I had a few people ask me if they should take their money out of the bank for fear that if a bank collapses they would lose all their money. I was not worried because the FDIC insures our money, right?
The Federal deposit insurance protects the first $100,000 of deposits that are payable in the United States in 8,451 US banks. Of those banks $13.3 trillion in deposits are insured. This is the money that we have in the banks. How much does the FDIC have to pay out if a bank fails? The FDIC has, as of 3rd quarter 2008, $38 billion to pay out.
When people start saying millions, billions and trillions people go glassy eyed and I don't think they have a proper perspective. Lets look at all the zeros.
|$100,000.00||deposit amount individually that is insured|
|$13,300,000,000,000.00||total amount of all accounts insured|
|$38,000,000,000.00||total amount of money FDIC has to pay out|
|$0.76||amount you would receive per $100 deposited, if the FDIC had to pay out on all accounts|
I hesitate to mention that the Banks have exposure in derivatives (SIV, CDOs, CLOs, CBOs, CIOs, and CDOs of CDOs) of over $700 trillion. Lets see the zeros again: $700,000,000,000,000.00. Of that how much equity to the banks have? Less than 1%. Precarious hardly describes it.
Will this lead to a World Bank like the Federal Reserve on a global level? Who knows.
Check out Michael Lewis and David Einhorn, "The end of the Financial World as we Know it," New York Times January 4, 2009 and FDIC/IRA Bank Monitor, Q1 2008
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