behavior deserves a good lecture more than Mr. Bash.
the immorality of the employee not letting the depositor just take his money and run
I can't help it that people can't understand the difference between "moral hazard" and "immorality."
But I can wonder why you use language like "not letting him just take his money and run."
I read nothing here that tells me that IndyMac would not let him close his accounts, and so he was forced to accept just changing the beneficiary in order to maximize his insurance. There is no way in hell that happened. Or when word got out that Indy wasn't allowing people to withdraw money, there would have been a bank run. On Wednesday.
You know the fear a lot of us always had was that we'd get some low-attention-span drama queen customer who came in to withdraw money and was told he had to wait three days because there was a hold on a new deposit. Or maybe he was warned that the account he wanted to close had an early withdrawal penalty. Anyway, he refuses to understand the situation accurately and starts shouting "THIS BANK ISN'T LETTING PEOPLE TAKE THEIR MONEY OUT!!!!" and all of a sudden there's a terrified mob at your door.
Knowing that the fear of this situtation lurks in the heart of every banker everywhere, I simply refuse to believe that he was told he couldn't close out those accounts.
He was told he could make some changes and have his entire amount insured. For somebody who went in in the first place because he was worried that the bank wasn't trustworthy, he seems to have been easy to reassure.
Some people are, you know. For every drama queen who will shout "I WUZ ROBBED" because they weren't allowed to withdraw more than $500 from an ATM in one day, there are people who could walk in, see the employees waddling out of the vault with cash stuffed down the front of their shirts, sit down at the CSR's desk and get talked into depositing another $100,000 today in a CD with an early withdrawal penalty. It takes all kinds to make a bank. Trust me.
Bash, like most of us, is probably somewhere between those extremes of customer behavior. All I know is I'm getting tired of people assuming that a 43-year old teacher is hapless putty in the hands of a nefarious bank teller and bears zero part of the responsibility for making his own final decision about what to do when he encounters a sales pitch.
Tanta - let me come at this from a different angle. And please, all you nig-nogs who comment here by shooting from the hip, go outside and play it's a nice day.
If I had $500,000 (which I don't) I'd be a fool not to put it in five different banks to guarantee that all of it was insured. Incidentally, what I think I've learned by looking into this is that you MAY have better coverage if you have a single account with a POD beneficiary than if you have a joint account ,which to me is counterintuitive. But I may be wrong about that in the first place.
My question is, what practical difference does it make to the FDIC whether I have $100,000 insured in five banks or $500,000 insured in one bank. Any prudent person is going to do what they have to do to get maximum coverage.
It seems to me that this weakens your moral hazard argument. People are doing what is convenient for them based on what the banks told them. The banks didn't lie, they cited the existing FDIC rules. If people have to do more to get more coverage of course the overwhelming majority will do it.
What does the FDIC gain if people are made to go all around robin's red barn to get coverage? The coverage is still available. If they want people to have less coverage, I'm sure that could be arranged.
If you eliminate the inconvenience factor, it all looks like a six or two threes to me.
I think the 100K insurance limit dates back to like the Andrew Jackson administration. It seems rather small - even before the dollar cratered - for any middle-class person that is a careful saver.
You are of course aware that you can put $100,000 in every bank, thrift, credit union, and half the investment banks in the whole country, if you have that much money, and every one of those accounts is insured.
The deposit insurance limit does not discourage you from saving more than $100K. It discourages you from putting 100% of your funds over $100K in the same bank.
Is it important to you that the FDIC encourages deposit concentrations at large banks?
"I think the 100K insurance limit ... seems rather small - even before the dollar cratered - for any middle-class person that is a careful saver."
Chris,I'm quite sure that you can have multiple FDIC insured accounts at an FDIC insured bank and have these accounts at more than one FDIC insured bank. As long as to follow the rules, you can have FDIC insurance far in excess of 100k. But don't take my word for it, call the FDIC for details.
My question is, what practical difference does it make to the FDIC whether I have $100,000 insured in five banks or $500,000 insured in one bank.
OK, let's say that there are two people out there with $500K in deposits. The first one had $100K in each of five banks: IndyMac, Wells Fargo, Podunk National, Perfection Federal, and Underemployed Artists Federal Credit Union.
The second one had $500k all in IndyMac.
On Friday the 11th of June, 2008, the first depositor cost FDIC $100,000.
The second depositor cost FDIC $500,000.
Of course nothing would help the FDIC if five banks all failed on the same day. But we're not trying to insure against that (how could we?).
"My question is, what practical difference does it make to the FDIC whether I have $100,000 insured in five banks or $500,000 insured in one bank. Any prudent person is going to do what they have to do to get maximum coverage."
Because it is less likely that all five banks fail.
The deposit insurance limit does not discourage you from saving more than $100K. It discourages you from putting 100% of your funds over $100K in the same bank.
The FDIC is losing $5B on IndyMac. Why do the uninsured get any money back, isn't this coming out of the FDIC (and perhaps out of the taxpayers eventually)?
Rumor among my officemates last night --- 401ks, most people do know, aren't guaranteed against investment losses.
Gossip is the retirement savings in 401ks is somehow insured by the government if the company managing the 401k program (Merrill, Schwab, whoever) turns up insolvent.
But only up to some limited dollar amount (the number rumored varies widely).
davidd,
If, when the FDIC sell the bank, the FDIC comes out ahead of what the insured amounts required, it apparently starts to pay out the uninsured from that surplus. In that sense, the uninsured are the ones who bear the burden, more than the taxpayers, if things like the FDIC decision to halt foreclosures decrease the sale value of IndyMac.
I moved another 300K yesterday from a bank and was met with looks of incredulity by the "premiere banker". I've stopped caring what the bankers think. She made sure to shove an FDIC pamphlet in my hands and three-page photocopy of why her institution was so special. She should have instead been happy that I chose to leave the "extra" cash I have at her bank.
The problem with the gentleman in the article is that he believed the bank teller. Never trust the bank teller.
It's clearly gut check time. Do you think for a moment that anything over 100K might not be covered at your bank? Spread. It. Out.
Don't assume that adding somebody's name in the 11th hour is going to CYA.
But I can wonder why you use language like "not letting him just take his money and run."
Well, its in the context of the prior statements about the IMB employee persuading him to create a joint account when he came in to withdraw his money - so the sense of it is that the teller shouldn't have done a sales pitch but just processed his withdrawal.
The 3 day, 10 day holds on the actual money are, while inconvenient something that's known to me; so is the $500 ATM limit; that's why in the current conditions, for the past year I've always had a healthy amount of emergency cash around.
But just because I do what just reading personal finance columns has taught me doesn't stop me having empathy for the Mr. Bash's of the world - just because I have my radar on about sales pitches doesn't stop me having empathy for the Mr. Bash's of the world.
They may be, to quote a semi-regular commentator, "born and bred American dopes", but they are "MY" dopes, even though its by adoption and not by birth.
Have 150k in an joint ING savings account with wife. Taking out 10k to hide in my house in the chance that financial armageddon ensues. Do I have any risk with the ING account?
Tanta said: The deposit insurance limit does not discourage you from saving more than $100K. It discourages you from putting 100% of your funds over $100K in the same bank.
Is it important to you that the FDIC encourages deposit concentrations at large banks?
Between Tanta's comment, Trader Walt's response, Anon 9:50, and Peripheral Visionary's comments earlier today, it occurs to me that there may be implicit disagreements about what exactly the purpose of deposit insurance is.
There are at least two, somewhat inconsistent goals here:
If it is to encourage account diversification to mitigate systemic risk, that suggests one policy. You would want to enforce a hard limit with as few possible mechanisms for circumvention. Open as many accounts as you like, just keep it under $100k. In this model, you don't care about how much money you're actually insuring; there is nothing really "populist" about your risk mitigation goal, so you're willing to offer it to all comers.
If your goal is to discourage bank runs [where the little guy traditionally gets screwed], that suggests a similar but not necessarily identical policy. You have the conundrum that you want to create a permissive system that instills confidence, but if you trying to punish 'moral hazard' opportunists, you can't have a permissive system. In this model, you might want your "insurance cap" to reflect a somewhat arbitrary line between the little guys and the big boys who you assume have enough good sense to take care of themselves. You would adjust that cap over time depending on inflation and relative wealth. Here, you do care about how much you're insuring, because you're trying to protect the little guy from getting screwed in a run; you don't want to ensure "fat cats." If the big boys are the ones taking advantage of the system, you're spending a lot on regulating a free insurance system for guys who don't need it.
So you might permit circumventions if raising the cap is procedurally difficult, because, again, you're trying to avoid a panic by putting people at ease, where they feel safe enough not to scramble down to the IndyMac with their lawnchairs. (Note, however, that there's some tension between that and the fact the big boys will be the ones best suited to take advantage of any complexity, so your populist goal is better served by a simple system.)
I'm not certain I can say definitively which is the purpose of the system, but our current policy looks like a mix of the two, which suggests that we may, at the policymaking level, be trying to have our cake and eat it too.
Apologies for the lengthy comment. Just musing away over lunch...
Errrr, not sure if I should muddy the waters any more, but what if Mr. Bash's mother already had an account with 100K at Indy? Did he check? Not One Cent writes:
If any of you need extra insurance, feel free to add my name to all your accounts. If we all do this, the value of your name is negated.
Yeah, and I agree with Wally. Mr. Bash should panic now. He should stand in line at different branches everyday. It won't do him any good, but it'll be something for him to do.
I started looking into my financial institution's insurance situation only once I accumulated a consequential amount of cash. Ordinarily, I'd rather have an appreciatiing asset into which the money was sunk--but most of those bets looked bad when I had the cash (BTW, I have been a middle aged student for the last five years--no employment: I found a way to get a wad of cash--I bought a home in 1998, and became a renter in Jan 2007--do the math).
Anyway, even though I am earning less than the inflation rate right now, and even though the amounts we're talking about exceeded the 100k single depositor limit, I could read that the joint-account was insure for twice that. I adjusted accordingly. Mr. Bash did as well, and it sounds as though he'll get all of his deposits back.
But I am wondering--WHY? Why not leave it there for the time being, as the FDIC will have an easier job of "selling" IMC while deposits remain, and the deposits are as well insured as they ever were? If the FDIC were down to only $10bn in their reserves funds, then I might get a little more nervous--but I consider the Posturepedic at that point even if my institution seemed rock solid. That's the onl real threat I see, and I expect (but am waiting to hear more from Ms Bair) that FDIC will begin charging member institutions higher rates to cover the coming failures.
So far, so good!
You've heard that joke about the guy falling off of the skyscraper, right?
if you trying to punish 'moral hazard' opportunists
I think this is where I'm just not speaking the same language as many of the rest of you. I do not use the term "moral hazard" as a synonym for "bad behavior."
I (try to) use it in the classical sense of a situation you do not want to create for people.
In many ways, a moral hazard can be thought of as the opposite of that other famous situation you do not want to create for people, the "double bind." In a double bind, a person finds herself with two choices, both of which will result in equal punishment. Damned if you do and damned if you don't. Put perfectly normal, healthy, "moral" people in too many double-binds, and they will become destructive (to themselves or others or both) or just flat out psychotic.
In a moral hazard, on the other hand, you're putting someone in a situation in which there are two choices, and whatever you do you're off the hook. Put perfectly normal, healthy, "moral" people in too many moral hazards, and they lose their sense of risk and caution. They cease to concern themselves with the possibility of bad outcomes of certain decisions, because no decisions have bad outcomes for them. The better cognate here is "morale," not "morality."
It's not the same thing as tempting people to behave immorally or criminally or whatever. Moral hazard isn't bribery or contributing to the delinquency of a minor or something like that.
It is a concept used in the field specifically of insurance to capture the perverse results of either over-insuring people or underpricing insurance. It's not about offering positive incentives for good behavior.
Look, I get an auto insurance discount because I haven't gotten a ticket since 1993. This provides some incentive for me to continue to drive carefully, since if I do get a ticket I will lose my discount with the insurer.
But what would happen if my policy said it would cover the fine on any ticket I got as long as I didn't get more than one a year? Well, I might still drive carefully because I'm really more focussed on not wanting to be killed in an accident than I am on getting a ticket. It's not that people turn into Pavlov's dogs in these scenarios. But it is more likely that my sense of the risk of driving too fast would be lessened, since at least the first time I got a ticket I wouldn't bear any of the cost (fine or increased premium).
This is of course one reason why no auto insurer ever offers to pay your fines.
So the issue for me is, how do you design a deposit insurance system that minimizes moral hazard for all parties? Not how do you punish people who take excessive risk. Embedded in the idea of reducing moral hazard is convincing excessive risk-takers that they will not be bailed out.
I really think the $100K limit is just about the fact that limiting your exposure to a single institution is wise. Just, by the way, as it is wise for institutions to limit their risk to single individuals. All banks, for instance, have loans to an individual borrower limits. These are important, because a bank that has $10MM in construction loans to ten different builders is in a whole lot better shape than a bank with $10MM in loans to one builder. It's just that eggs/basket thing.
When I first read this post, I was inclined to favor Tanta's interpretation (lazy investor who bought a lame salespitch despite his own better judgment and is now whining about some minor inconvenience).
However, there is no guarantee that Mr. Bash will get any of the (potentially uninsured) $80k back. If you're a working class anything, much less a public school teacher, that's a significant hit to your total net worth.
I also recalled an almost identical sales pitch I was thrown a few years ago, when I went over the limit on a credit union CD. And how the manager came over and tried smooth-talking me into doing the same damned thing, (all legal, of course). Luckily, unlike most other Americans, I have a fairly sensitive BS detector and high sales resistance.
Before heaping a mountain of scorn and 100% of the blame on Mr. Bash, perhaps we should all take a deep breath and consider the following:
The banks didn't lie, they cited the existing FDIC rules.
And...
Not everyone is an expert on banking regulations and finance like Tanta & CR. We all have to make assumptions about risk, insurance and "safety" each time we decide to invest. It's not impossible to imagine circumstances where any one of us could trust the wrong 'expert' and end up like Mr. Bash.
I don't think it was wise of Mr. Bash to take the bank teller's advice. However, if the transaction was perfectly legal, he should get his $180k worth of insurance. And if that's a 'bad' policy moral-hazard-wise, then Congress should change it. Like Tanta said though, having to wait a few days is hardly a "crisis" worthy of media attention.
Embedded in the idea of reducing moral hazard is convincing excessive risk-takers that they will not be bailed out.
I really think the $100K limit is just about the fact that limiting your exposure to a single institution is wise.
I agree 100% with this on principle. Here's the rub though: FDIC limits are set by Congress, which is not always guided by our best interests (snort, chuckle, chuckle).
It may be wise and in the average taxpayers' best interests to make that $100k per person limit very strict and non-fungible, but it is NOT in the bank's own best interests. And banks have a tremendous amount of lobbying power to demand --and get-- whatever they want from Congress.
Why is that limit fungible today? Follow the money...
Well, I might still drive carefully because I'm really more focussed on not wanting to be killed in an accident than I am on getting a ticket.
See, that's the difference between you and me; I drive carefully because I don't want to be responsible for killing someone else. (Artifact from when I used to drive what a fellow teamster described as the perfect 65 ton killing machines.)
It may be wise and in the average taxpayers' best interests to make that $100k per person limit very strict and non-fungible, but it is NOT in the bank's own best interests.
It is not "per person." It is per depositor in a given bank.
