Tuesday, October 14, 2008

the other shoe drops

On Saturday, I wrote (“bailout (the sequel)”):
And when is [Paulson] going to announce that the US is guaranteeing all bank deposits, not just those under $250,000? It’s going to happen – why waste more time?

From today’s
New York Times:

[T]he Federal Deposit Insurance Corporation will offer an unlimited guarantee on bank deposits in accounts that do not bear interest — typically those of businesses — bringing the United States in line with several European countries, which have adopted such blanket guarantees. …

Another part of the government’s remedy is to extend the federal deposit insurance to cover all small-business deposits. Federal regulators recently have been noticing that small-business customers, which tend to carry balances over the federal insurance limits, had been withdrawing their money from weaker banks and moving it to bigger, more stable banks.

Congress had already raised the F.D.I.C.’s deposit insurance limit to $250,000 earlier this month, extending coverage to roughly 68 percent of small-business deposits, according to estimates by Oliver Wyman, a financial services consulting firm. The new rules would cover the remaining 32 percent. “Imposing unlimited deposit insurance doesn’t fix the underlying problem, but it does reduce the threat of overnight failures,” said Jaret Seiberg, a financial services policy analyst at the Stanford Group in Washington.

“If you reduce the threat of overnight failures,” Mr. Seiberg said, “you start to encourage lending to each other overnight, which starts to restore the normal functioning of the credit markets.”

I’m glad he finally got around to doing it, but this is not increasing my confidence in Paulson. A slacker in Seattle shouldn't be a couple of steps ahead of the Treasury Secretary during a global financial crisis.

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