THE CREDIT CRISIS: INVESTMENTS ON A TIGHTROPE WITH LESS SAFETY NETS RICK TOBIN
The FDIC vs. Bank Customers in 2008: Who had more cash reserves?
Just a few weeks before the near financial implosion of the world’s then existing financial system in late
September 2008, the FDIC announced that they only had about $45 billion in cash reserves left in their
accounts.
Shortly after this announcement, Wachovia Bank, Countrywide, Lehman Brothers, Bear Stearns, Fannie Mae,
Freddie Mac, AIG, and Washington Mutual (the largest bank failure in U.S. history) all imploded too. Just the
collapse of Washington Mutual alone wiped out the FDIC’s $45 billion dollars of insurance cash reserves at
the time. So, who really had more cash reserves back in the Fall of 2008 – bank customers or the FDIC?
With the perceived or very real
threat of a domino like implosion
of
the
banking,
investment
banking, and insurance sectors
partly due to the exposure of
$1,500
trillion
unregulated
in
primarily
derivatives
(i.e.,
Credit Default Swaps, Interest
Rate Option Derivatives, etc.),
then the U.S. government and
Federal Reserve stepped in with
trillions of dollars of anonymous,
and not so anonymous bailouts.
Even large and respected financial institutions like Wells Fargo were admitting that they were borrowing at least
$25 billion in these bailout funds in order to better stabilize their investment portfolios at the time. For many of
the largest U.S. banks in recent years, they received the bulk of their income from on and off balance sheet
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