Why is it not in the bank's best interests? If you have $200K and you are concerned about the insurance limit, you'll be giving $100K of your business to Bank X and $100K to Bank Y. Surely that's better from the banks' perspective than one winner and one loser?
Besides, any bank has the option of trying to convince its depositors that it is so safe and sound and conservative that insurance limits are unimportant. As long as the sales pitch doesn't break the law or involve misrep, why not? The insurance limits do not force banks to refuse $200K deposits. (They force banks to disclose to the customer that the account is not fully insured.)
What does piss the banks off is the idea that some high-risk thinly capitalized crazy outfit could post market-leading deposit rates today, attract huge deposits from everyone, and then fold. At least they're not likely to take more than $100K per depositor away from you.
It may be in the banking industry's (as a whole) best interests, or even an individual bank's long-term best interests from a survival standpoint.
Unfortunately, banking executives are no different than executives in any other sector of the economy today. They don't care about their industry or the U.S. economy as whole, or even about their (current) institution's long-term economic health. They care only about short-term profits and, how large is my golden parachute? Next quarter's option strike price seems to be their maximum range of focus.
Not saying I disagree with a strict $100k/per person or the logic behind it. Problem is, logic or big-picture thinking has nothing to do with most public policies.
I LOVE this site. Tanta, you are a hoot! Your posts and comments are so clear and helpful, and, unlike so many of the guys here I've read every comment, which takes considerable time. I'd never thought beyond beneficiary before for POD so this has been an education. I'm in awe at your patience since some questions were answered multiple times.
Thanks to whoever waaaay above who provided the link to the FDIC POD info.
Of course the bank LIED to him, did it not? The SS or tax ID# is what determines who owns the account. And did not the FDIC say that up to 100,000 would be completely insured, but that the amount over that would be covered only to 50%? So he is probably out $40,000. Right?
While your reply to my question is true,there's still a certain amount of arbitrariness in this situation. They could get burned badly if the 500K was in a bank that folded.OTOH they could get off with no hit if the 500K was all in one bank that didn't fold.
Also, I don't know if your earlier response to another commenter was facetious but I can remember when the limit was $10,000 and I'm not quite as old as Andrew Jackson.
While there's always the 2% who don't get the word (explains the lines in front of IndyMac) and while the "Mr. Bash" story makes Tanta's point re: "moral hazard," I think folks here are being unreasonably hard on IndyMac's uninsured depositers.
Mr. Bash, who had 4 separate accounts -- none probably over the $100,000 limit, is a poor example of the median uninsured depositer.
Example: The 5-year CD owner who has another year left and $10K, $20K, $30K over the $100,000 limit. The bank looks shaky. What do you advise.
Changing the beneficiary doesn't increase the insurance. You can withdraw the money and establish separately owned accounts, each less than $100K. But then, you lose four years of interest.
What's your advice?*
*Remember -- the bank hasn't failed, yet. It's just a little shaky. How much will you pay in lost interest to insure that uninsured part -- especially, when the bank may be bought out by another bank and you won't lose anything or as with IndyMac, you'll get 50% of the uninsured amount and a receivership certificate [;-)] for the balance?
Is it important to you that the FDIC encourages deposit concentrations at large banks?
Well I was going to say how are you even sure you don't find out that your multiple accts are really multiple and then whilst scrolling to the post point I find...
I did that. Then my 2 banks merged...
Thx, Russ.
So. That sounds like a reasonable question, Tanta, but re-read what I wrote. OK, maybe I don't want the FDIC to "encourage deposit concentrations" (who cares what I think?). But then that's exactly what the hell they were doing in the 70's, when 100K was some real money, wasn't it?
Do you think they were idiots then? Not a lot of evidence we are any smarter now. In fact, it looks like they've lost the thread of the thing, as Margin Call of Cthulhu posts illustrates. I can't find any basic rationale, except that the 100K limit is appropriate nowadays because banks cannot be trusted like they were in the 70's.
And I say the problem isn't Mr. Bash but how we got to that state. I mean I will need how many freaking banks when I retire? 10? Give me a break.
This is California people. 180k$ was the (possibly tax free) appreciation on a 2bd, 1.5 ba condo bought in 2001 and sold in 2003.
So he's what, living with Mum, now? How is that still not sensible behavior, every other Californian I've ever heard of would have rolled that into a bigger, fancier crib after pinching a bit for a nice ride.
I bought a home in 1998, and became a renter in Jan 2007--do the math).
But what about those "onerous" capital gains!! OMG!! ;>
but I can remember when the limit was $10,000 and I'm not quite as old as Andrew Jackson.
Ok, so we've got the 'Net here.. what were the limits and when?
Ok, all the discussions on this thread are reasonably true, and reasonably attentive, but probably completely beside the point. The FDIC has only 10-20 bank failures in it the side of Indymac. Or, one WaMu and maybe a couple of small banks.
After that, talk about moral hazard!!
The printing presses start running full blast. Inflation (which was bad today) gets worse. Inflations such as it was in the 80s was bad enough, but at least then we were getting pay raises. Today--not.
Money lost to inflation is just as lost as it would be if Mr. B. doesn't get his 80 grand (or whatever).
It's just not as obvious or visible.
We are 10-20 bank failures away from a whole lot more inflation or perhaps a hyperflation.
Likewise, if everybody, right now, started moving their money around so that nobody had more than 100k anywhere (or whatever the true max is for particular individuals) you will again see chaos.
The thing you want to do is prevent everybody from doing something at the same time. You can't all rush over to the right side (whether that is port or starboard) of a ship.
If everybody sells shares on the same day you get a black xxxday. If everybody wants to sell their suvs and get a non gas guzzler, the price of suvs will plummet.
When everybody realizes that Shumer was right about Indymac, and his only fault is not mentioning a whole bunch of other banks, why then it will be far too late to get out.
Tanta writes: So, Mike, you found an example of a bank failure in which all insured depositors were paid and not all uninsured depositors got their money back.
Uninsured depositors quite frequently don't get all their money back (although most of the time they get some of it). And????
And STILL, as of Feb, 2008 the 1400 depositors have not been made whole despite the Pritzker family - not Superior Bank - despite the family recouping at least $34 Million from the E&Y settlement.
Trust the FDIC to watch out for consumers? Sure....
The FDIC is an insurance company backed the the Federal Govt. They actually do not have the money to cover the losses the banks are likely to incur. It will therefore fall back on the US Treasury-US Taxpayers to foot the bill.
Hindsight tells us that prevention would have best been practiced during the boom, not after the bust. The sudden fear of lending and rapid withdrawal of credit is what really gives the bust it's wallop...
Guess it had to happen but the situation could have resulted in less collateral damage if we understood more of how a boom-bust model is constructed. People in risk management and finance/banking in general have little or no understanding of the much, much bigger picture of a boom-bust model. This one is truly textbook but bigger than previous ones. Traditional economics addresses it somewhat but not quite enough to matter to the rest of us.
On we go. Boom or bust, I still gotta get up and go to work in the morning...
Tanta,
I don't see why Mr. Bash shouldn't be concerned. If the story is reporting him accurately and he is accurate in his dealings with the bank (very big ifs), then it appears that no one can account for $80k missing.
From the article:
Bash returned to the bank Tuesday more confident, but when he finally talked to a teller, she showed him that more than $80,000 was missing from one account. Why? The teller didn't know. She referred him to an FDIC official in the branch, who also couldn't tell him what happened, he said.
They suggest it might be because of a hold, and that is plausible, but I would expect them to be able to say that with some confidence. Couldn't it also be because someone has taken advantage of the confusion to embezzle funds, or that an prior embezzlement is being exposed by the takeover? It could be a clerical error, wasn't there supposed to be a %50 return on uninsured funds? Why wasn't it 140K? Shouldn't he be reporting discrepancies and demanding explanations? I can understand not having definitive answers on whether or not all the funds are insured, but not on what his balance was at the time of takeover and what is available for withdrawal. Saying that $80k is "missing" and we don't know why would certainly disturb me.
I don't see anywhere in the article that he is currently trying to withdraw funds, he seems to be trying to verify his insurance and account for a discrepancy in the records. I have had statements that indicate balances on deposit and balances available for withdrawal, so it is clear when funds are on hold. I don't see why he should just sit back and relax if they can't give him a definitive statement of why those funds don't show up at the bank. Surely if there has been an error, the earlier it is found the better.
It probably will all work out in the end, but I don't see why Mr. Bash just relax and assume that it will without his involvement.
Re the 100K limit -
Insofar as it's to limit losses to the FDIC, wouldn't it make more sense to limit the size of the insured institution instead of the size of the insured account?
(eg, no banks allowed over $10billion or something. Who cares about 100K vs 500K when the overall payouts are in the billions?)
I'd just like to point out that even depositors with over $100K (THOSE WITHOUT beneficiaries or joint accounts) are still getting 50% of the amount over $100K, and a possibility to get the rest upon sale of IMB's assets.
Even if they found Mr Bash's last minute account change wasn't valid for some reason, he'd still get $140K of his $180K.
Most likely he will get the full amount since he prudently DID make this change - though he should have just pulled it all out and blow off what the teller told him on July 8th.
I doubt the FDIC wants to do anything to bring too much negative attention to how they are handing what is the first of MANY future failures. The better they handle this process, the less likely it could spread to other banks that are likely to fail and creating a run that could encourage or expedite a failure of other Banks on the ropes. They trust issue is pretty fragile at the moment IMO.....
From the FDIC on IMB: As of March 31, IndyMac had total deposits of $19.06 billion from some 275,000 deposit accounts. Of those, some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC has said.
The FDIC was telling customers with unsecured deposits that they would receive an advance dividend equal to half of the uninsured amount.
Finally, by throwing in a massive stock rally - it's amazing how quickly people can be fooled into believing everything is going to be OK! They (Bernanke, Paulson, et al) probably didn't buy that much time though......
Example: The 5-year CD owner who has another year left and $10K, $20K, $30K over the $100,000 limit. The bank looks shaky. What do you advise
This is probably going to sound like a cop-out answer. I don't mean it to. It's just that my point in writing the post was to highlight an issue with moral hazard, not to hand out retail banking advice. I don't do that any more than I hand out other kinds of investment advice.
So, then: my answer is that that's the problem with buying CDs. You are making a multi-year commitment. You are giving up liquidity. A lot could change in five years, including the risk profile of your bank.
You need to make that part of your thinking up front. What's your risk tolerance? Will you pay the early withdrawal penalty if your bank starts to look shaky? You need to ask yourself that up front. If what you're saying to yourself is no, that would never arise because it's an insured account, then you are operating in a kind of moral hazard environment. You are saying that even if you found out two years into a five year CD that your bank was now very high risk, that wouldn't change your behavior because of the insurance. I am not saying that this is "immoral" thinking. I am saying it's moral hazard in action.
Quite honestly, most CSRs I've known (you know I never worked on the deposit side, only on the loan side) just tell people to buy a $95,000 CD. (Or whatever. Calculate the term and the yield such that at maturity the balance will not exceed $100,000. The bank can help you with those calculations.) Then, if you are intending to "roll" the balance over, roll the excess part of it to another bank or to another account (i.e., a trust account like Bash did).
Quite honestly, one thing we find with shaky banks is that they do, indeed, have more than the usual number of depositors with high-balance longer term CDs. Why? Cause they were out there, desperate for "core deposits," offering much higher 5-year CD yields than other banks. To some of us, that was actually the first (or at least a telling) indication that they were indeed in "shaky" condition.
But people fall for it all the time, and load up on as much of those CDs as they can.
You do need to ask yourself if the very fact that you are considering opening a high-balance CD with this bank is not itself possible indication that something isn't quite right. There were indeed plenty of equity analysts publishing reports in the last year that worried aloud that Indy (and CFC) was paying way too high a rate on its CDs, and that this looked like a desperation move.
Jay S's comments above are right on the mark. He can read and digest the facts correctly. Thank you Jay S. Your interpretation matches reality. Tanta, yours is off the mark.
It is clear from these comments that FDIC insurance information is not clear to the public. Hopefully after all of this, it will be (go to the FDIC website that someone provided a link for above. The rules aren't too complicated, there's just a bunch of mis-information out there.)
Yes, we should all question info provided to us, and yes, it is best to not have over $100,000 in any one bank, if you are lucky enough and have worked hard enough to have that much to save and protect. Mr. Bash is honest and trusting. It would be nice if we lived in a system where we all could be so honest and trusting and everything always worked out. In the meantime, stand up for those that do play by the rules in a fair moral way, and perhaps when you need some support sometime in your life, others will be there to back you up too.
Government really doesn't need to do much right, but one thing they MUST get right is ensuring that people's money is safe in the bank. How hard is that?
I think its funny that at this point people believe anything a bank tells them.
Mr. Bash, meet Mr. Lawn Chair.
THWACK
LAT also points to problems of online bank deposits "disappearing" -- explains a lot in-person apperearances at branches.
It may not be the FDIC's fault, but if there is more of this "come back another day" to get answers stuff, it's going to start smacking of FEMA behavior.
The world needs more 'helpful' tellers.
And what happens when the FDIC runs out of money?
If FEMA married FDIC, what would they name their firstborn?? Any thoughts?
y'know, basically, anyone who trusts a bank further than they can throw them is an idiot.
also, people get snippy about things when the COLOR of the non-fashion itemt hey get is wrong, or even not what they were expecting (my cd is TEAL goddamnit, not blue like it used to be. i don't care that it works just fine, change it back!).
I have lots of respect for the FDIC guys for not just whipping out the pimp hand and explaining to this gentleman in the only language he's likely to understand that, yes, once you essentially commit various forms of insruance twinkery, we're not terribly concerned with anything over the 100k we legitimatly owe you.
now get your money and go over there and wait for your check before we investigate and decide to give you 50 cents on the dollar for yoru overlimit stuff like we did the father of four over there.
but maybe that's just the customer service rage talking.
Brwennie, you're doing a heckuva job.
or Bwrank...
Wonder what's gonna happen out there on Day 3...
Mr. Bash's changes may have been "perfectly meaningless" in this case, but if he had added a spouse to the account, I don't think I would agree. The federal government says they'll insure everyone's basket, and it shouldn't penalize married couples that bank together. When you can add Mom and the dog, however, it does seem rather odd.
But the larger observation is a sound one: no one here appreciated the fact that the limits discourage you from putting all your eggs in one basket. Certainly not the banks, which want all of Mr. Bash's eggs, and not Mr. Bash either, for whom egg diversification would be a hassle. So they jointly agreed on this paper work-around of tacking new names onto his account, effectively defeating the purpose of the system.
Yet the only moral hazard anyone talks about presently is that which results from institutional bailouts. On the other hand, expecting school teachers to appreciate the logic behind banking regulatory policy is a lot to ask. I don't think there's an easy solution to this one.
If FEMA married FDIC, what would they name their firstborn?? Any thoughts?
FEMDIC
Fodder for jokes, a lifetime event for Mr. Bash. Ha-ha.
I doubt that the teller actually made up the notion that adding names increased insurance - was this a bank policy to tell that to people? That may come out over the next few days if others tell the same story.
My bank tried to do the same thing with me about a year ago. Luckily I got Blogs religion many months before that.
LAT is to be commended for this -am wondering how well MSM will do in bringing this problem to light - I am sure this was probably standard operating procedure in many other banks.
or maybe, IM_F'CD
Huh?
