The selective enforcement of ‘no naked shorts’ shorts rule on 19 financial stocks expires today…
FDIC Fund Strained by Bank Failures May Lift Premiums (Update2): “The failure of IndyMac Bancorp Inc. and seven other banks this year may erase as much as 17 percent of a government insurance fund and raise premiums for all banks, from Franklin National of Minneapolis to Bank of America Corp.
The closing of IndyMac in July, the third-biggest U.S. bank failure, may cost the Federal Deposit Insurance Corp.'s fund $4 billion to $8 billion, in addition to an estimated $1.16 billion for seven closures through Aug. 1. Premiums for insuring deposits will likely rise, FDIC Chairman Sheila Bair said in a July 30 interview. A decision is due by the fourth quarter.”
Idiots.
“Premiums for deposits will likely rise.” I understand that. Imploding banks are costing so much money so quickly that the FDIC Fund is being depleted and needs to be replenished. Sheila Bair, lacking all kinds of understanding and creativity, will simply raise premiums to increase revenues. Great. Just great. Dead banks won’t be able to pay any of the premiums. Weak banks really don’t need the extra costs right now. That leaves the more prudent, conservative banks that did not go ‘balls out’ in this credit bubble to bear the full burden. So as irresponsible financial institutions fail, a shrinking circle of responsible financial institutions get to pay an ever increasing amount.
Can you say
Moral Hazard: “The prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions. For example, an individual with insurance against automobile theft may be less vigilant about locking his car, because the negative consequences of automobile theft are (partially) borne by the insurance company.”
Can you say
Adverse Selection: “Anti-selection, or negative selection is a term used in economics, insurance, statistics, and risk management. On the most abstract level, it refers to a market process in which "bad" results occur due to information asymmetries between buyers and sellers: the "bad" products or customers are more likely to be selected.
