Busted: Bankers and The Global Economy

June 4, 2008

Brokered Deposits Grow as Bane to Banking

Finance Committee Leader and Senator Charles Schumer urged the Federal Deposit Insurance Corporation to consider assessing higher premiums on banks using deposits gathered by third parties such as securities firms and individual brokers who then sell interests in them to investors.

“These ‘hot money’ deposits have fueled a spate of recent bank failures that has left the deposit insurance fund on the hook for hundreds of millions of dollars.” Time and time again, we have seen that Wall Street cannot be trusted. The collateral damage to the U.S. economy is far and wide while bad investments threaten more damage in the name of greed and profits.

At the end of March, there were almost 8,500 banks and thrifts with more than $7 trillion in domestic deposits, but $4.4 trillion are estimated to be insured. What does this mean? A huge chunk of deposits actually were created by Wall Street third-parties and are technically subject to lack of coverage by the FDIC, putting more pressure on the FDIC and governmental planning for bank failure coverage.

As a result, the FDIC has a real problem that could strike at the heart of consumer confidence as banks continue to fail. The bottom line is that covering risky brokered deposits is subject to put additional strain on government monies and the national debt in the name of FDIC consumer protection. The economic news where banks are concerned just keeps getting worse.

February 4, 2008

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