According to the FDIC site itself,
and LOTS of easy-to-find online corroboration, what Mr Bash did seems
very sensible. Add payable-on-death beneficiares (parents, spouse, children) and include the letters "POD" on the account title, and ... so it seems to me ... you can get extra coverage. Not a scam, not trying to exploit any loophole, but just the rules.
It's not clear the article itself realizes this (probably it does) but some of the commenters do not.
Commercial real estate bust coming soon? From the Wells Fargo earnings report...
https://www.wellsfargo.com/press/earnings20080716
Total commercial and commercial real estate loans 90 days delinquent or more....
June 07 - 27
Mar 08 - 68
June 08 - 135
On the other hand, expecting school teachers to appreciate the logic behind banking regulatory policy is a lot to ask.
I'm mostly with FE on this one. In fact, I'd take it a step further: expecting bank tellers to know these things may be a lot to ask.
Which brings me to my real question: just who, exactly, told this bank teller to say that if someone wanted to withdraw their money over the limit? Am I wrong to think that it's probably not something the teller thought of themselves?
wally--xposted, GMTA (and ours, too)
The consumer price index, a key inflation gauge, surged 5% in the past year - biggest jump in more than 17 years. More soon.
When I originally read that news story, it was ho hum. When you tell it, it's much more entertaining.
BTW, isn't throwing lawn chairs pretty standard behavior in LA? I don't know, I just read the papers.
Tellers are taught to tell customers that they can get extra FDIC insurance by opening POD accounts (payable on death) accounts in addition to their regular accounts held in single or joint name. This is legitimate. But something gets lost in the translation.
what Mr Bash did seems
very sensible. Add payable-on-death beneficiares (parents, spouse, children) and include the letters "POD" on the account title, and ... so it seems to me ... you can get extra coverage. Not a scam
But Mr. Bash didn't die. Apparently.
Why is he trying to liquidate a POD account?
And now, completely off topic...
Workers real weekly earnings were down 0.9% m/m in June, and down 2.4% y/y. The have been below year-ago levels every month so far this year. When the rebate checks are all used up, which they will be soon under these conditions, there isn't gonna be much left to spend. JPM may have had that in mind yesterday when it published a note predicing an outright decline in spending in H2.
Not that I was deriding teachers in my comment above, by the way. It could have been any profession. Just that this fellow has no earthly reason to understand the fine points of federal banking regs (lucky him).
Andrew, it may indeed be that the teller came up with it on their own, but the bank had a natural interest at that time in coming up with whatever rationale it could to get depositors to keep their money in their account, so I would be inclined to think that at some level, management would have encouraged this.
Tanta, every bank account I've opened since I had kids is a POD account - the bankers just set them up that way. I'm not asking them to, they just do because there is a beneficiary. The statements come with "POD account" listed after my name. I close 'em all the time.
Was there an information assymetry between the bank and the OCC? Indymac was one of the most notorious mortgage lenders operating the last few years. The only thing surprising here is that they lasted this long.
Well, now... it looks like maybe we need some education here on the board. I can see that I do - I have no idea whay does and does not work here: can the names be added? must it be separate accounts? is there accurate or inaccurate info on the FDIC site?
the bank had a natural interest at that time in coming up with whatever rationale it could to get depositors to keep their money in their account, so I would be inclined to think that at some level, management would have encouraged this.
Of course they did.
This is the moral hazard on the other side.
The thing is, this kind of account change does not ever at any bank just get done with a keystroke.
At minimum, the bank has to verify that Momma Bash is a real person with a real SSN. The other side of this "red tape" thing are all the SOPs for anti-money laundering, anti-fraud, anti-"suspicious activity" regulations.
Of course the FDIC is going to want to review a flurry of transactions in the last days before takeover that suddenly jack up the insured account levels dramatically. We would prefer they didn't?
What I'm missing in all this (or perhaps I'm not) is when do the extra names on the account make a difference.
I've always been of the view that how many names you have on the account decides the insurance coverage at the point in time that the FDIC assumes control.
Did I misunderstand how this works ?
Anyone that still has deposits in US banks after Paulson's amazing circus show deserves to lose it all.
Dependency culture and total lack of responsibility from all involved, especially Mr Bash who basically proved he should've known better but followed the path of least resistance nonetheless.
Sign me up behind wally - and I've got exactly a variant of this issue involving my mother losing Dad on all her accounts.
Why is he trying to liquidate a POD account?
Because someone he trusted to know their job told him to make one -- probably because they were ordered to in order to mitigate withdrawals. Seems to me more like someone took advantage of his desperation to rob him.
Tanta, every bank account I've opened since I had kids is a POD account - the bankers just set them up that way.
Well, your kids (I am assuming your kids are the beneficiaries) are better off being able to get their hands on your money in the event of your sudden death via a Totten Trust than having to go through probate.
My point was that it doesn't appear that the purpose of Mr. Bash's transaction was to protect his mother in the event that he died and then the bank failed. The purpose seems to have been to assure that the FDIC would write him a check for $180,000 instead of $100,000 if the bank failed.
Let's see...
If Mr. Bash is telling the truth, the bank (through it's employees, respondiat superior) told Mr. Bash that these actions were legit. Who's at fault here?
"One cannot lecture people like Mr. Bash about moral hazard and the costs of free insurance in the middle of a bank takeover."
No, one cannot. Not if the bank told him BEFORE the failure, when he came to take out his funds, that he could leave them and be perfectly safe. Although I don't trust anyone as far as I can throw them, most do. It's the essence of service business...we pay for advice on things that we are not experts.
On local drive time radio yesterday afternoon, in an interview with a line stander, the standee said that he went to IMB on Friday morning to close a CD that had matured. Less than $100k. The bank told him all was good and convinced him to roll the money into a new 1 year CD. This was not a teller, but one of those VP's in the lobby. A supposed expert in banking. He wanted his money back. If he sued for fraud, I'd back that.
Cheers,
I would prefer the FDIC issue a press release immediately addressing this issue, rather than their "don't worry be happy" line.
Oh the irony of this: the bank wanting to make sure that the CUSTOMER is not committing a fraudulent transaction?
Seems like POD accounts are a pretty acceptable way for getting more FDIC insurance. It is in the bank's best interest to inform customers of this alternative to withdrawal of any balance above the limit. And in my reading of the FDIC website, FDIC: Error 404 - Page Not Found it seems like the FDIC itself considers it pretty standard practice.
Yes, it may be extra work for the bank and for the FDIC, and more costly for taxpayers, but not how the majority of depositors would interpret the information they are given.
The changes aren't actually meaningless, rather they are specifically legitimate under the FDIC rules and have a real purpose: Its estate-planning on the cheap. A married couple should always have the kids listed as benefitiaries, if only to save hastle.
And you DON'T trust the banker when they say it: MY dad put $400K in Countrywide under this interpretation which the bank person said, I nearly flipped when I found out, so I went and verified it with the FDIC website that the banker wasn't lying.
Its do you trust that the FDIC would actually honor its commitments?
Misean, what problems was that line stander having that might justify a fraud case? He should be fine unless there's more to the story.
Fair,
Because the Bank lied about it's position.
Actually, I ought to be able to sue for fraud, as I am now on the hook for that repayment.
Brain still sleepy...need more coffee.
Cheers,
And while we're at it, let's not call it 'free' insurance. We all know who pays for it. Mr. Bash is among the payers.
Tanta,
The POD transaction was clearly not meant to set up protection in the event of the depositor's demise; it was meant to increase the available insurance. Point taken. But that, by the rules, appears to be a perfectly legal way of doing so. Are you questioning the legality, the morality or the logic of writing a rule ("100K limit") that can be circumvented that easily?
Beyond that, Bash's complaint about the hold is silly. I get holds when I deposit or shift very large sums, and that's at institutions that are functioning well. He's being a whiner on that score.
Tanta,
I wouldn't be so hard on Mr. Bash. It seems like there were many many people who were told misleading things by IndyMac re: their deposit insurance.
On CNBC yesterday they interviewed a man who was told that he would be covered if he split his account into 5 separate accounts under $100,000 - which is of course false.
I think this is something that ought to be investigated. It seems as though IndyMac was systematically misleading customers in order to retain deposits over $100,000
It's depressing T. Bash is such an easy mark. Dude, you were going to the bank to withdraw the amount you had over the limit, if not your entire nut, because you were worried the bank was going to fail. Remember? But five minutes with the teller, and all your worries go away?
Do you really trust anything anyone over there is saying? This is a failing (failed) institution! A little advice: next time you're in New York, and the nice man at the airport offers you a ride in his "taxi," please, for the love of God, don't do it.
Oh the irony of this: the bank wanting to make sure that the CUSTOMER is not committing a fraudulent transaction?
Not exactly.
Those anti-fraud handling requirements are regulatory. It is the bank regulators who force the banks to do those checks. Not the bank just "wanting to."
And yes, the checks that the FDIC is doing now, on its own behalf, that are creating additional delays, are intended to make sure the bank wasn't the fraudulent party.
All this cynicism about IndyMac is great and everything, but what would you all prefer? That we eliminate automated holds on certain account transactions because our sense of irony is pained by it?
Are you questioning the legality, the morality or the logic of writing a rule ("100K limit") that can be circumvented that easily?
Yes, I am.
Go ahead, Tanta, blame the poor teacher. While you may be the world's leading expert on moral hazards and insurance policies, the average person is not. I am not.
Don't set up a system where con-games like this can go on, and then blame the victim.
BTW, this is not a sub-prime lender story. Here is a person who actually wanted to withdraw his money, and was conned into adding names. How was he supposed to know?
No, that we'd properly inform customers in a time of uncertainty and potential panic that we are going to do PRECISELY that.
Distance, MK,
You seem to be assuming that Bash isn't getting his "extra" insurance payout. I don't think that article means what you think it means.
ah...
"That we eliminate automated holds on certain account transactions because our sense of irony is pained by it?"
Meh.
I'd rather do away with FDIC. That would turn peoples' radars on.
And don't talk to me about bank runs...OK.
Cheers,
These former Indymac depositors make for a pretty sympathetic bunch:
More Indymac Photos
Mr. Bash is the member of a rapidly diminishing demographic: people who trust their bank. This is exactly the kind of "panic" the FDIC is trying to prevent. And they're failing miserably.
BTW, this is not a sub-prime lender story. Here is a person who actually wanted to withdraw his money, and was conned into adding names. How was he supposed to know?
Oh, baloney.
What "con"? Nobody is saying he won't end up getting a check from FDIC for $180,000. He apparently was eligible to withdraw the $100,000 on Monday, but the part that was in an account with a recent name change is "on hold." So he has to wait a couple of days. That's pretty cheap insurance coverage.
I don't get this response that this guy was taken advantage of. He got offered a free lunch--keep your money in a bank you are afraid is going to fail, without loss to you--and he took it. So it turned into more of the "mail in rebate" process than the insta-credit at the cash register.
Big goddamned deal.
I can see that a press release from the FDIC saying, "weeell, what your bank told you about safety of deposits might not be exactly true come FDIC-seizure time, or "such accounts will come under a review that will take X number of days/weeks" might cause depositors to withdraw funds, but so be it.
Obfuscation is the greater enemy here, and can only cause greater distrust and more panic. The FDIC has to level with its new customers about bank disinformation, not just throw out the "all will be protected" line.
OH help, now I need an Uber on bank accounts. Are we assuming these Bash accounts are POD because the mother and sister weren't there to sign the cards to make them joint accounts? I'm assuming all the holds would still apply in this latter case but the FDIC insurance will still go up.
Tanta writes:
Oh the irony of this: the bank wanting to make sure that the CUSTOMER is not committing a fraudulent transaction?
"No other depositories of power [but the people themselves] have ever yet been found, which did not end in converting to their own profit the earnings of those committed to their charge." --Thomas Jefferson to Samuel Kercheval, 1816. ME 15:71
Yes, I am.
Heh! I do believe that the legality and "ease of circumvention" beefs are mutually exclusive, though. If it's that easy to do, it's legal. If it isn't legal, it isn't that easy to do. As to the morality, De Gustibus Non Est Disputandum
"What "con"?"
Hmmm...I dunno. If you're told you have instant access to funds, and will continue to have same, by a bank employee, and now you don't.
I guess "not now" and instant are the same for some people.
Cheers,
If it's that easy to do, it's legal.
Just like lying about your income to get a mortgage.
All my money is under my mattress, so I'm not familiar with the subtleties of deposit insurance, but wow. He gets to keep the 180k?
Fantastic. I can't tell now if T. Bash is very clever or just very lucky. This reminds of a Somerset Maugham story, "The Facts of Life."
Misean,
He wouldn't have had "instant" access even if IMB didn't go belly-up. Transactions of that size get a hold as a fraud prevention tool.
The OTS Supervisor says it was irresponsible of a US Senator to say that this bank might be weak but Joe-on-the Street is supposed to be savvy enough to know better?
Getting a bit Alice in Wonderlandy here this morning. Barry is grouchy today, too. Must be something in the water.
Mr Bash has a point: it says right there on the FDIC web page that joint accounts are protected to the value of $200,000. So are they, or are they not? adding a name (with signatory card) to an account makes it a "joint account", right?
It seems to me to be no different to follow the FDICs own advice and add your wife or whatever to your account, as it does to take out $100k and move it to another institution. Both cases are 'free insurance'. Neither case is breaking any rules. It isn't even clear that one is safer than the other - after all, if the big C went under, would the FDIC have the funds to cover? no it would not..
so if I was someone with a joint account with indymac i'd be upset at the situation as well.
Alo, the situation only arose because the transaction to add the beneficiaries happened on July 8, and the bank was seized on July 11.
And the transaction only happened on July 8 because news reports--especially featuring the Shumer letter--were raising questions about the safety of that bank.
I can't quite wrap my mind around the FDIC putting out a press release to explain to people that if they kind of panic but don't quite panic enough a few days before a bank failure, they might run into operational glitches.
The FDIC cannot say shit about shit until the day the close the bank. That is just the sad fact of how you manage a bank shut-down.
Anybody who opened a new IndyMac account on July 10--assuming anyone was that feckless--will have run into the same problem, btw. Have none of you ever opened a new account and found you couldn't access it for five business days? Made a large deposit and found a temporary hold on it? Do you think this changes in the midst of a takeover?
A few choice quotes (spoiler alert):
"And the wretched boy ought to have burnt his fingers. Well, he hasn't. You're all men of the world, you tell me how I'm to deal with the situation now."
But they none of them could.
"Well, Henry, if I were you I wouldn't worry... My belief is that your boy's born lucky, and in the long run that's better than to be born clever or rich."
I don't think POD should provide extra insurance. If two people are banking together at an institution, sure, there should be double insurance. But that's a joint checking account. If an account is POD to his kid, the kid isn't banking there. IMO only accountholders with withdrawal privileges should count for extra insurance. If the Mr. Bashes of this are willing to take the risk that their kids are going to take a trip to Phuket on their dime to get extra insurance that's fine.
Melancholy Korean,
Which of the following banks is best for
saving my money: Simmons, Sealy, or that
Swedish one with the space age foam?
Max,
...and if it ain't legal, it ain't that easy. Doubtless fraud looks easy, until you get prosecuted. Or defaulted on.
Tanta, what the FDIC did say was "all would be normal on Monday" - and nothing else. What in the world did they expect in this time of record government distrust?
They should have said shit the minute they closed the bank. They should be saying it right now. The longer they wait, the worse it's going to get.
