The FDIC is broke:

“Despite these widespread banking collapses, the American public has remained relatively quiescent, mostly because they believe their deposits are safely insured by the Federal Deposit Insurance Corporation. The problem is that the FDIC has now run out of money; the losses caused by the 81 bank failures this year has completely exhausted the Deposit Insurance Fund. At the beginning of 2008, the DIF had a balance of $52.8 billion. At the end of the year, during which 25 banks failed and caused $17.9 billion in FDIC-estimated losses, the fund was down to $17.3 billion.

“If there is one thing that has been made clear by the response of the monetary and fiscal authorities to the economic crisis, it is that they will not lift a finger to help the general public. When they could have spent millions to prevent homeowners with mortgages from falling into default and foreclosure, they instead chose to spend billions to reduce the impact of the failed mortgages on the giant zombie banks. If one looks closely at the mechanisms underlying the Homeowner Stability Initiative, the Making Home Affordable plan and the Cash for Clunkers program, one will see that they are not designed to help the homeowner or the car buyer, but rather the banks that finance the purchases.

Given recent history, it would appear to be most unwise to assume that the federal government will do much more than permit the FDIC to borrow the additional $70 billion by which its credit line was increased in May, especially should depositors become aware of the increasingly fragile state of the banking system and begin to withdraw their funds from it. Banking holidays and other restrictions on the public’s ability to access its money are probably more likely than an outright bailout, especially since a bailout will cost around $225 billion merely to maintain the status quo if Meredith Whitney’s calculation of 300 bank failures is correct. In any case, the ability to ask permission to borrow from an unpredictable institution already $11.7 trillion in debt and expecting a further $9 trillion in deficits is not insurance nor can it reasonably be described as a guarantee of any kind.

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