The Next Bad Idea

Good grief, Washington is keeping me busy. They're coming out with stupid ideas faster than I can shoot them down. It's always shocking when Washington does anything fast.

Lawmakers from Barack Obama to John McCain to Nancy Pelosi to - ah, heck, I'm tired of naming them all, let's just say th usual suspects - are clamoring for a hike in federal insurance on bank deposits from the current $100,000 per account, to $250,000.

Obama put it this way: "The current insurance limit of $100,000 was set 28 years ago and has not been adjusted for inflation."

Okay, let's do a little historical analysis of both deposit insurance and inflation, and see how well the former has kept up with the latter.

The FDIC was established with the Glass-Steagall Act of 1933. The initial insurance limit was $2,500.

In 1935, it was upped to $5,000, a 100% increase. Inflation during that period? In aggregate, up 7.9%. (I'm using June-to-June data for inflation, since Glass-Steagall passed in June of 1933. That's close enough for government work.)

In 1950, it was doubled again, to $10,000. Inflation? Up 73.7%. Closer, at least.

In 1966 it was increased 50% to $15,000. Inflation rose 36.1%. In 1969, the insurance limit went up 33%, to $20,000. Inflation rose 13.0% during those three years.

In the inflation-plagued '70s, we saw the insurance limit doubled again, in 1974, to $40,000 per account. Inflation? Up 33.9%. But by 1980, inflation had risen 68.8%. So we raised the deposit insurance limit 150%, to the present $100,000 per account.

So, overall, how has deposit insurance fared relative to inflation, even considering Sen. Obama's point that the former hasn't been adjusted for the latter in 28 years?

Since the inception of deposit insurance in June 1933 through the latest reading of August 2008, inflation is up a whopping 1,625%.

Over the same period, the deposit insurance limit - even at the 28-year-old $100,000 level - has increased 4,000%.

If we raise it to $250,000, it will be up 10,000%.

The FDIC is already nearly bankrupt. Where does it get its funding? Fees levied on insured banks, backstopped by the federal government - that is, you and me. You think banks can afford a 150% increase in their fees to match the proposed increase in the insurance limit, given the current state of affairs? So guess who gets left holding the bag?

Write your Congressperson and Senators. Tell them to stop this madness, and let inflation catch up to the insurance limit, which will take several lifetimes. Better still, encourage them to just go ahead and recess, for crying out loud. They can't do much damage if they're sitting at home doing whatever they do when they're not screwing up the country.