Isn't it strange that people will purchase a savings account without checking the salesman's(banker's) claims, but would not purchase a car without doing at least a little checking on a salesman's claims?
No checking even though the amount involved is much greater.
First, there was Bush-bashing. Now there's Bash-bashing.
All my money is under my mattress, so I'm not familiar with the subtleties of deposit insurance, but wow. He gets to keep the 180k?
YES. HE GETS HIS ENTIRE $180K FROM THE FDIC.
HE JUST HAS TO WAIT A COUPLE OF DAYS FOR IT. HORRORS!
BG,
"Transactions of that size get a hold as a fraud prevention tool."
Respectfully...Horse Poop!
I've moved $80k by typing in my account numbers into a web form and clicking OK.
Cheers,
I love this blog.
Come on Misean, that bank teller didn't know the FDIC were hiding out in nearby hotel rooms, putting the local pizza joints on speed-dial, about to descend on Indy-branches in a sudden attack of pepperoni. I don't see why people expect instant access to all cash during what is essentially an unplanned for change in management. Granted, it probably could have gone smoother but they'll (FDIC) probably get back in practice over the next few months.
i'm not gonna say shit about shit, but can we have another open thread, so as not to offend.
Gracias
I like Ikea.
Tanta, what the FDIC did say was "all would be normal on Monday" - and nothing else.
And I am trying to say that this little thing with the hold on the account is probably perfectly "normal."
I will bet you that people who added beneficiaries to their accounts on or before, say, July 3, are not experiencing any unusual delays.
The other thing they meant by "normal" was that they were operating Indy as a bank, effective with that announcement. Not shutting it down. Not sending accounts to a new bank the customers would have to go to to get money.
You realize this means that nobody actually is being forced to liquidate their IndyMac accounts? As long as the FDIC is operating it as a bank, you can just leave your accounts there. The whole idea of the FDIC announcement was that they wanted to keep it operating until they found a buyer.
This is about people wanting their money TODAY. Not about people not getting their money at all.
trader walt,
"Isn't it strange that people will purchase a savings account without checking the salesman's(banker's) claims, but would not purchase a car without doing at least a little checking on a salesman's claims?"
You REALLY believe this? People buy cars because they saw a sexy ad on TV. Don't think so? Well as a quick spit take, ask your self why the car companies spend all that money on ads.
Cheers,
scav,
"that bank teller didn't know the FDIC were hiding out in nearby hotel rooms, putting the local pizza joints on speed-dial,"
ROFL.
Cheers,
I've moved $80k by typing in my account numbers into a web form and clicking OK.
Did the account you transferred money to just get opened ten minutes before the mouse click?
Did the two accounts have different beneficiaries?
Did you then show up at the teller line an hour later asking to have that entire $80,000 in small denomination bills?
Okay, I'm in more or less the same position as Mr. Bash (and so are a lot of other people). I've been to the bank twice (Wachovia). I've spent significant time on the FDIC website. I'm thinking of calling their 800 number though I'm afraid of what an exercise in frustration that would be.
The two people I talked to on my two separate trips to the bank couldn't have been nicer, more helpful, understanding of my position etc. On my second trip the bank representative (not a teller) and I walked through my situation on the FDIC website step by step.
The FDIC website said unequivocally that I was fully insured. The bank person gave me an FDIC pamphlet that contained a grid showing that a person in my situation is fully insured. Based on this information it is clear to me that the score is: banks 1, customer 1, FDIC ZERO.
Both the bank and I are acting in good faith based on information from the FDIC itself. It appears that where the rubber meets the road the FDIC is equivocating.
Tanta, please, how will this play out? Will they or will they not give Mr. Bash all of his money? And, if the answer here is no they will not, then the villain is not the bank or the customer. It is emphatically the FDIC.
Oh, it is not my experience that SoCalers throw lawn furniture on a regular basis. Some like to hook balloons to them and go for a brief flight, but I am unaware of them being used regularly as weapons.
Cheers,
Since everyone is discussing "safety", I thought I would throw in a few things I notice reading the prospectus for Fidelity's U.S. Treasury Money Market fund (FDLXX). These are direct quotes from their on-line (and printed) prospectus:
"A fund may in its discretion restrict, reject, or cancel any purchases or exchanges that, in FMR's opinion, may be disruptive to the management of that fund or otherwise not be in the fund's interests."
"But I want my money!", said the investor. "Ok, if you insist", said the customer service rep. "Your shares in Indymac will arrive in two days." "WHAT?!!", yelled the investor. The response from Fidelity was, per the prospectus, "Redemption proceeds may be paid in securities or other property rather than in cash if FMR determines it is in the best interests of a fund."
Think on that for a while...
"Will they or will they not give Mr. Bash all of his money? And, if the answer here is no they will not, then the villain is not the bank or the customer. It is emphatically the FDIC."
The FDIC insures depositors against bank failures, not their own (or anyone else's) stupidity.
Non-rhetorical question for anyone out there who can answer: why would anyone keep more than the $100K limit at a single institution? Am I missing something here?
I think that condemning Mr. Bash demonstrates a misunderstanding of the purpose of deposit insurance. The entire purpose of the FDIC is to insure that depositors do not run to withdraw their money from banks that are endangered. Complacency about the safety of your savings in an insured bank is exactly the point. We distinctly do not want depositors to have a "let the buyer beware" attitude, because that attitude leads to panics and runs on banks that contribute to the contagion of any financial crisis or failure.
Mr. Bash's trust that the bank is telling him the truth about the safety of his deposit is a precious thing that took many years and a very successful government program to create. If economists and analysts believe that every Mr. Bash in the country is a fool who deserves to lose their money for not following rumors about the solvency of their banks and flying to cash as soon as they hear such a rumor, then those analysts are saying that the pre-FDIC world was prefereable.
Deposit insurance is one side of the bargain. The other side is regulation of the risk profiles that banks are allowed to have. The trinity of the Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC have all failed (I leave out state regulatory authorities because they have largely been rendered powerless) in this second and complementary task that makes deposit insurance function. This has created incentives for banks to take on risks with their depositors' funds that are dangerous. This was done because regulators were concerned that limiting the kinds of investments and risks that banks could take would disadvantage them relative to non-bank financial institutions. This process has been going on since the 1960's and offers at various points classic examples of both regulatory capture and a race to the bottom among competing regulatory bodies. This has produced an unstable financial system that must be re-regulated in order to restore the viability of deposit insurance (there are other possible solutions, but this seems to be the least costly and most compatible with a return to long-term stability).
This regulatory failure, however, is not the fault of depositors like Mr. Bash, who are doing exactly what the deposit insurance system was created to encourage them to do: not panic.
Turning to the specifics of the amount of deposit insurance and the listing of multiple account holders to increase the value guaranteed, this is a fairly minor point. The fact is that the FDIC allows depositors to gain additional coverage through the mechanism of multiple names on a sheet of paper. If you think that this is bad policy and there is something sacrosanct about the $100,000 limit on insured deposits, then the stupidity lies in the rules-writing of the FDIC, not with the low-information depositors who follow those rules and expect that this will not put them at risk.
Again, Mr. Bash's trust in what he is told by the bank and the FDIC is not a bad thing, it is in fact the entire point of the system.
Well as a quick spit take, ask your self why the car companies spend all that money on ads.
Except research has shown that up to 60% of all advertising doesn't actually have any effect on consumers' choices.
Except research has shown that up to 60% of all advertising
You read that in an ad somewhere.
A number of comments boil down to "never trust your bank" - and for readers of CR, the idea of due diligence, careful attention to financial institution health, etc. is a familiar concept.
But let's remember, the vast majority of people spend their time focusing on American Idol, The Bachelor, their Xanax prescription and their tan. They've been "educated" by schools and media to ALWAYS trust the banks and the feds. They've also been "educated" to expect immediate customer service. And things ran well enough for many decades, so it seemed like their "education" was adequate.
Now, we expect the vast majority of folks to behave like reasonably sophisticated financial players and not whiny juveniles? Why should we?
It comes back to the macro side of Moral Hazard. Not to sound moralistic in this brave new era of pragmatism, but frankly we are reaping what was sown for over two decades.
If, in the end, depositors actually start paying attention to their bank's health and practices, then this adjustment will have net positive consequences, but until then, expecting fools to act like wise men, when all their lives they've been coddled, lied to and protected from the consequences of foolish behavior is ridiculous.
"On CNBC yesterday they interviewed a man who was told that he would be covered if he split his account into 5 separate accounts under $100,000 - which is of course false."
The FDIC website is confusing on this point... I can see how someone might get this impression:
"FDIC deposit insurance covers the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing."
FDIC: Your Insured Deposits
This sounds like each individual account is covered up to 100K (so up to 200K coverage if I have a savings and checking acct).
Reading on, you get a different picture
"The basic insurance amount is $100,000 per depositor, per insured bank."
But wait, didn't the FDIC just tell me each of my accounts is covered dollar-for-dollar up to the limit?
haven't these people ever heard of this thing called a wire transfer???
Guess not if they still had money in that bank....see at some point it won't matter if it is insured because the FDIC and then the SDIC (or whatever it's called) will have been tapped out.
Ciao
MS
Tanta, please, how will this play out? Will they or will they not give Mr. Bash all of his money?
I'm at the point of hoping they don't. Someone needs to be made example of.
Come on, folks. Read the article.
But after IndyMac was seized, an FDIC hotline operator said the extra insurance wasn't necessarily valid, Bash said. That landed him in line Monday.
Dude makes account changes on Tuesday, July 8. FDIC seizes bank at close of business on Friday July 11.
At some point after 5:00 pm ET but before 8:00 am ET Monday morning, this guy freaked out, called the FDIC hotline, told them we don't know what kind of coherent story, and the hotline operator could not verify that the additional insurance was already validated.
So he got in line on Monday with a bunch of other panicked people, and apparently never got all the way to the teller line.
On Tuesday, he went back to talk to someone, and found out that there is a hold on part of his account balance. "A hold" does not mean "gone forever." It means the account is still pending verification of the beneficiary change.
OK, fine. This is just a horror. In the process of taking over the biggest depository it has ever had to take over, the FDIC shoulda had those holds cleared Friday night by 8:00 pm because, dammit, somebody might have added beneficiaries on Tuesday because they were afraid of bank failure but not afraid enough. Shame on the FDIC for not offering the kind of flawless customer service you get at a fully functional bank.
Look, if your bank fails and you have to get a check from the FDIC, you might find the experience inconvenient. Depending on how self-absorbed you are, this could be a very big worry for you. I don't know what to tell you; my own moral hazard threshold is a bit different.
I'm sorry but I have really no idea what all this fuss is about at all. As Tanta said, this is a bank being operated as a bank by the FDIC. In fact, as I've said elsewhere, this is now the safest bank in the country, so I don't understand what all of these people are thinking. People laughed when I said buy that Countrywide CD at the redonkulous rate they were offering. That CD is now living happily at BOA earning nice nearly risk-free interest. They laughed when I said buy that CD at Indymac for the redonkulous rate of interest they were paying. Now that is snoozing happily REALLY risk-free in the arms of the FDIC earning that interest.
Some people just don't think, do they?
FDIC deposit insurance covers the balance of each depositor's account,
I read "each" as modifying "depositor", not "account".
It's ambiguous, but as you point out the ambiguity is cleared up later. I don't see this as particularly confusing--I certainly wouldn't have come away with the impression that I could simply open five accounts and get $500k in insurance.
"Todd Bash, a 43-year-old teacher . . . had two certificates of deposit, a savings account and a checking account, totaling more than $180,000. "
What in the world? A 43-year-old teacher with $180,000 in hard cash?
Some people just don't think, do they?
ipodius |
no, ipod...some people don't think, and that is why the CD was created.
for the non-thinking, dgaf investor.
Bash returned to the bank Tuesday more confident, but when he finally talked to a teller, she showed him that more than $80,000 was missing from one account. Why? The teller didn't know. She referred him to an FDIC official in the branch, who also couldn't tell him what happened, he said.
"One person finally suggested that maybe there was a hold on my account, but when I asked if it was a hold, why wouldn't they just say there was a hold? . . . Nobody could give me any answers," he said.
Then there's the whole "bank" versus "branch" ambiguity. I'm assuming bank means "company" not "nice little building on the corner of 5th and Main" but can see people assuming otherwise.
woot! looks like I get to keep my job for another quarter! go wfc!
PV, he's in Cali. don't worry, he'll never see his retirement, tiaa-cref is Fubar.
Come on, folks. Read the article.
Now come on Tanta, that would take effort and it is just easier to blow your fingers off in a thread. Because, you know, like if they'd have read anything in their lives about banks, you know, the same banks they use every day, they'd know what the rules are. But perhaps because they are so self-absorbed about the yield they are chasing all the time on here, they didn't have time. One wonders what these people think about the money in their IRAs, 401Ks, or brokerage accounts. Heaven forbid they trust any funds to hedgies.
Perhaps some should stop posting and go read and process. Then they wouldn't sound like Mr Bash.
This regulatory failure, however, is not the fault of depositors like Mr. Bash, who are doing exactly what the deposit insurance system was created to encourage them to do: not panic.
I have to disagree with you a little there.
On Tuesday, Bash did not panic. He accepted that FDIC insurance of his whole $180K was an OK risk.
On Monday, standing in line for 8 hours to get that check from the FDIC, he did panic.
Another great post, T. You must be eating your Wheaties.
I just hope that, after getting a letter yesterday informing her that she has ownership in an account with a $180k balance over at IndyMac Bank, Momma Bash decides to skip out on canasta today and instead stands in line over at the branch in Encino. Momma Bash gets in, and withdraws everything in advance of son Todd.
I just called ING direct. None of their accounts are POD. They don't have that facility. The customer service representative assured me a joint account is good enough for upto 200K.
Now what?
ipodius - i agree, but the issue for me at first was the amount over the limit. why anyone would have more than 100k earning that high interest at a failing bank was beyond me, so I thought, well: (a) Bash is a fool or (b) the bank was being sneaky and tricked him or (c) Bash is very clever or (d) the bank is very clever or (e) my head hurts.
But apparently no need to panic. Everyone gets made whole. I like your strategy. Banks still accept those coin roller things, right?
Now what?
Now you call them back and ask them to explain to you why if its already a JOINT ACCOUNT (two "depositors" instead of one) it doesn't need to be a POD account to qualify.
That oughta ruin the CSR's day.
All the money in all your accounts at any one bank (not per branch) is insured up to the totalled limit of $100k if you are the sole individual owner of the accounts.
Add your spouse as a joint owner and each account owner/depositor is insured up to $100, meaning you and your spouse can keep up to $200k insured at one bank. If you have more money, put it in another bank or make arrangements for beneficiaries in trust accounts. All this is explained on the fdic web site.
Also, you can check your bank's health on bankrate.com.
FDIC insurance is paid by banks, btw.
Is anybody else wondering why the SEC is only enforcing the laws against naked short selling to large financial institution shares?
Peripheral Visionary writes:
What in the world? A 43-year-old teacher with $180,000 in hard cash?
It pays to be a good teacher.
I read "each" as modifying "depositor", not "account".
At a certain point, you just have to eat, shoot, and leave, you know.
The FDIC routinely uses the basic rules of English syntax to confuse people.
Next year at this time we will be discussing why the FDIC brochure on deposit insurance is now 27 pages long and the definition of a "depositor" is not in bold cap italics on the top of the document. Bet me.
Maybe they don't trust or don't want to be troubled by the FDIC.
