Saturday, July 26, 2008

State of the Banks

I am so overwhelmed with all the evidence that Ron Paul was right all along about the economic situation the USA is facing that I haven't taken the time to form an intelligent post about the problems with our banking system. Thankfully, I found this today that sums it up nicely. Make sure to click the link to read the entire article.


The failure of IndyMac this month was unique. We have not seen a bank failure this large since 1984. In one sense, this reminded the general public that individual banks can go bankrupt.

The most common reason for bankruptcy is that the bank has lent money to purchasers of real estate, which is a long-term debt, yet depositors have the right to withdraw money at any time. The bank is lent long and borrowed short. Yet this is true of every bank. The ones that get caught, which is a rare event, have merely indulged in long-term lending more than the average bank.

The failure of an individual bank does not produce mass panic any longer. It has been so long since Americans have seen a bank run that they pay no attention to a rare bank failure. Because the FDIC presently does have sufficient reserves in Treasury debt to sell and compensate depositors, depositors around the country are not tempted to go to their bank and demand currency.

The fact that the FDIC could cover the deposits of no more than a dozen banks the size of IndyMac does not disturb them.

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