[The following is a class assignment for Steve Fox's multimedia journalism class at the University of Massachusetts Amherst. By Cisco Covino and Rosie Walunas.]
The FDIC
Now and Then
As the economic state of the country continues to creep into financial disarray, there is still one government persona that Americans are still happy to see – Sheila Bair.
August of last year, Forbes.com named Bair the second most powerful woman (next to the Chancellor of Germany) noting that she is leading an institution “that is suddenly an actor in the global drama”. Bair is chairman of the Federal Deposit Insurance Corporation, what she calls “the last stop for capital-starved banks before going under”.
The FDIC are the people responsible for making sure that the money that was lost in the banks closing is not lost to its rightful owners.
Created by Congress in 1933, less than a year after Franklin D. Roosevelt was elected to his first term as president and in the midst of what is now known as ‘the Great Depression’ the FDIC had a deposit insurance coverage of $2,500. In less than a year it doubled. By 1980, it reached $100,000 where it stayed until a bump up to $250,000 in 2008 which is only supposed to remain in place until 2010, when it will return to $100,000.
The corporation was created by the Glass-Steagall Act of 1933, whose main purpose was to separate bank types according to their business – commercial or investment banking. The deposit insurance program which spawned from this was modeled after a program initially enacted in Massachusetts.
The mission of the FDIC is to insure deposits in banks and thrift institutions and, as Bair has noted, “public confidence” – an issue that was just as pressing eighty years ago as it is today.
Without confidence in the banking systems then people are more reluctant to hand their money over to them. When this is the case, the banks can no longer use fractions of the deposits to invest in the economy and, in turn, keep it running smoothly and money generating.
Here the FDIC steps in so that when a bank like IndyMac makes a poor decision and loses everything, the investors, or depositors, don’t have to experience the same thing. Although it may seem that the recession has sprung out of nowhere, the majority of economists trace the major problems back to 2007 when subprime mortgages were spread too thing amongst borrowers who wouldn’t be able to meet the higher payments.
Friday, March 27 Bair gave a lecture to a room full of people in the Isenberg School of Management at the University of Massachusetts. While there, she recognized that people are still scared but confidence is necessary. “These are tough time whether you are a student or a teacher,” she said, stressing the importance of maintaining a level of idealism.
“People need something to believe in.” Bair said, “and the FDIC has been here for over 75 years.”
More:
National Public Radio story from 2007 about mortgage payments and the danger of foreclosure.
Associated Press Q&A article from 2007.