After blowing 10% of its load already, "trust me, I'm from the government" just isn't going to cut it. Why should anyone believe that the same people who have been yawning "no bubble," "containment," and "permanently high plateau" now that they're claiming to "have our backs."
This government is criminal. They do not represent the citizens, they represent the owners of capital.
The little people will get just enough cake to keep them from storming the Bastille (if they could ever find what to storm).... and nothing more.
Trust us. ....shit....
Further to my post above and Tanta's response - Tanta, you are focusing on WHEN he did what he did. The more germane issue is will the FDIC abide by its own rules or not.
If they don't make it very clear that people with POD beneficiaries (who meet their own established criteria) are covered, then they're flirting with a generalized bank run.
I'm sure that's a baseline fear of Tweeldedum and Tweedledee.
"And, if the answer here is no they will not, then the villain is not the bank or the customer. It is emphatically the FDIC."
No, it is most emphatically NOT the FDIC's fault. If you get hit by a drunk driver going the wrong way on the freeway late at night on New Year's, it might be slightly your fault for being on the freeway at an extremely dangerous hour, and it might be slightly the police's fault for not keeping the roads clear of drunk drivers, and it most certainly is the drunk driver's fault, but it is NOT the paramedic's fault.
"The entire purpose of the FDIC is to insure that depositors do not run to withdraw their money from banks that are endangered."
No, the purpose of the FDIC is to help limit the damage from bank failures. It is also, ostensibly, to protect small depositors while leaving larger depositors (who presumably are more "sophisticated") with a bit more risk. That's why there's the $100,000 limit. I'm with Tanta, I'm having a hard time sympathetic toward someone with over $100,000 who's trying to slide under the protection limit by some last-minute changes to the account.
Actually, I'm having a hard time being sympathetic toward anyone with over $100,000 period, if you have that much in cash you need to do your homework, and if you don't "get" finance then you need a financial advisor.
Hamburger - just because I'm a bear of small brain and need things spelled out. Does the joint account owner have to be a spouse for the insurance to kick in? I didn't notice that bit when I was at the FDIC page. And I intend only to admit to being bear of kapok, not finances, because I can't wrap my head around selling cars I don't own while wearing or possibly not wearing underoos.
"What in the world? A 43-year-old teacher with $180,000 in hard cash?"
Peripheral Visionary | 07.16.08 -
Why is this suprising? I have friends who have never made more than the average income for the area they live in who have way more than that at a younger age. Not everybody spends like a drunkin sailor...
Chris
Don't worry...the SEC will find a patsy in all of this. The 'manipulators' will turn out to be some CPA's barber or a blogger who went too far.
THERE SHE IS! BURN HER!
And then trust us again.
This government is a criminal enterprise. America is undead.
3 points :
-K
Anonymous | 07.16.08 - 9:50 am | #
well said.
The FDIC cannot say shit about shit until the day the close the bank. That is just the sad fact of how you manage a bank shut-down.
That sounds to me like the moral hazard of regulation. Everything's fine until a regulator says it's not fine, even if the regulator knew things weren't fine for months.
You can tell people that regulation isn't a substitute for doing your own due diligence, but when people are clamoring for more regulation they are indeed asking for government to take over more of the due diligence.
You seem to be certain, Tanta, that he will get his $80,000. He's not sure. I'm not sure. A lot of well-informed people who post here do not seem to be so sure.
I think Mr. Bash should panic. As for comments that he should be aware of the risks his bank was taking - those are simply absurd. The bank itself did not know, the regulators did not know, other banks with whom they did business did not know...
If FEMA married FDIC, what would they name their firstborn?
"George"
999,999th!!
Moral Hazard Meets Hazardous Manners ... in your choice of adverts?
Tanta writes:
Big goddamned deal.
Tell that to the 1400 or so depositors of Superior Bank FSB who, apparently to this day, still haven't seen $50 million of their deposits when the FDIC closed Superior back in 2002.
"Now come on Tanta, that would take effort and it is just easier to blow your fingers off in a thread. Because, you know, like if they'd have read anything in their lives about banks, you know, the same banks they use every day, they'd know what the rules are. But perhaps because they are so self-absorbed about the yield they are chasing all the time on here, they didn't have time. One wonders what these people think about the money in their IRAs, 401Ks, or brokerage accounts. Heaven forbid they trust any funds to hedgies.
Perhaps some should stop posting and go read and process. Then they wouldn't sound like Mr Bash."
Agreeing with Ipod does not make me happy.
"What in the world? A 43-year-old teacher with $180,000 in hard cash"
Part time teacher. Full time california real estate speculator. Same as just about everyone else in CA. Ahnold, the Donald Trump protege says go for it.
I called the FDIC on several occasions. I found their information specialists and lawyers surprising friendly, knowledgeable, and helpful.
I dunno what all this POD stuff is but this is the category my spouse and I fall under to make sure we are protected up to 200K (2x100K):
Joint Accounts
A joint account is a deposit owned by two or more people. To qualify for insurance under this ownership category, all of the following requirements must be met:
If all of these requirements are met, each co-owner's share of every account that is jointly held at the same insured bank is added together with the co-owner's other shares, and the total is insured up to $100,000.
The FDIC assumes that all co-owners' shares are equal unless the deposit account records state otherwise.
http://www.fdic.gov/deposit/Deposits/insured/ownership3.html#joint
-K
At this point, some panic may be the light to expose the fraud of fractional reserve banking and a fiat currency.
Is anybody else wondering why the SEC is only enforcing the laws against naked short selling to large financial institution shares?
I'm not wondering. Are you wondering, awgee? I thought you were a pretty sharp guy!
Where is it in the article to suggest
that Mr Bash is upset at a "hold" or at "several days of red tape" ???
The problem seems to be no one could
tell him what his situation was.
Eventually someone suggested
that "maybe" there was a hold.
(But he asks if that is actually true,
no one will in fact tell him "yes there is a hold"). For all we know, he'd be 100% understanding if he was told there was a hold while things were checked. That doesn't seem to be what happened.
It's not, IMO, unreasonable to expect to be told, by someone knowledgeable, how to expect things to play out.
If they don't make it very clear that people with POD beneficiaries (who meet their own established criteria) are covered, then they're flirting with a generalized bank run.
How clear can they make it for you? I really want to know.
The FDIC has never and is not saying that people with POD accounts do not get coverage.
They just said in this particular case that nobody gets paid until the beneficiary is validated. So, say, anybody thinking about trying to get $500,000 insured by adding his other four wives to the account is probably SOL. Good on FDIC.
Everybody else can just calm the hell down.
I am not willing to blame the FDIC for future bank runs because some not very sad story in the LAT gave some not very attentive readers the wrong idea about POD accounts.
Let me suggest for everyone who still can't stop being afraid here: go to your bank and try to withdraw all the funds from any account you have with a POD.
If the teller says "okie dokie," your account does not have some hold on it and you are fully liquid.
If the teller says, "I can't do that; you just changed beneficiaries three days ago and the hold won't come off until next Tuesday," then you should go back Tuesday and re-test.
How long will the FDIC remain solvent? IndyMac is just the first of a number of regional bank failures and it alone will cost the FDIC $4B to $8B, 9% to 18% of FDIC's reserves!
Way to miss the point, Ipodius (and others). This has nothing to do with chasing yield. It has nothing to do with being unintelligent or uninformed.
If YOU would take the trouble to read this thread more carefully it would be clear to you that this is about parsing words.
If people choose to park money in a CD for convenience and/or safety, there's nothing wrong with that.
They can chase "yield" ( a pretentious word) in other places and other ways.
He should be counting his lucky stars that he read about this in the news, and that he got in there on Tuesday...
"How long will the FDIC remain solvent?"
As former FDIC chair William Seidman said,
"My friends there is good news and bad news. The good news is that the full faith and credit of the FDIC and the U.S. government stands behind your money at the bank. But the bad news is that you, my fellow taxpayers stand behind the U.S. government."
TANTA JUST ORDERED A BANK RUN!
MR. COX!!!! Tanta just called for a run!
After reading the comments I haove only one thing to say to Tanta
Good Morning Sunshine
The FDIC makes this POD stuff this clear:
http://www.fdic.gov/deposit/Deposits/insured/ownership4.html#revocable
http://www.fdic.gov/deposit/Deposits/insured/ownership5.html#irrevocable
Do I understand it ? I found "don't put more than 200K in a joint account at a single FDIC protected institution- spread it about " MUCH easier to understand and followed THAT !
-K
Go back and read the article, people say. OK. Here are some quotes:
“But many customers have said that when they checked their balances online, tens of thousands of dollars appeared to be missing.”
“they encountered lines hundreds of people deep and unhelpful staff members.”
“FDIC officials acknowledged that she was owed $213,500 but provided her access only to $99,000”
“FDIC official who is now IndyMac's chief executive, acknowledged that some online records of accounts and insurance were inaccurate”
“he referred him to an FDIC official in the branch, who also couldn't tell him what happened”
"Todd Bash, a 43-year-old "teacher"
Pretty much explains how we got to this point.
As I walked into my local Washington Mutual branch on Monday, two police officers were dragging out a distraught, well-dressed, middle-aged man.
Branch employees would only say he was "upset." Perhaps he was attempting the impossible, like early withdrawal of an uninsured CD, or reinstatement of a frozen HELOC.
To their credit, the police let him go. This occurred at the Baker Street branch, near Harbor Blvd in Costa Mesa, CA.
I'm not sure I would want to invest in CD's from bank about to go under.
"FDIC deposit insurance covers the balance of each
depositorÂ’s account, dollar-for-dollar, up to the insurance
limit, including principal and any accrued interest
through the date of the insured bankÂ’s closing."
http://www.fdic.gov/deposit/deposits/insured/yid.pdf
sorry to be off topic but what's going on in the markets - more short covering?
There is acontradiction here:
She referred him to an FDIC official in the branch, who also couldn't tell him what happened, he said.
yet
FDIC spokesman David Barr said most of the problems stemmed from trust accounts that have been put on hold until the agency determines that beneficiaries have been properly named. In most cases, those funds will be released in full after the depositor confers in person with the FDIC, he said.
Uhh, Mr Bash reported that he DID speak to an FDIC representative, and it did no good at the time (Why the representative didn't at least go "Call this phone #"?)
Goodness Tanta! Not only have you looked the gift horse in the mouth, it seems that you also called in the proctologist.
I love the smell of a Tanta post in the morning.
market's rippin, and no one wants to talk about wfc?
Wally - you're saying inconvenient things here. People don't like that. They might have to actually think it through and realize that there IS ambiguity here.
Tanta - I refer you to Mike Dillon's comment.
"I thought you were a pretty sharp guy!"
You are more easily fooled than I, FE.
All co-owners must sign the deposit account signature card unless the account is a CD or is established by an agent, nominee, guardian, custodian, executor or conservator.
Question: I don't remember my wife signing up for any signature card, at least for my current bank accounts. Due to id-theft fraud I opened up a new account and was able to put her as a joint account on the phone. I bank at a credit union so the rules might be different...?
fair econ.
Total crock of crap IMO...
If they actually enforced the original written rule then that would mean nothing. Bryne (Overstock) may not know how to run a profitable company but he has some well researched points that just got validated by this.
With the "limits" they are now saying that naked shorting was ok....and is now not.
Yep...it's all the fault of shorts.
Ciao
MS
Oil down $6! Gotta love the free part of our quasi-free markets! Demand destruction baby!!!
"Which of the following banks is best for
saving my money: Simmons, Sealy, or that
Swedish one with the space age foam?"
The foam mattresses are the best. You don't have to worry about your coins rattling, like they do when they bump into the springs in a coil mattress.
re: signature card -
Yeah, I checked that out ages out - for CDs you don't have a problem as per the text above, but what about money market accounts and savings accounts or current accounts?
I had a signature card done ages ago.
As ever, own homework caveats apply.
-K
Tanta - I refer you to Mike Dillon's comment.
Why? He provides no link. He says 1400 depositors have failed to collect $50MM.
I cannot be the only person able to divide $50MM by 1400.
What's happening in the market? Bull seem to be roaring head....everything is back to normal. Have we reached a bottom?
Ron Paul vs. Bernanke live, woo hoo!
There was the announcement of no naked shorting yesterday that is undoubtedly causing some funds to pull in their horns. It's also expiry week which exaggerates all directional moves. WFB reported what look like decent earnings on the surface...etc
Re: NCUA website
Well my wife has equal rights to withdraw money, so I'm not concerned. I don't have anywhere close to $100k in cash right now, but I'll be coming into money when my grandfather passes.
Kind've ominous on the NCUA brochure: legislation that increased NCUSIF coverage for retirement accounts also has a provision for potential increases in the insurance limits on all share accounts every five years...
I imagine Congress will be re-visiting the 100k limits if the bank-runs continue, and it wouldn't surprise me if they change the rule to only insure $75k... and I can see a number of people getting behind it since it "costs too much to bailout depositors".
Tanta asks: Can't someone just type in some numbers and hit the "enter" key?
Ans: No, you have to give it a fancy name like TAF as well.
Did my snark misfire? I was implying TPTB need to prop up financial stock prices for bank depositor confidence and F&F capital raising. I assume everybody else is thinking about the same thing.
I think haloscan is....I gather you're last comment was in italics or something?? All I saw was a statement...
Ciao
MS
Didn't the UK splutter on about needing to revise the amount insured UP after Northern Rock?
"How long will the FDIC remain solvent?"
As long as the US goverment has a printing press.
FE - I got it, and was back atcha.
who would have thought all those americans that did not save were actually on to something. while people are lining outside indymac im reminded of an old saying..."he who dies with the most debt wins!"
Interesting, reading up on SPIC insurance.
The cash and securities (such as stocks and bonds) held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are NOT protected by SIPC are commodity futures contracts and currency, as well investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.
Does this mean futures ETFs are not covered by SIPC?
I shouldn't have said futures ETFs. How about something like USO, would that be covered by SIPC? I think I'm being a rube again... but that is an ETF that represents a commodity contract, but itself is bought and sold like normal stock.
TradingStats:
ok, let's talk wfc
what up?
They might have to actually think it through and realize that there IS ambiguity here.
No, actually, there isn't. Dude set up a revocable trust with his mother and sister as beneficiaries. He did so at the last minute, and is now sniffy because somebody needs to verify that the trust is valid before they put the money in the insured basket.
The fact that the front line troops and the guys who get pinged by reporters looking for answers have different replies isn't anything more than the standard chaos that happens when something big and complicated happens quickly: the grunts know the answers to the simple questions, but for anything complicated (like why can't I withdraw money that won't be insured if I named my dog as the beneficiary of the trust I set up yesterday) you need to find an officer.
Careful, YLSP, it's SIPC.
Have we reached a bottom?
The real bottom comes when your casket hits the bottom the grave for most. Cremation probably isn't going to stop a permanent bottom either as eventually the partials from your burning corps will fall back to earth. I”m going to try and put that off as long as I can but if your looking for THE REAL FINAL BOTTOM ones own death is probably a good place to look. The bright side is you won't be worried about it.
If an ya need proof why the banks are so effing bad:
Atlanta Metro News | ajc.com
..
At risk of the slapdown, of note for me on WFC was 90 days ago the consensus estimate was $0.57/share, today the 'beat' was $0.53 vs. current consensus estimate of $0.50...
IfSoSmartWhyNotRich writes:
As I walked into my local Washington Mutual branch on Monday, two police officers were dragging out a distraught, well-dressed, middle-aged man.
