The Reverse Bailout

While on the surface it seemed as perhaps the most ridiculous thing I've ever heard, it may actually be a good idea. After bailing out the banking industry, the US Federal Deposit Insurance Corporation is now seeking loans from the same banks it lent money to to cover the recent gap in federal funding.

Now I understand the political implications of the FDIC asking the Treasury for more money to help the FDIC refund people's deposits. I'm aware that their would be populist backlash and outcries for continued intervention in the banking industry.

At the same time, however, by seeking banking loans the FDIC helps prop up healthy banks and avoids having to drastically increase FDIC fees to banks which could have the 'domino effect' of forcing still more banks into receivership. Thus very feature may actually save the American taxpayers in the long-run and may help keep interest rates lower than they otherwise would be, however, the action will certainly RAISE interest rates as the Federal government seeks to reabsorb some of the money it printed out earlier this year.

To those ends, this is actually even better news than the media is portraying it to be. By seeking these banking loans, the FDIC would actually be helping to decrease the rate of inflation by decreasing the amount of available capital out there.

Sure, that may make it more difficult for some businesses to get low interest loans and that may cause them to have to close up shop, but at this rate, I'm really sick of all the bullshit. Corporate America isn't preparing NOW for any future shortfalls, then by all means they deserve to fail.

Even I'm getting sick of handouts, and that's after I supported the initial bailout, which I continue to standby. I do, however, still have a few reservations about that bailout, and it mostly centers on the issue of bonuses.

Sure, I agree that people should only get bonuses based on their individual performance, but unfortunately, I'd have to agree that these bankers, etc DESERVE their bonuses. It is not their fault that the US government didn't choose to limit compensation or bonuses as a condition of their rescue. On top of that, most of these institutions that are offering bonuses are offering those bonuses to individuals who made profits for the company. The people that created this mess, however, have all been fired at this point.

Regardless, the real issue at hand now is the "REVERSE BAILOUT." As I mentioned, this reverse bailout will do more good than harm. While the healthy banks will make a profit at the taxpayers cost, it's no different than any other time the Federal government seeks out loans from the private sector.

http://www.nytimes.com/2009/09/22/business/22bailout.html?_r=1