The Long Crisis

Posts Tagged ‘big bank failure’

The “too big to fail” mantra heard from the government so far about the terrible events that would unfold in the event of a big bank failure seems to be changing. Now the government seems to be hurriedly making preparations for a big bank failure.

A bill introduced in Congress would give the FDIC, the agency that stands behind Americans’ bank deposits, temporary authority to borrow as much as $500 billion from the government to shore up the deposit insurance fund.

The bill — the Depositor Protection Act of 2009, is being sponsored by Senate Banking Committee Chairman Chris Dodd, D-Conn. and Sen. Mike Crapo, R-Idaho.

“This mechanism would allow the FDIC to respond expeditiously to emergency situations that may involve substantial risk to the financial system,” Bernanke wrote in a Feb. 2 letter to Dodd.

It appears that the too big to fail statements may have to be retracted by government officials as a result of market events. With Citigroup breaking the buck last week, and so far today posting a low of $0.99, time may be short to get the emergency FDIC big bank $500 million borrowing bill into place.

“Too big to fail” may soon be a concept that has failed. The cost of keeping zombie banks alive is becoming just too great. Another factor is the public outrage at the government action of pouring billions of dollars into trying to save rotten to the core institutions at a time when so many Americans are hurting. The good old boys in Washington handing out billions of dollars to their Wall Street and banking buddies is a scenario that is no longer acceptable to most American taxpayers and voters.

The politicians in Washington are very much aware of this public backlash. A big bank failure is now more likely as the politicians sense that another round of bailouts may tip the public into a fury of protest. We may soon know what the failure of a too big to fail bank will really mean for the real economy. The Long Crisis may bring down nearly all of the big banks within the next couple of years.

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