Huh... I'm not predicting we switch to the panic emotion until the Fall... These bank failures could expedite the process.
Got Popcorn?
Neil
"anonymous writes:
sorry to be off topic but what's going on in the markets - more short covering?
anonymous | 07.16.08 - 10:47 am | #"
Summer will end. No shorts after Labor Day. No white shoes either.
I can't believe this. The publication time of Tanta's post is 8:14AM, which means she posted it at 5:14AM PDT out here on the Left Coast, which means she started writing it, when? 4AM? Or is she so brilliant she only needed 15 minutes?
We'd have to get up pretty early in the morning to do what Tanta does, and even then we could not do it.
Tanta, I split my sides laughing from some of your responses. Now I need to go to the emergency room. I'll be damned if have to wait for them to handle people who had heart attacks from the market's gyrations, or be delayed while they find out if I'm allergic to penicillin that could kill me. Can't they just push some buttons? I mean, its one thing to make some people wait for clean water and food in the Superdome in New Orleans, but I deposit my money in sounds banks in amounts covered 100% by FDIC. Why should I have to wait?
Phil Gramm said we're a nation of whiners. Well, its not like we're a couple of million Iraqis upset because we can't flee our country after George W Bush sent the troops to help us. Ingrates.
Stitch up my sides, pronto, doctor. I need to get back to day trading.
In regards to WFC, and banks in general, anyone thinking of bottom fishing should look at their historic patterns during recessions. WFC hit a low of 15 in 2000, and that recession had nothing like this credit crunch, and mortgages hardly suffered at all.
Banks valuations were just phenomenally high relative to the economy.
Amazingly, I think Meredith Whitney is right again, banks have a lot further to fall.
Misean writes:
"It's the essence of service business...we pay for advice on things that we are not experts."
... you mean like asking your barber whether you need a hair cut? (citing Warren Buffet)
Is "You're all whiners" Phil Gramm the same Gramm as in Gramm-Leach-Biller?
It's not, IMO, unreasonable to expect to be told, by someone knowledgeable, how to expect things to play out.
I, on the other hand, continue to think that it is reasonable to expect a fair amount of operational glitches in a large bank takeover.
I think of large bank takeovers as kinda bad things that everyone should be doing their part to try to avoid. I think if they do happen the FDIC needs to be there to deal with it.
On the other hand, if it's too smooth and non-disruptive and calming and "normal," then by God something's wrong.
I'm sure everyone at the FDIC prefers that this confusion/glitch hadn't happened. But there comes a point where the expectation that an FDIC takeover will be seamless and trouble-free just blows me away. If it wasn't broke, the FDIC doesn't need to be there to fix it.
What I am hearing on this thread is just reinforcing my sense that the moral hazard is getting pretty bad. People seem to think that FDIC insurance should guarantee them insulation from the effects of interrupted systems, unscheduled shut-downs and reboots, staff attention being diverted to handle legit and crazy people both on a first-come basis in the line on Monday morning. Why? Because "eventual but reasonably timely" payment of accounts isn't good enough. We need "instant" payment of accounts or else we'll panic. There must be NO PAIN AT ALL to bank depositors, or else we think our insurance isn't good enough. Is what I'm hearing.
And this troubles me because it creates a classic kind of moral hazard: even when you have good reason to believe that your bank is in trouble, you keep your accounts there because you are insured.
I thought the point of FDIC insurance was to protect you from info asymmetry: when you don't know--you have no information or ability to know--that your bank is at risk, you are not punished by losing all your money.
But if you do get this warning shot, and you leave your accounts there anyway relying solely on deposit insurance, then you are increasing your risk-taking because you believe someone else will bear all the costs. That is classic "moral hazard."
To then complain because someone else bears all the costs but fumbles the customer service a little seems to me to take it to yet a higher level of fecklessness. That's all.
Yup, Phil Gramm and his buddies Leach and Bliley, AKA the guys who pushed to do away with Glass-Steagell and leave more of the show to go on behind the curtain than could be done before.
Also the same Phil Gramm who financed soft-core porn.
Maybe he can go back to that line of work and do a spoof on the real estate bust. Lots of people looking for extra cash these days.
Oh, yeah, the same Phil Gramm who was glued to McCain's side as his chief economic advisor . . . until that unfortunate quip about whining.
Tanta wrote:
"I thought the point of FDIC insurance was to protect you from info asymmetry: when you don't know--you have no information or ability to know--that your bank is at risk, you are not punished by losing all your money."
That's the best observation I've read all day...
joe schmoe: I live on the east coast.
The time stamps on the blog posts are now all ET. They used to be PT, meaning that CR (who lives in California) didn't change his time stamps when he posted, but I changed mine.
We went to ET blog post times so that it would match Haloscan, which apparently thinks everyone is on ET.
Tanta
Oh. I guess I missed some news a while back. In that case, why only one sterling essay this morning, and not two? I mean, its not like you're standing on line battling with the mob.
Cheers, many thanks, and always best wishes
Joe
black dog writes:
I'm not sure I would want to invest in CD's from bank about to go under.
"FDIC deposit insurance covers the balance of each
depositorÂ’s account, dollar-for-dollar, up to the insurance
limit, including principal and any accrued interest
through the date of the insured bankÂ’s closing."
THIS MEANS THAT the FDIC covers your deposits, CDs, whatever, INCLUDING any interest (on a savings account or CD e.g.) earned up until the day that they take over the failed bank. So you MIGHT be out some interest that you expected to get on a CD, e.g., if the maturity date is subsequent to the day the receivership takes place. Of course coverage of your total has the 100k limit (unless you have a joint account, etc.).
Great post, Tanta. You supplied my morning tragicomedy. Thanks.
"I, on the other hand, continue to think that it is reasonable to expect a fair amount of operational glitches in a large bank takeover."
Granted. A reasonable observation. However, nobody wants to be the poor bastard who gets caught in the gears and I do have sympathy for him and her. This guy, if the 'i' and't' are not proper in the view of the FDIC, might lose $80,000.
Misean,
Horse-poop yourself! I just deposited 200K a few weeks ago and got hit with a 10-day hold. Showed up on the account balance instantaneously, but the funds became available for withdrawal over that period. And it's not the first time. To be honest, I'd worry a little if they didn't do something along those lines; I can see much potential mischief.
The hysteria in the comments at this very fine blog is driving me nuts. A surprisingly large number of commenters seem to be searching for some vast scandal and malfeasance in every story and every news item. Aren't no-doc mortgages ENOUGH? How much more scandal do you need?
Tanta's right, everyone needs to calm down.
Last year the FDIC put on a big push to set up the website explaining the rules, make sure that banks knew about it, and verify in exams that people had been trained. They were worried that people would lose their savings, and they had found that personnel at some institutions really didn't understand the rules either.
Mr. Bash will get the money as long as his beneficiary is legit.
It is true that the FDIC went through a lot to basically show people how to maximize their insurance. But on the other hand, the FDIC has a vested interest in making sure that depositors don't get hysterical in the first few closures. If they do, then panic could take down perfectly viable banks and you could see a nationwide bank run. Put that way, Mr. Bash's extra $80,000 of insured funds are cheap at the price. Nor is it somehow improper for the bank to tell people about this, because in all honesty, the entire insurance system operates to prevent widespread bank runs. It's meant to prevent people from removing their funds from banks on rumors, you know?
For those who are still baffled - when you change the titling (ownership) in an account, it is a new account, it will run through scrutiny, and in most banks the majority of the funds will be on hold for a while. That's where the disclosure called "Funds Availability" comes in! The FDIC most definitely will verify the beneficiary to prevent fraud. The balances being shown in online accounts are the ones available to the depositors RIGHT NOW.
Tanta is simply pointing out that once again, Trained Journalists(TM) have managed to create a hysterical cloud of misinformation.
The law about payment by the FDIC is "as soon as possible" - and the FDIC says that historically its paid up on the insurance within a few days..
What's a few days ? I can't see why its moral hazard if people expect to be paid for the insured portion in a few days. Refusing to put up with delays and snafus and glitches isn't moral hazard, its just being a demanding customer - and since we have "PAID" for this FDIC, indirectly sure but paid, for it. The FDIC isn't doing any favors, its doing its JOB and it has to be a quality job.
Of course, personally, I didn't want the potential hassle of FDIC administered closed banks so I closed out our CDs at CountryWide and Corus as I watched their stock price tank. I didn't wait for them to get closed ( they haven't been either ); but this wasn't because of an elevated sense of morality - its because of an elevated sense of "better things to do than waste my time extricating myself OUT of a (potential) crash especially when I get out of the way NOW".
I think you are being too hard on the commentators.
-K
Maxed Out M
Yes, no-doc mortgages were a bit annoying. But lets not forget setting the middle east on fire, torture, letting New Orleans drown, ballooning the national debt for crap worse than all the Option ARMs put together, and ditching 800 years of precedent on habeus corpus.
But damn if I can't instantly get 100% of my money plus interest out of an investment that I knew was too risky and could go under. That's just going to far. Time to get my pitchfork.
I think you are being too hard on the commentators.
You mean those commentators who have used terms like "conned" and "robbed"?
If any of you need extra insurance, feel free to add my name to all your accounts.
It's just the zeit bleeding into the innertubz. One thing that really struck me in that video yesterday was the reporter walking down the line of customers standing in line asking why they were angry. Lead questions much there dude? Would a leash help you? Well, I guess if it makes a better story. Add in the local (sub) zeit that no govt agency can do things correctly (no matter that I can't imagine any corp. running a change-over of this sort without issues - we live locally in abject fear of a planned move a half-year in advance!) and there's bound to be a lot of arm-waving.
Not One Cent
Now there's an idea.......
hey, y'all. You can add my name, too. Just post your phone number and I'll call you to give you my real name.
Oh, and I think I can set you up with some life insurance and accidental death and dismemberment, too . . . insurance, that is.
Plus there's this bridge in Brooklyn. It is in a hot neighborhood on the Brooklyn side. And the city's best brick over pizzeria is under its base. I can give you a great deal, and free pizza for life.
Rest assured that if there's even a whiff of bank closure at any more banks, people won't wait until AFTER it's seized to withdraw funds. Rumor can now bankrupt banks.
Tanta writes:...if you do get this warning shot, and you leave your accounts there anyway relying solely on deposit insurance, then you are increasing your risk-taking because you believe someone else will bear all the costs.
Bearing this in mind, what changes should be made in the FDIC insurance?
Re: I fail to see where any member of Congress has done anything nasty, save for perhaps the effort by Schumer, but every other member on his committee was silent and for the most part they all are dressing up like whores to see if they will be picked to become The Next VP of America......do your own DD, like I have done!
I, for one, am completely content to spread rumors. National City is next!
It's high time we culled the corruption from our midst. The legal system won't do it.
Oh wait - they are ALL crooks. These are the real American values - greed and corruption at every level. I'm sure they are all good church-going folk too!
anonymous: "what Mr Bash did seems
very sensible. Add payable-on-death beneficiares (parents, spouse, children) and include the letters "POD" on the account title, and ... so it seems to me ... you can get extra coverage. Not a scam, not trying to exploit any loophole, but just the rules.
It's not clear the article itself realizes this (probably it does) but some of the commenters do not."
This was exactly my reaction. Why criticize Mr. Bash? He's just following the rules. If you don't like the outcome, blame the people who made the rules.
Don't put all your eggs in one basket, as the saying goes. My husband and I have maintained totally separate credit union accounts since before we were married, and I always refused to get joint accounts. Staying under insured limits at any one place makes sense to me.
But then, I wouldn't go near a bank. Been at credit unions since the 80s, when the S and Ls all failed.
Bearing this in mind, what changes should be made in the FDIC insurance?
I'm not sure that you can make any changes to solve this exact problem.
The reason why many of us were really kind of shocked by the Schumer leak is that we have it ingrained in us that you only have two choices with the banking system: say nothing publically or shut it down. I'm not saying those are great choices, just that they're the only ones you have.
The weird thing about this particular situation is that the fear we all had when the Schumer leak hit the press was that Indy would be brought down by a bank run and we'd find out later that it could have made it. (Not saying that it could have, just that that's why we fear bank runs.)
As far as I can tell, there wasn't much of a run on IndyMac. If Bash is any kind of typical of the most worried depositors, he was pretty easy to reassure. All he wanted to know was that he was insured. Which isn't exactly the same thing as wanting to be reassured that IndyMac wouldn't fail.
The "run" here is a post-shutdown mashup, not run on a functioning institution. So to that extent the deposit insurance system "worked" the way it was supposed to. People didn't get overly antsy until they had really good reason to (namely, until they heard that the FDIC had shut 'er down).
But things like the Schumer leak aren't "supposed to" happen. So the system isn't built to deal with this kind of additional moral hazard, having access to "good authority" information that your bank is in trouble but seeing it continue to operate, and having to decide what to do in the interim.
My point wasn't to criticize the deposit insurance system as much as to observe that it has possibly worked too well. We no longer should be most afraid of runs on solvent institutions that destabilize them, since people are too reliant on insurance to do that anymore. Now we just have to fear that there isn't anything you can tell people that will scare them enough about a given institution short of "the feds shut it down today."
My apologies, Tanta:
There are conflicting reports as to whether the depositors have received any money. A quick Google of "Superior Bank $50 million 1400" pulls this up:
"Superior Bank" $50 million 1400 - Google Search
That said, regardless of motivation, would an attorney representing the Superior depositors make a statement such as this if his clients had, in fact, recovered their funds already?
The Consortiumnews.com
As an owner and board chair of Superior, Penny Pritzker also was named in a RICO class action suit on behalf of the more than 1,400 depositors at Superior, who initially lost over $50 million of their life savings.
"This is a story of two Americas with two sets of laws, one for the rich and powerful and another for the rest of us,” said Clint Krislov, the depositors’ attorney, in a recent interview. “My clients will all be dead, before they get back their money, given the Supreme Court’s recent decision to uphold the lower court, which put the predatory owners on the front of the line, if any money is recovered.”
Superior was placed into receivership in July, 2001.
OTS Closes Superior Bank FSB; Hinsdale, Ill. Thrift is Insolvent
The above referenced statement by Atty Krislov was apparently made Feb 2008.
"Oh wait - they are ALL crooks." Et tu, Paul, et tu.
So, Mike, you found an example of a bank failure in which all insured depositors were paid and not all uninsured depositors got their money back.
Uninsured depositors quite frequently don't get all their money back (although most of the time they get some of it). And????
well, there's one occurence of "rob" and 1 of "con" and both are attacking IMB and its employee for persuading him to change his mind by dangling the proper applicable FDIC insurance in front.
The moral hazard is not in the commentators nor Mr. Bash, its at IMB; not in the conventional sense but in the immorality of the employee not letting the depositor just take his money and run.
Of course the point that the moral hazard, in the conventional sense of deposit insurance for both banks to lend irresponsibly and for depositors to keep money with them since neither fears a bank run and keeps a eye on their money is conceded by me and often brought up by pure free market economists.
-K
I'm as big a moral scold as anybody, and frankly have a hard time staying out of the "schadenfreud" camp that Tanta likes to regularly lecture.
But here's the thing that tempers my approbation at Mr. Bash and the like: I think the 100K insurance limit dates back to like the Andrew Jackson administration. It seems rather small - even before the dollar cratered - for any middle-class person that is a careful saver.
Not that there seem to be many of those in the US, but still.
