FDIC, RUNNING OUT OF CASH?

What would you think if you bought a home in Galveston last week, only to see its value washed away with Hurricane Ike. Not to good, huh? Now suppose that your local bank says, "Don't worry, we'll let you use your demolished, uninsured, home as collateral for a new loan ... full value."

Sounds like a great deal, right? It would be, except for one thing. This doesn't happen in the real world ... that is, unless you're one of the giant financial institutions that aided and abetted the stupid decisions which helped create the market conditions we see today.

The NY Times is reporting that "concerns over what may unfold in the market on Monday led [the Federal Reserve] to dramatically loosen its standards on making emergency loans to major Wall Street investment banks." How loose, you ask? The Check this out ...

In an obscure but highly important announcement late Sunday evening, the Fed said it would let Wall Street firms post as collateral much riskier assets — including equities, junk bonds, subprime mortgage-backed securities and even whole mortgages — in exchange for emergency loans ...

Great. Where do I sign up? Oh, wait, I can't. And neither can you. Incredibly enough, it gets worse. How about this little nugget, buried in the article ...

Administration officials acknowledged last week that more bank failures were inevitable, and the main protection for depositors — the Federal Deposit Insurance Corporation — is likely to exhaust its reserves.

What? After shoveling money into the bottomless pit that is Wall Street incompetence, and the federal government is now suggesting it's running out of money? I don't know - then again, it appears no one in Washington or Wall Street does either - but "the Federal Deposit Insurance Corporation ... is likely to exhaust its reserves" doesn't sound encouraging.

Someone might want to tell the NY Time's Eric Dash about this. He seems to think FDIC is a bottomless pit.

- Mark