Edited on Mon Mar-23-09 11:04 PM by Kurt_and_Hunter
The US treasury risks little $$$ in the Geithner plan. The FDIC risks a lot of $$$--it's the FDIC that issues the leveraged non-recourse loans in the plan.
So who is really bearing the risk? The FDIC is usually funded by the money that banks are required to pay into the fund, but the FDIC is implicitly guaranteed by the US government.
And sometimes in a crisis the federal government pays. (Like the S&L crisis)
Now, if everything goes great there are no FDIC losses to cover so the funding question doesn't arise but if there are losses they get paid for by either the taxpayer or the banks.
So if the taxpayer isn't on the hook that means that every non-toxic bank in the country just got signed up to cover potential losses on subsidized asset-purchases that only benefit their toxic fellow banks.
Here's the funny part... in all the TV talk today I never heard anyone mention the FDIC funding question.
(I am guessing that all bank stocks went up today, not just the really sick ones. So maybe Wall Street has made their first bet on who will get stuck with the check.)
Maybe the plan specifies a funding mechanism for the FDIC in case of losses. I haven't heard anything one way or another--I'm just following a train of thought. Anyone know anything specific about the FDIC funding issue?
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