Now the whiners can be told that they weren't attentive enough to bang on their Congresscritters like, many years ago to do something like this, but OTOH we had cable TV blaring at us 24/7 that if we weren't "in the market" we were total losers. Any Joe-from-the-street who showed up on cable and said "I got 180K in the bank> for my retirement" would have been laughed off the show before finishing the sentence, in the go-go 90's.
Still, I don't mind pointing an additional angry finger* at the government for this, wacko leftist that I am I feel that the gummint should be taking care of stuff like this without my needing to kick them in the arse, I have enough crap to attend to in my life. I can't think of everything.
Shame the guys at the counters have to bear the brunt of the anger.
*Yes that finger.
All I can say is that Mr. Bash better max out his contribution to Chuck Schumer's next campaign. Because plainly he would have left his $180,000 all in his own name without the extra warning.
Maybe it wasn't the Jackson admin, but I'm thinking really hard and I swear I remember when I opened my first passbook savings acct (5 1/4 pct!) I was told - for no obvious reason, as I was a teen with like $80 to put away - about the 100K limit.
At that time that would be 5x what my Dad's solidly middle class house was worth. 100K meant you were rich. It was only a few years after the entire US fainted over Joe Namath's 400K contract for "playing a game". A contract that nobody seems to know actually had a coaching (scouting?) job for a relative as part of it.
So what I want to know is...who is paying for all of this????
Yes, the more I think about it the more I cannot get mad at Mr. Bash:
Sorry, look:
This guy's a 43yr old TEACHER in savings-starved CA who managed to rack up 180K in savings. There are about 299 million Americans whose financial behavior deserves a good lecture more than Mr. Bash.
the immorality of the employee not letting the depositor just take his money and run
I can't help it that people can't understand the difference between "moral hazard" and "immorality."
But I can wonder why you use language like "not letting him just take his money and run."
I read nothing here that tells me that IndyMac would not let him close his accounts, and so he was forced to accept just changing the beneficiary in order to maximize his insurance. There is no way in hell that happened. Or when word got out that Indy wasn't allowing people to withdraw money, there would have been a bank run. On Wednesday.
You know the fear a lot of us always had was that we'd get some low-attention-span drama queen customer who came in to withdraw money and was told he had to wait three days because there was a hold on a new deposit. Or maybe he was warned that the account he wanted to close had an early withdrawal penalty. Anyway, he refuses to understand the situation accurately and starts shouting "THIS BANK ISN'T LETTING PEOPLE TAKE THEIR MONEY OUT!!!!" and all of a sudden there's a terrified mob at your door.
Knowing that the fear of this situtation lurks in the heart of every banker everywhere, I simply refuse to believe that he was told he couldn't close out those accounts.
He was told he could make some changes and have his entire amount insured. For somebody who went in in the first place because he was worried that the bank wasn't trustworthy, he seems to have been easy to reassure.
Some people are, you know. For every drama queen who will shout "I WUZ ROBBED" because they weren't allowed to withdraw more than $500 from an ATM in one day, there are people who could walk in, see the employees waddling out of the vault with cash stuffed down the front of their shirts, sit down at the CSR's desk and get talked into depositing another $100,000 today in a CD with an early withdrawal penalty. It takes all kinds to make a bank. Trust me.
Bash, like most of us, is probably somewhere between those extremes of customer behavior. All I know is I'm getting tired of people assuming that a 43-year old teacher is hapless putty in the hands of a nefarious bank teller and bears zero part of the responsibility for making his own final decision about what to do when he encounters a sales pitch.
re: The Superior bank
The FDIC apparently did change some of its rules after that one.
USATODAY.com - FDIC changing rules to widen protection, lessen savings restrictions
The intent of the change was to remove some of the legal 'fine print', so that may be related to losses in that closing.
Tanta - let me come at this from a different angle. And please, all you nig-nogs who comment here by shooting from the hip, go outside and play it's a nice day.
If I had $500,000 (which I don't) I'd be a fool not to put it in five different banks to guarantee that all of it was insured. Incidentally, what I think I've learned by looking into this is that you MAY have better coverage if you have a single account with a POD beneficiary than if you have a joint account ,which to me is counterintuitive. But I may be wrong about that in the first place.
My question is, what practical difference does it make to the FDIC whether I have $100,000 insured in five banks or $500,000 insured in one bank. Any prudent person is going to do what they have to do to get maximum coverage.
It seems to me that this weakens your moral hazard argument. People are doing what is convenient for them based on what the banks told them. The banks didn't lie, they cited the existing FDIC rules. If people have to do more to get more coverage of course the overwhelming majority will do it.
What does the FDIC gain if people are made to go all around robin's red barn to get coverage? The coverage is still available. If they want people to have less coverage, I'm sure that could be arranged.
If you eliminate the inconvenience factor, it all looks like a six or two threes to me.
I think the 100K insurance limit dates back to like the Andrew Jackson administration. It seems rather small - even before the dollar cratered - for any middle-class person that is a careful saver.
You are of course aware that you can put $100,000 in every bank, thrift, credit union, and half the investment banks in the whole country, if you have that much money, and every one of those accounts is insured.
The deposit insurance limit does not discourage you from saving more than $100K. It discourages you from putting 100% of your funds over $100K in the same bank.
Is it important to you that the FDIC encourages deposit concentrations at large banks?
"I think the 100K insurance limit ... seems rather small - even before the dollar cratered - for any middle-class person that is a careful saver."
Chris,I'm quite sure that you can have multiple FDIC insured accounts at an FDIC insured bank and have these accounts at more than one FDIC insured bank. As long as to follow the rules, you can have FDIC insurance far in excess of 100k. But don't take my word for it, call the FDIC for details.
My question is, what practical difference does it make to the FDIC whether I have $100,000 insured in five banks or $500,000 insured in one bank.
OK, let's say that there are two people out there with $500K in deposits. The first one had $100K in each of five banks: IndyMac, Wells Fargo, Podunk National, Perfection Federal, and Underemployed Artists Federal Credit Union.
The second one had $500k all in IndyMac.
On Friday the 11th of June, 2008, the first depositor cost FDIC $100,000.
The second depositor cost FDIC $500,000.
Of course nothing would help the FDIC if five banks all failed on the same day. But we're not trying to insure against that (how could we?).
"My question is, what practical difference does it make to the FDIC whether I have $100,000 insured in five banks or $500,000 insured in one bank. Any prudent person is going to do what they have to do to get maximum coverage."
Because it is less likely that all five banks fail.
Or, what Tanta said, quicker and more eloquently than me.
The deposit insurance limit does not discourage you from saving more than $100K. It discourages you from putting 100% of your funds over $100K in the same bank.
I did that. Then my 2 banks merged...
The FDIC is losing $5B on IndyMac. Why do the uninsured get any money back, isn't this coming out of the FDIC (and perhaps out of the taxpayers eventually)?
Russ,
LOL! Of course, one reason the banks merged was to decrease overhead - and they did. They halved your coverage.
Rumor among my officemates last night --- 401ks, most people do know, aren't guaranteed against investment losses.
Gossip is the retirement savings in 401ks is somehow insured by the government if the company managing the 401k program (Merrill, Schwab, whoever) turns up insolvent.
But only up to some limited dollar amount (the number rumored varies widely).
Any truth to this?
(hee hee - Tanta must be feeling better. She's on a roll.)
Immorality, schmimmorality. We're talking AMORIALITY.
davidd,
If, when the FDIC sell the bank, the FDIC comes out ahead of what the insured amounts required, it apparently starts to pay out the uninsured from that surplus. In that sense, the uninsured are the ones who bear the burden, more than the taxpayers, if things like the FDIC decision to halt foreclosures decrease the sale value of IndyMac.
I moved another 300K yesterday from a bank and was met with looks of incredulity by the "premiere banker". I've stopped caring what the bankers think. She made sure to shove an FDIC pamphlet in my hands and three-page photocopy of why her institution was so special. She should have instead been happy that I chose to leave the "extra" cash I have at her bank.
The problem with the gentleman in the article is that he believed the bank teller. Never trust the bank teller.
It's clearly gut check time. Do you think for a moment that anything over 100K might not be covered at your bank? Spread. It. Out.
Don't assume that adding somebody's name in the 11th hour is going to CYA.
re: teachers and 180k$
This is California people. 180k$ was the (possibly tax free) appreciation on a 2bd, 1.5 ba condo bought in 2001 and sold in 2003.
But I can wonder why you use language like "not letting him just take his money and run."
Well, its in the context of the prior statements about the IMB employee persuading him to create a joint account when he came in to withdraw his money - so the sense of it is that the teller shouldn't have done a sales pitch but just processed his withdrawal.
The 3 day, 10 day holds on the actual money are, while inconvenient something that's known to me; so is the $500 ATM limit; that's why in the current conditions, for the past year I've always had a healthy amount of emergency cash around.
But just because I do what just reading personal finance columns has taught me doesn't stop me having empathy for the Mr. Bash's of the world - just because I have my radar on about sales pitches doesn't stop me having empathy for the Mr. Bash's of the world.
They may be, to quote a semi-regular commentator, "born and bred American dopes", but they are "MY" dopes, even though its by adoption and not by birth.
Horses for courses I guess.
-K
Have 150k in an joint ING savings account with wife. Taking out 10k to hide in my house in the chance that financial armageddon ensues. Do I have any risk with the ING account?
Tanta said:
The deposit insurance limit does not discourage you from saving more than $100K. It discourages you from putting 100% of your funds over $100K in the same bank.
Is it important to you that the FDIC encourages deposit concentrations at large banks?
Between Tanta's comment, Trader Walt's response, Anon 9:50, and Peripheral Visionary's comments earlier today, it occurs to me that there may be implicit disagreements about what exactly the purpose of deposit insurance is.
There are at least two, somewhat inconsistent goals here:
If it is to encourage account diversification to mitigate systemic risk, that suggests one policy. You would want to enforce a hard limit with as few possible mechanisms for circumvention. Open as many accounts as you like, just keep it under $100k. In this model, you don't care about how much money you're actually insuring; there is nothing really "populist" about your risk mitigation goal, so you're willing to offer it to all comers.
If your goal is to discourage bank runs [where the little guy traditionally gets screwed], that suggests a similar but not necessarily identical policy. You have the conundrum that you want to create a permissive system that instills confidence, but if you trying to punish 'moral hazard' opportunists, you can't have a permissive system. In this model, you might want your "insurance cap" to reflect a somewhat arbitrary line between the little guys and the big boys who you assume have enough good sense to take care of themselves. You would adjust that cap over time depending on inflation and relative wealth. Here, you do care about how much you're insuring, because you're trying to protect the little guy from getting screwed in a run; you don't want to ensure "fat cats." If the big boys are the ones taking advantage of the system, you're spending a lot on regulating a free insurance system for guys who don't need it.
So you might permit circumventions if raising the cap is procedurally difficult, because, again, you're trying to avoid a panic by putting people at ease, where they feel safe enough not to scramble down to the IndyMac with their lawnchairs. (Note, however, that there's some tension between that and the fact the big boys will be the ones best suited to take advantage of any complexity, so your populist goal is better served by a simple system.)
I'm not certain I can say definitively which is the purpose of the system, but our current policy looks like a mix of the two, which suggests that we may, at the policymaking level, be trying to have our cake and eat it too.
Apologies for the lengthy comment. Just musing away over lunch...
Errrr, not sure if I should muddy the waters any more, but what if Mr. Bash's mother already had an account with 100K at Indy? Did he check?
Not One Cent writes:
If any of you need extra insurance, feel free to add my name to all your accounts. If we all do this, the value of your name is negated.
Yeah, and I agree with Wally. Mr. Bash should panic now. He should stand in line at different branches everyday. It won't do him any good, but it'll be something for him to do.
I started looking into my financial institution's insurance situation only once I accumulated a consequential amount of cash. Ordinarily, I'd rather have an appreciatiing asset into which the money was sunk--but most of those bets looked bad when I had the cash (BTW, I have been a middle aged student for the last five years--no employment: I found a way to get a wad of cash--I bought a home in 1998, and became a renter in Jan 2007--do the math).
Anyway, even though I am earning less than the inflation rate right now, and even though the amounts we're talking about exceeded the 100k single depositor limit, I could read that the joint-account was insure for twice that. I adjusted accordingly. Mr. Bash did as well, and it sounds as though he'll get all of his deposits back.
But I am wondering--WHY? Why not leave it there for the time being, as the FDIC will have an easier job of "selling" IMC while deposits remain, and the deposits are as well insured as they ever were? If the FDIC were down to only $10bn in their reserves funds, then I might get a little more nervous--but I consider the Posturepedic at that point even if my institution seemed rock solid. That's the onl real threat I see, and I expect (but am waiting to hear more from Ms Bair) that FDIC will begin charging member institutions higher rates to cover the coming failures.
So far, so good!
You've heard that joke about the guy falling off of the skyscraper, right?
if you trying to punish 'moral hazard' opportunists
I think this is where I'm just not speaking the same language as many of the rest of you. I do not use the term "moral hazard" as a synonym for "bad behavior."
I (try to) use it in the classical sense of a situation you do not want to create for people.
In many ways, a moral hazard can be thought of as the opposite of that other famous situation you do not want to create for people, the "double bind." In a double bind, a person finds herself with two choices, both of which will result in equal punishment. Damned if you do and damned if you don't. Put perfectly normal, healthy, "moral" people in too many double-binds, and they will become destructive (to themselves or others or both) or just flat out psychotic.
In a moral hazard, on the other hand, you're putting someone in a situation in which there are two choices, and whatever you do you're off the hook. Put perfectly normal, healthy, "moral" people in too many moral hazards, and they lose their sense of risk and caution. They cease to concern themselves with the possibility of bad outcomes of certain decisions, because no decisions have bad outcomes for them. The better cognate here is "morale," not "morality."
It's not the same thing as tempting people to behave immorally or criminally or whatever. Moral hazard isn't bribery or contributing to the delinquency of a minor or something like that.
It is a concept used in the field specifically of insurance to capture the perverse results of either over-insuring people or underpricing insurance. It's not about offering positive incentives for good behavior.
Look, I get an auto insurance discount because I haven't gotten a ticket since 1993. This provides some incentive for me to continue to drive carefully, since if I do get a ticket I will lose my discount with the insurer.
But what would happen if my policy said it would cover the fine on any ticket I got as long as I didn't get more than one a year? Well, I might still drive carefully because I'm really more focussed on not wanting to be killed in an accident than I am on getting a ticket. It's not that people turn into Pavlov's dogs in these scenarios. But it is more likely that my sense of the risk of driving too fast would be lessened, since at least the first time I got a ticket I wouldn't bear any of the cost (fine or increased premium).
This is of course one reason why no auto insurer ever offers to pay your fines.
So the issue for me is, how do you design a deposit insurance system that minimizes moral hazard for all parties? Not how do you punish people who take excessive risk. Embedded in the idea of reducing moral hazard is convincing excessive risk-takers that they will not be bailed out.
I really think the $100K limit is just about the fact that limiting your exposure to a single institution is wise. Just, by the way, as it is wise for institutions to limit their risk to single individuals. All banks, for instance, have loans to an individual borrower limits. These are important, because a bank that has $10MM in construction loans to ten different builders is in a whole lot better shape than a bank with $10MM in loans to one builder. It's just that eggs/basket thing.
When I first read this post, I was inclined to favor Tanta's interpretation (lazy investor who bought a lame salespitch despite his own better judgment and is now whining about some minor inconvenience).
