Financial Advice for Dummies.

March 6, 2009 11:15 AM

This has my parents spooked. Tell me how to ease their financial fears.

I guess what was supposed to be safe ("FDIC Insured") is no longer so safe in their eyes. Are they right? They have pretty much their entire savings in an ING savings account and are way spooked. Can you link me to something saying ING is safe and FDIC insured means "Youre all good Mom, dont worry."?

Unless, of course their fears are actually valid. Then what should they do? What should any of us do?!

posted by ElmerFishpaw to work & money (10 comments total)

It's a pissing contest between the FDIC and the banks. Normally the banks would "capture" the regulators, because teh regulated industry has more interest in, and pays more attention to, regulation than does the general public.

The economic situation (and that facts that middle America has money in banks) reverses that a little, but to get the additional fees, teh FDIC still needs to shout loudly to overcome the banks' influence. So your parents are hearing the shouting.

Now, in practical terms, even if many banks go under in 2010, many won't. Just tell your parents to keep no more than, say, 10K in any one bank. Diversify. But don't tempt robbers by stuffing the money under the mattress.
posted by orthogonality at 11:22 AM on March 6 [1 favorite has favorites]

You did see the bit about the 30 billion dollar treasury fund that could be tapped right?

ortho is right this is a pissing contest not a real threat, as much as I could eat this saying I'm not worried.
posted by bitdamaged at 11:26 AM on March 6

( edit: could eat saying this - "I'm not worried")
posted by bitdamaged at 11:27 AM on March 6

Yeah, there's no way the federal government would let this happen.

FDIC insurance is there to prevent runs on banks. If people are afraid the bank is going to fail and they'll lose their money, everyone pulls their money out at once, causing the bank to fail. It's a self-fulfilling prophecy. The insurance is there to assure people that they don't have to worry; even if their bank goes under, their money is safe. If something happened to the program, it'd be the end of most of the banks in the country. Congress and the Treasury Department won't let that happen, so they'll turn the money spigot as wide as they need to.

If FDIC fails, we're all pretty fucked. But we're a long way from anything like that happening.
posted by EarBucket at 12:19 PM on March 6

If the FDIC fails, the least of our worries will be the cash we lost. The government won't let that happen.
posted by bottlebrushtree at 1:41 PM on March 6

The FDIC won't fail. Or to mirror the language of the article, if it "became insolvent" the treasury would step in and fund the FDIC up to the amount needed to repay the depositors. It's a corporation, but it's not a company -- it can't really go bankrupt. It *is* the government of the U.S. That said, keeping money in a couple of different banks can't hurt.
posted by zpousman at 1:57 PM on March 6

Won't happen. They will just raise their fees and/or get money from the treasury.
posted by gjc at 3:39 PM on March 6

As I understand it, credit unions are insured by a separate govt fund (NCUA rather than FDIC). Maybe they could keep some money in a bank that's in good financial shape, and some money in a credit union.
posted by LobsterMitten at 4:04 PM on March 6

If FDIC fails youve got bigger problems than losing your savings. That means the government has gone bankrupt and you should get used to fighting leather freaks for gasoline. FDIC will most likely be the last thing to fail. You'll see the government printing money and massive inflation before your money is gone. It'll be there, but it'll just be worthless.
posted by damn dirty ape at 6:24 PM on March 6 [1 favorite has favorites]

ING gets four stars (out of five) from Bankrate.com's Safe & Sound rating index. That's probably a pretty good rough indicator that they'll be able to survive anything but a catastrophic recession where FDIC solvency becomes of secondary importance.

If your parents are really worried about bank failure, they should begin to diversify where their assets are held. The credit union suggestion is a good one. This can be done in an orderly fashion, e.g. when a CD is due to roll over.

It's a pissing contest between the FDIC and the banks.

More correctly, between the taxpayers and the banks -- on who is responsible for bailing out the fund.

As to the FDIC's stability, please note that it is a GSE -- government-sponsored entity -- and is established by Act of Congress. That law includes a section Borrowing authority.

At this writing they have a legislative borrowing authority of $30 billion, as noted in the Bloomberg story:
The FDIC has authority to tap a $30 billion line of credit at the Treasury Department.

If that's not enough, Sen. Dodd has this week introduced legislation to increase the limit. News reports yesterday suggest the authority could be increased to half a trillion dollars. (This is the sort of thing where it is important to tread carefully, as the very existence of a bailout may make it inevitable, and such legislation could undermine the public's faith in the security of the banking system.)
posted by dhartung at 12:55 AM on March 7