Why is the FDIC’s Deposit Insurance Cap So High?

Executive Summary

• The size of the FDIC’s insurance cap tells us important information about the private banking control over the FDIC.

Introduction

The FDIC insurance cap is far above the typical account. This was engineered by private banking interests.

The FDIC Insurance Cap

The excessive insurance cap is explained in the following quotation.

The average private savings deposit is about $6,000. Yet, under the Carter administration, the level of FDIC insurance was raised from $40,000 to $100,000 for each account. Those with more than that merely had to open several accounts, so, in reality, the sky was the limit. Clearly this had nothing to do with protecting the common man. The purpose was to prepare the way for brokerage houses to reinvest huge blocks of capital at high rates of interest virtually without risk. It was, after all, insured by the federal government. In 1979, Federal Reserve policy had pushed up interest rates, and the S&Ls had to keep pace to attract deposits. By December of 1980, they were paying 15.8% interest on their money-market certificates. Yet, the average rate they were charging for new mortgages was only 12.9%.

Source: Creature From Jekyll Island

https://www.scribd.com/doc/54912935/The-Creature-from-Jekyll-Island-G-Edward-Griffin

Insurance for Depositors or for the Bank?

This point should not be missed. The insurance is that is presented as for the public, is not for the public, but for the banks. This brings up the topic of the savings and loans that eventually had to be bailed out in the 1980s.

Many of their older loans were still crunching away at 7 or 8% and, to compound the problem, some of those were in default, which means they were really paying 0%. The thrifts were operating deep in the red and had to make up the difference somewhere. The weakest S&Ls paid the highest interest rates to attract depositors and they are the ones which obtained the large blocks of brokered funds. Brokers no longer cared how weak the operation was, because the funds were fully insured. They just cared about the interest rate. On the other hand, the S&L managers reasoned that they had to make those funds work miracles for the short period they had them. It was their only chance to dig out, and they were willing to take big risks. For them also, the government’s insurance program had removed any chance of loss to their depositors, so many of them plunged into high-profit, high-risk real-estate developments. Deals began to go sour, and 1979 was the first year since the Great Depression of the 1930s that the total net worth of federally insured S&Ls became negative. And that was despite expansion almost everywhere else in the economy. The public began to worry. FULL FAITH AND CREDIT The protectors in Washington responded in 1982 with a joint resolution of Congress declaring that the full faith & credit of the United States government stood behind the FSLIC. That was a reassuring phrase, but many people had the gnawing feeling that, somehow, we were going to pay for it ourselves.

Source: Creature From Jekyll Island