However, there is no guarantee that Mr. Bash will get any of the (potentially uninsured) $80k back. If you're a working class anything, much less a public school teacher, that's a significant hit to your total net worth.
I also recalled an almost identical sales pitch I was thrown a few years ago, when I went over the limit on a credit union CD. And how the manager came over and tried smooth-talking me into doing the same damned thing, (all legal, of course). Luckily, unlike most other Americans, I have a fairly sensitive BS detector and high sales resistance.
Before heaping a mountain of scorn and 100% of the blame on Mr. Bash, perhaps we should all take a deep breath and consider the following:
The banks didn't lie, they cited the existing FDIC rules.
And...
Not everyone is an expert on banking regulations and finance like Tanta & CR. We all have to make assumptions about risk, insurance and "safety" each time we decide to invest. It's not impossible to imagine circumstances where any one of us could trust the wrong 'expert' and end up like Mr. Bash.
I don't think it was wise of Mr. Bash to take the bank teller's advice. However, if the transaction was perfectly legal, he should get his $180k worth of insurance. And if that's a 'bad' policy moral-hazard-wise, then Congress should change it. Like Tanta said though, having to wait a few days is hardly a "crisis" worthy of media attention.
Embedded in the idea of reducing moral hazard is convincing excessive risk-takers that they will not be bailed out.
I really think the $100K limit is just about the fact that limiting your exposure to a single institution is wise.
I agree 100% with this on principle. Here's the rub though: FDIC limits are set by Congress, which is not always guided by our best interests (snort, chuckle, chuckle).
It may be wise and in the average taxpayers' best interests to make that $100k per person limit very strict and non-fungible, but it is NOT in the bank's own best interests. And banks have a tremendous amount of lobbying power to demand --and get-- whatever they want from Congress.
Why is that limit fungible today? Follow the money...
Well, I might still drive carefully because I'm really more focussed on not wanting to be killed in an accident than I am on getting a ticket.
See, that's the difference between you and me; I drive carefully because I don't want to be responsible for killing someone else. (Artifact from when I used to drive what a fellow teamster described as the perfect 65 ton killing machines.)
"Not everyone is an expert on banking regulations and finance like Tanta & CR."
I agree, I'm not an expert either.
This is why the FDIC has a web site, pamphlets and best of all - an 800 number.
It may be wise and in the average taxpayers' best interests to make that $100k per person limit very strict and non-fungible, but it is NOT in the bank's own best interests.
Besides, any bank has the option of trying to convince its depositors that it is so safe and sound and conservative that insurance limits are unimportant. As long as the sales pitch doesn't break the law or involve misrep, why not? The insurance limits do not force banks to refuse $200K deposits. (They force banks to disclose to the customer that the account is not fully insured.)
What does piss the banks off is the idea that some high-risk thinly capitalized crazy outfit could post market-leading deposit rates today, attract huge deposits from everyone, and then fold. At least they're not likely to take more than $100K per depositor away from you.
Man, this is better than anything The Onion comes up with!
Guess I'm confused. I thought telling someone their money is safe, when they know perfectly darn well it is NOT safe is called "fraud".
I loathe bankers, so I never give them enough money to have this problem.
Just curious.
k
2. Why is it not in the bank's best interests?
It may be in the banking industry's (as a whole) best interests, or even an individual bank's long-term best interests from a survival standpoint.
Unfortunately, banking executives are no different than executives in any other sector of the economy today. They don't care about their industry or the U.S. economy as whole, or even about their (current) institution's long-term economic health. They care only about short-term profits and, how large is my golden parachute? Next quarter's option strike price seems to be their maximum range of focus.
Not saying I disagree with a strict $100k/per person or the logic behind it. Problem is, logic or big-picture thinking has nothing to do with most public policies.
-per person + per depositor
Miss Picky!
I LOVE this site. Tanta, you are a hoot! Your posts and comments are so clear and helpful, and, unlike so many of the guys here I've read every comment, which takes considerable time. I'd never thought beyond beneficiary before for POD so this has been an education. I'm in awe at your patience since some questions were answered multiple times.
Thanks to whoever waaaay above who provided the link to the FDIC POD info.
Of course the bank LIED to him, did it not? The SS or tax ID# is what determines who owns the account. And did not the FDIC say that up to 100,000 would be completely insured, but that the amount over that would be covered only to 50%? So he is probably out $40,000. Right?
Tanta,
Sorry I was out since early afternoon.
While your reply to my question is true,there's still a certain amount of arbitrariness in this situation. They could get burned badly if the 500K was in a bank that folded.OTOH they could get off with no hit if the 500K was all in one bank that didn't fold.
Also, I don't know if your earlier response to another commenter was facetious but I can remember when the limit was $10,000 and I'm not quite as old as Andrew Jackson.
While there's always the 2% who don't get the word (explains the lines in front of IndyMac) and while the "Mr. Bash" story makes Tanta's point re: "moral hazard," I think folks here are being unreasonably hard on IndyMac's uninsured depositers.
Mr. Bash, who had 4 separate accounts -- none probably over the $100,000 limit, is a poor example of the median uninsured depositer.
Example: The 5-year CD owner who has another year left and $10K, $20K, $30K over the $100,000 limit. The bank looks shaky. What do you advise.
Changing the beneficiary doesn't increase the insurance. You can withdraw the money and establish separately owned accounts, each less than $100K. But then, you lose four years of interest.
What's your advice?*
*Remember -- the bank hasn't failed, yet. It's just a little shaky. How much will you pay in lost interest to insure that uninsured part -- especially, when the bank may be bought out by another bank and you won't lose anything or as with IndyMac, you'll get 50% of the uninsured amount and a receivership certificate [;-)] for the balance?
Well I was going to say how are you even sure you don't find out that your multiple accts are really multiple and then whilst scrolling to the post point I find...
Thx, Russ.
So. That sounds like a reasonable question, Tanta, but re-read what I wrote. OK, maybe I don't want the FDIC to "encourage deposit concentrations" (who cares what I think?). But then that's exactly what the hell they were doing in the 70's, when 100K was some real money, wasn't it?
Do you think they were idiots then? Not a lot of evidence we are any smarter now. In fact, it looks like they've lost the thread of the thing, as Margin Call of Cthulhu posts illustrates. I can't find any basic rationale, except that the 100K limit is appropriate nowadays because banks cannot be trusted like they were in the 70's.
And I say the problem isn't Mr. Bash but how we got to that state. I mean I will need how many freaking banks when I retire? 10? Give me a break.
So he's what, living with Mum, now? How is that still not sensible behavior, every other Californian I've ever heard of would have rolled that into a bigger, fancier crib after pinching a bit for a nice ride.
But what about those "onerous" capital gains!! OMG!! ;>
Ok, so we've got the 'Net here.. what were the limits and when?
Ok, all the discussions on this thread are reasonably true, and reasonably attentive, but probably completely beside the point. The FDIC has only 10-20 bank failures in it the side of Indymac. Or, one WaMu and maybe a couple of small banks.
After that, talk about moral hazard!!
The printing presses start running full blast. Inflation (which was bad today) gets worse. Inflations such as it was in the 80s was bad enough, but at least then we were getting pay raises. Today--not.
Money lost to inflation is just as lost as it would be if Mr. B. doesn't get his 80 grand (or whatever).
It's just not as obvious or visible.
We are 10-20 bank failures away from a whole lot more inflation or perhaps a hyperflation.
Likewise, if everybody, right now, started moving their money around so that nobody had more than 100k anywhere (or whatever the true max is for particular individuals) you will again see chaos.
The thing you want to do is prevent everybody from doing something at the same time. You can't all rush over to the right side (whether that is port or starboard) of a ship.
If everybody sells shares on the same day you get a black xxxday. If everybody wants to sell their suvs and get a non gas guzzler, the price of suvs will plummet.
When everybody realizes that Shumer was right about Indymac, and his only fault is not mentioning a whole bunch of other banks, why then it will be far too late to get out.
Tanta writes:
So, Mike, you found an example of a bank failure in which all insured depositors were paid and not all uninsured depositors got their money back.
Uninsured depositors quite frequently don't get all their money back (although most of the time they get some of it). And????
And, Tanta...
Bank's co-owners to get settlement | Deseret News (Salt Lake City) Newspaper | Find Articles at BNET
The Pritzkers agreed to a $460 million voluntary settlement in 2001 that barred government action against the owners. The owners admitted no liability. In exchange, the family would receive 25 percent of anything the FDIC recovered from Ernst & Young, and 50 percent of any punitive damages.
And STILL, as of Feb, 2008 the 1400 depositors have not been made whole despite the Pritzker family - not Superior Bank - despite the family recouping at least $34 Million from the E&Y settlement.
Trust the FDIC to watch out for consumers? Sure....
The FDIC is an insurance company backed the the Federal Govt. They actually do not have the money to cover the losses the banks are likely to incur. It will therefore fall back on the US Treasury-US Taxpayers to foot the bill.
Hindsight tells us that prevention would have best been practiced during the boom, not after the bust. The sudden fear of lending and rapid withdrawal of credit is what really gives the bust it's wallop...
Guess it had to happen but the situation could have resulted in less collateral damage if we understood more of how a boom-bust model is constructed. People in risk management and finance/banking in general have little or no understanding of the much, much bigger picture of a boom-bust model. This one is truly textbook but bigger than previous ones. Traditional economics addresses it somewhat but not quite enough to matter to the rest of us.
On we go. Boom or bust, I still gotta get up and go to work in the morning...
Tanta,
I don't see why Mr. Bash shouldn't be concerned. If the story is reporting him accurately and he is accurate in his dealings with the bank (very big ifs), then it appears that no one can account for $80k missing.
From the article:
They suggest it might be because of a hold, and that is plausible, but I would expect them to be able to say that with some confidence. Couldn't it also be because someone has taken advantage of the confusion to embezzle funds, or that an prior embezzlement is being exposed by the takeover? It could be a clerical error, wasn't there supposed to be a %50 return on uninsured funds? Why wasn't it 140K? Shouldn't he be reporting discrepancies and demanding explanations? I can understand not having definitive answers on whether or not all the funds are insured, but not on what his balance was at the time of takeover and what is available for withdrawal. Saying that $80k is "missing" and we don't know why would certainly disturb me.
I don't see anywhere in the article that he is currently trying to withdraw funds, he seems to be trying to verify his insurance and account for a discrepancy in the records. I have had statements that indicate balances on deposit and balances available for withdrawal, so it is clear when funds are on hold. I don't see why he should just sit back and relax if they can't give him a definitive statement of why those funds don't show up at the bank. Surely if there has been an error, the earlier it is found the better.
It probably will all work out in the end, but I don't see why Mr. Bash just relax and assume that it will without his involvement.
All this cynicism about IndyMac is great and everything, but what would you all prefer?
I'm not sure how it's cynicism to react scornfully to this historic failure, but as long as you're asking...
An American Robespierre, please.
What's wrong with well managed money market fund?
Re the 100K limit -
Insofar as it's to limit losses to the FDIC, wouldn't it make more sense to limit the size of the insured institution instead of the size of the insured account?
(eg, no banks allowed over $10billion or something. Who cares about 100K vs 500K when the overall payouts are in the billions?)
I'd just like to point out that even depositors with over $100K (THOSE WITHOUT beneficiaries or joint accounts) are still getting 50% of the amount over $100K, and a possibility to get the rest upon sale of IMB's assets.
Even if they found Mr Bash's last minute account change wasn't valid for some reason, he'd still get $140K of his $180K.
Most likely he will get the full amount since he prudently DID make this change - though he should have just pulled it all out and blow off what the teller told him on July 8th.
I doubt the FDIC wants to do anything to bring too much negative attention to how they are handing what is the first of MANY future failures. The better they handle this process, the less likely it could spread to other banks that are likely to fail and creating a run that could encourage or expedite a failure of other Banks on the ropes. They trust issue is pretty fragile at the moment IMO.....
From the FDIC on IMB:
As of March 31, IndyMac had total deposits of $19.06 billion from some 275,000 deposit accounts. Of those, some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC has said.
The FDIC was telling customers with unsecured deposits that they would receive an advance dividend equal to half of the uninsured amount.
Finally, by throwing in a massive stock rally - it's amazing how quickly people can be fooled into believing everything is going to be OK! They (Bernanke, Paulson, et al) probably didn't buy that much time though......
Example: The 5-year CD owner who has another year left and $10K, $20K, $30K over the $100,000 limit. The bank looks shaky. What do you advise
This is probably going to sound like a cop-out answer. I don't mean it to. It's just that my point in writing the post was to highlight an issue with moral hazard, not to hand out retail banking advice. I don't do that any more than I hand out other kinds of investment advice.
So, then: my answer is that that's the problem with buying CDs. You are making a multi-year commitment. You are giving up liquidity. A lot could change in five years, including the risk profile of your bank.
You need to make that part of your thinking up front. What's your risk tolerance? Will you pay the early withdrawal penalty if your bank starts to look shaky? You need to ask yourself that up front. If what you're saying to yourself is no, that would never arise because it's an insured account, then you are operating in a kind of moral hazard environment. You are saying that even if you found out two years into a five year CD that your bank was now very high risk, that wouldn't change your behavior because of the insurance. I am not saying that this is "immoral" thinking. I am saying it's moral hazard in action.
Quite honestly, most CSRs I've known (you know I never worked on the deposit side, only on the loan side) just tell people to buy a $95,000 CD. (Or whatever. Calculate the term and the yield such that at maturity the balance will not exceed $100,000. The bank can help you with those calculations.) Then, if you are intending to "roll" the balance over, roll the excess part of it to another bank or to another account (i.e., a trust account like Bash did).
Quite honestly, one thing we find with shaky banks is that they do, indeed, have more than the usual number of depositors with high-balance longer term CDs. Why? Cause they were out there, desperate for "core deposits," offering much higher 5-year CD yields than other banks. To some of us, that was actually the first (or at least a telling) indication that they were indeed in "shaky" condition.
But people fall for it all the time, and load up on as much of those CDs as they can.
You do need to ask yourself if the very fact that you are considering opening a high-balance CD with this bank is not itself possible indication that something isn't quite right. There were indeed plenty of equity analysts publishing reports in the last year that worried aloud that Indy (and CFC) was paying way too high a rate on its CDs, and that this looked like a desperation move.
scooby:
"why would anyone keep more than the $100K limit at a single institution? Am I missing something here?"
Because they want that extra .01% yield, and they are friggin' idiots.
My uncle is a good person so don't bag on him !!!
Jay S's comments above are right on the mark. He can read and digest the facts correctly. Thank you Jay S. Your interpretation matches reality. Tanta, yours is off the mark.
It is clear from these comments that FDIC insurance information is not clear to the public. Hopefully after all of this, it will be (go to the FDIC website that someone provided a link for above. The rules aren't too complicated, there's just a bunch of mis-information out there.)
Yes, we should all question info provided to us, and yes, it is best to not have over $100,000 in any one bank, if you are lucky enough and have worked hard enough to have that much to save and protect. Mr. Bash is honest and trusting. It would be nice if we lived in a system where we all could be so honest and trusting and everything always worked out. In the meantime, stand up for those that do play by the rules in a fair moral way, and perhaps when you need some support sometime in your life, others will be there to back you up too.
Government really doesn't need to do much right, but one thing they MUST get right is ensuring that people's money is safe in the bank. How hard is that?