Recall that Tim Geithner decided to rent out his five-bedroom Tudor in the New York suburbs earlier this year after finding no takers at $1.635 million--or, later, the reduced price of $1.575 million. Well, now it looks like FDIC chairman Sheila Bair is in the same boat. According to the Journal, Bair just took her five bedroom colonial in Amherst, Mass. off the market after being unable to sell it for $695,000, down from the initial list price of $795,000 in April. The story continues: Ms. Bair, and her husband, Scott P. Cooper, paid $355,000 for the house in 2002.
What is the essence of the problem with our financial system--what brought us into deep crisis, what scared us most in September/October of last year, and what was the toughest problem in the early days of the Obama administration? The issue was definitely not that banks and non-banks could fail in general. We're good at handling some kinds of financial failure. The problem was: a relatively small number of troubled banks were so large that their failure could imperil both our financial system and the world economy. And--at least in the view of Treasury--these banks were so large that they cou
If you've been following the coverage of the administration's plans for financial market reform, you may have noticed two emerging themes: 1.) All the regulators not named Sheila Bair (the FDIC chairman) seem to dislike Sheila Bair and wish she had less authority. This nugget from yesterday's New York Times is typical: But at the Treasury and the Federal Reserve, Ms. Bair is viewed as someone who pushes her and her agency’s interests rather than someone who finds common ground with other policy makers. Besides Mr. Dugan, she has antagonized many other leaders in Washington.
The blog Self-Evident (via Felix Salmon--I'm basically outsourcing this blog to him today) has a really helpful example of how the Geithner plan might work. Basically, the key link here is the no-lose loan the FDIC provides to the private investor. Thanks to the loan, the investor can afford to substantially overpay for the bank's bad assets and still make a profit. The FDIC then ends up transfering a little bit of money to the investor and a lot of money to the bank ($100 and $3,400, respectively, in this example--on a purchase price of $8,400 for the bad assets).
In an effort to start making sense of what is an indisputably confusing situation, we asked some of the most thoughtful people we know the question: How will America change as a result of the economic downturn? Here are Robert Gordon and James Kvaal, senior fellows at the Center for American Progress Action Fund. Hard economic times usually hit not only our wallets, but also our spirits. Charitable giving goes down. And as Benjamin Friedman has explained, racial tension and nativist sentiment go up.
It looks like Congress is seriously considering an increase in FDIC limits from $100,000 to $250,000. Contrary to my post yesterday, this looks like a good idea, particularly in that it will help small businesses holding a lot of short-term cash. Why the change of heart? Commenters, my friend. I don't blog often, so maybe this is an everyday phenomenon, but instead of harsh blowback I received about a dozen intelligent, thoughtful explanations for why this is, in fact, a good idea. I won't re-hash them; read them yourself. I stand corrected, and appreciative.
Both McCain and Obama are now calling for an increase in the deposit insurance cap, from $100,000 to $250,000. Their stated goal is to rebuild confidence among the public and small businesses. But how? Unless you have more than $100,000 in an FDIC-insured account, this means nothing to you (and if you do, why?). And it certainly means nothing to the banks and credit markets. Moreover, while the FDIC has been an important part of the federal response to bank collapses in recent weeks, that role has been to ease the purchase of one bank by another.