It's easy to see why people have such extremely negative attitudes toward government – when we watch a bloated, broken behemoth like the Federal Deposit Insurance Corporation (FDIC) in action. While most organizations look for ways in which they can perform their functions better, the FDIC spends its time looking for ways to perform its duties in a worse manner...and when you're already doing as lousy a job as the FDIC, it takes a lot of effort to get worse.
Let's review the performance of the FDIC over the last two years. After assuring the world that it had more than enough capital to weather the failures of large numbers of U.S. bank, the FDIC quickly burned through those billions – and now operates with a balance sheet drowning in red ink.
The FDIC keeps a list of “problem banks”, which supposedly allows it to stay on top of U.S. bank failures. In fact, none of the large, U.S. banks which failed ever appeared on the FDIC's “list”? Remember the names Merrill Lynch, Wachovia, Washington Mutual, Indy Mac, Countrywide Finance and others? We are left to believe that either the FDIC knowingly left all those troubled, big-banks off of its list, or is so incompetent it didn't know that all those institutions were at the point of bankruptcy.
Meanwhile, with respect to the smaller U.S. banks – of which the FDIC (supposedly) keeps better records, the size of the losses which the FDIC has “eaten” with these bank failures has gone from an average of 5% of assets to 25% of assets. In other words, at the same time that the FDIC's list has grown to over 700 – the highest total since the last wave of U.S. bank-bankruptcies – the banks now being shut-down are (on average) five times more insolvent than those banks which were closed down at the beginning of the collapse in the U.S. financial sector.
Of course, we all make mistakes. What matters most is how we respond to our mistakes. So, how has the FDIC responded to its past incompetence? By getting less vigilant.
It has been FDIC to policy to conduct an “official review” of all U.S. bank-failures where the institution in question had assets of $25 million or more. In May of 2009, just after the U.S.'s corrupt “accounting watch-dog” brought in the new mark-to-fantasy accounting rules (which have allowed Wall Street Oligarch's to pretend to be “profitable”), the FDIC stated its intention to raise the asset-level necessary for a mandatory review from bank assets of $25 million or greater to those with assets of $300 million to $500 million (or more).
In other words, at the time of (arguably) the worst financial-sector crisis in U.S. history, the FDIC wanted to drastically reduce its own investigations to only those bank-failures of banks ten to twenty times larger than previous bank failures (see “U.S. Bank Watch-dogs Want to be Less Vigilant”). However, at the same time, it refuses to even put large, troubled U.S. banks on its watch-list. Like a confused “Goldilocks”, the FDIC wants to ignore the problems of banks which are “too large” or “too small” - and only actually “regulate” those banks whose size is “just right”.
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