More Bail-Outs
September 18th 2008 03:21
So the federal government is once again bailing out financial institutions in the United States. I have resigned myself to the fact that this is, in fact, probably a necessary thing. I don’t particularly like it but let’s carefully consider what would happen if they didn’t. Remember throughout this that deposits in our banks are insured through something called FDIC.
Should these mighty financial institutions be left to fail, we will start to see people get scared about their deposits. This would lead many people – out of fear – to withdraw their savings from the banking institutions.
Now most people don’t realize this, but when you deposit funds in the bank, they don’t just stick it in a drawer and add money to it once a month. That money actually goes into the main pot of money that the bank can then use to finance loans and extend credit to worthy people.
The problem comes in when those worthy people fail to repay those loans – especially when it’s a lot of them. Suddenly, when you stop by to make a withdraw from the money you have safely tucked away, that takes away money from their bottom line. Banks go under when they can’t return the deposits to their customers. This is when the FDIC steps in to cover your balance up to $100,000.
So what I have come to realize is that it is indeed necessary for the federal government to bail-out financial institutions in order to shore up the whole industry. If they did not, a failing institution could lead to a panic which would result in more banks closing their doors permanently and they would have to pay all of the consumers with deposits there. Either way it will cost money to the U.S. Government and ultimately all of us taxpayers.
What I don’t like about these situations is that we bail out companies that have a history of paying out large salaries and bonuses to CEOs and executives during troubling times. There needs to be limits established to control those situations. That’s the only way to really help in justifying this to the American public.
Politicians listen-up. Whatever your party affiliation, you'd better get behind this because one way or another the industry will get bailed out and it's a better bet to have it happen with out completely causing panic among consumers.
Should these mighty financial institutions be left to fail, we will start to see people get scared about their deposits. This would lead many people – out of fear – to withdraw their savings from the banking institutions.
Now most people don’t realize this, but when you deposit funds in the bank, they don’t just stick it in a drawer and add money to it once a month. That money actually goes into the main pot of money that the bank can then use to finance loans and extend credit to worthy people.
The problem comes in when those worthy people fail to repay those loans – especially when it’s a lot of them. Suddenly, when you stop by to make a withdraw from the money you have safely tucked away, that takes away money from their bottom line. Banks go under when they can’t return the deposits to their customers. This is when the FDIC steps in to cover your balance up to $100,000.
So what I have come to realize is that it is indeed necessary for the federal government to bail-out financial institutions in order to shore up the whole industry. If they did not, a failing institution could lead to a panic which would result in more banks closing their doors permanently and they would have to pay all of the consumers with deposits there. Either way it will cost money to the U.S. Government and ultimately all of us taxpayers.
What I don’t like about these situations is that we bail out companies that have a history of paying out large salaries and bonuses to CEOs and executives during troubling times. There needs to be limits established to control those situations. That’s the only way to really help in justifying this to the American public.
Politicians listen-up. Whatever your party affiliation, you'd better get behind this because one way or another the industry will get bailed out and it's a better bet to have it happen with out completely causing panic among consumers.
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