So the deposit insurance schemes being introduced around the world have the explicit aim of “saving the world economy from Armageddon”. Even so, when I spent a couple of weeks in the US I got the distinct impression that this scheme will lead to more (even more substantive) issues down the track.
Here is a list of interesting things I heard on Ads (or saw on billboards) in the US:
- Now, thanks to the deposit insurance scheme, we don’t have to check your credit (Ad),
- The world is America’s ATM (Billboard),
- Need a $200,000 loan to start a business – with no credit check? (Ad).
Add to this the already poor nature of savings in the US, and the fact that there is no individual responsibility in the housing market or even in the realm of taxes (every third ad is either about getting a lawyer to lower your taxes or getting a lawyer to push the government to give you extra benefits).
Ultimately, I think the US has some structural issues that need sorting – trying to keep consumers borrowing to maintain short-term growth feels like the government is creating a ponzi game in favour of the initial consumers that were involved.
5 comments
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agnitio says:
November 21, 2008 at 9:56 am (UTC 12 )
who sets the parameters for the deposit insurance in the US, the fed/treasury or the politicians?
it’s interesting because if it wasn’t for the Reserve Bank we would have the same situation here….
Matt Nolan says:
November 21, 2008 at 9:59 am (UTC 12 )
“who sets the parameters for the deposit insurance in the US, the fed/treasury or the politicians?”
I actually know very little about the set up for the US scheme, I was just interested in the comments I was hearing overseas
It would be good to hear from someone who knows, or to look it up – however, Friday’s are too busy to do things like that
Kimble says:
November 21, 2008 at 11:12 am (UTC 12 )
crack is a helluva drug
John Hunter says:
November 21, 2008 at 12:44 pm (UTC 12 )
I don’t see the connection you are trying to make. Deposit insurance (by which I understand FDIC deposit insurance) doesn’t really related to the lax lending standards or poor savings rate, in my opinion. I agree lax lending standards should be improved not encouraged. I agree banks should not evade sensible regulation of financial instruments and then expect to be bailed out when their gambles fail. I agree the savings in the USA need to be increased dramatically – people have to not just stop living beyond their means but live within their means while including savings for the future. But FDIC insurance is a very good program, that pays for itself, and a wise thing to continue.
Matt Nolan says:
November 21, 2008 at 12:50 pm (UTC 12 )
My point is that if the risk premium is set too low then a deposit insurance scheme that is guaranteed by government will lead to excess risk taking.
Adverts that are stating that the new scheme allows them to give large loans without a credit check indicate to me that there is some excessive risk taking going on!
Insurance Blog » Why the price on deposit insurance is too low - at least in the US … says:
November 22, 2008 at 1:33 am (UTC 12 )
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Why the price on deposit insurance is too low - at least in the US … | debtdeficit.com says:
November 22, 2008 at 8:15 am (UTC 12 )
[...] See the original post [...]
Why the price on deposit insurance is too low - at least in the US … | fixedinvest.com says:
November 22, 2008 at 7:26 pm (UTC 12 )
[...] Go here to see the original [...]
Why the price on deposit insurance is too low - at least in the US … | definedebt.com says:
November 22, 2008 at 8:59 pm (UTC 12 )
[...] Read the original here [...]
Key’s speech and credit growth « The visible hand in economics says:
November 24, 2008 at 7:22 am (UTC 12 )
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November 27, 2008 at 2:03 am (UTC 12 )
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