You make good points which I don't wholely disagree with.
Re: "You and I just remember history differently. Where I grew up, fat cats were not the depositors in S&Ls. Fat cats were the management (that used S&Ls to fund their land development companies) of the S&Ls."
>>> Correct. But *many* people had multiple $100,000 accounts scattered across multiple S&Ls - so as to stay within the deposit insurance limits. Many also had multiple accounts at multiple institutions well in excess of the federal insurance limits. (Often this was so they would be well positioned if and when the savings associations converted to a corporate form of ownership 'de-mutualization' I believe. Shares would be divied up by dollars on deposit, prior to a public offer. I know because I helped to put some people into a few of these. Other times it was so they - with the aid of management - could steer loans to their own enterprises.)
>>> By any way of looking at it this was 'investment'... maybe even 'speculation', sometimes even fraud. I fail to see why the taxpayers should have been placed on the hook for in excess of 1/2 Trillion to bail out fat cats investments... when everyone always knew what the deposit insurance limits were.
Re: "Where I grew up, fat cats do their banking thru the trust departments of large banks. If they wanted more interest income, they bought some AA corporate bonds and add them to their portfolio of municipal (insured of course) and treasury bonds (or maybe put some money into a junk bond fund). Those "wealthy" people who had their money (over the $100k limit) in S&Ls, looked to me, more like retired people, who deposited money in the S&L after selling their small business or homes. Or widows trying to get a few more dollars of interest from moneys left to them from their husbands."
"The idea of making all depositors whole is to prevent "runs on the Bank" or if panic sets in, a cascade of bank runs against the system as rumors fly from one institution to another."
>>> Widows and orphans, eh?
>>> First the deposit limit was $40,000 (and S&L were limited by law to certain conservative investments). Then Congress (in it's infinite campaign dollar-influenced wisdom) raised the deposit insurance limit to $100,000... at the same time they lifted the limit on investment choices. This of course, encouraged the Michael Milkins of the world to peddle junk bonds and derivatives to these - less than savvy S&L managements - at the same time it encouraged people to put more money into the institutions... up to and beyond the new deposit insurance limits.)
>>> Then, after *massive* swindles, Congress agrees to bail ALL DEPOSITS out - regardless of the insurance limits (why not? It's only the public's money!)
>>> This was the biggest fraud/bubble/bailout of the 20th. century.
>>> If Congress was really worried about 'widows and orphans', than why didn't they respect the $100K insurance limit... and pay off only a percentage above the limit - but means test that so as to reach only the 'widows and orphans'?
>>> Why not? Because the bulk of the money above $100K was 'hot' money, not money from widows and orphans. Congress and the Reagan admin. wanted to bail out the speculators and their allied country club cronies.
>>> They shafted the taxpayers.
>>> I've got federal deposit insurance on my brokerage accounts (and additional private of course), and at banks. In the event of a bubble-related failure (gee, what are the odds of *that* happening today :) do you think Uncle Sam should come to the rescue and bail out all of my losses in excess of the insurance limits? |
