The FDIC
The Federal Deposit Insurance Corporation (FDIC) was created in 1933 in the Banking Act of 1933 (Glass-Steagall) as a result of bank runs.[1]
The FDIC website sums it thusly,[2]
“The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.
An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.
The FDIC receives no Congressional appropriations - it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and thrift in the country.”
To explain the reason that the FDIC insures depositors, their website links to a speech given by President Franklin Delano Roosevelt on March 12, 1933.[3]
“First of all let me state the simple fact that when you deposit money in a bank the bank does not put the money into a safe deposit vault. It invests your money in many different forms of credit-bonds, commercial paper, mortgages and many other kinds of loans. In other words, the bank puts your money to work to keep the wheels of industry and of agriculture turning around.
In other words, the banks committed fraud. 🤔
Continuing,
A comparatively small part of the money you put into the bank is kept in currency -- an amount which in normal times is wholly sufficient to cover the cash needs of the average citizen. In other words the total amount of all the currency in the country is only a small fraction of the total deposits in all of the banks.
In other words, the banks committed fraud and made bad loans. 🤭
What, then, happened during the last few days of February and the first few days of March? Because of undermined confidence on the part of the public, there was a general rush by a large portion of our population to turn bank deposits into currency or gold. -- A rush so great that the soundest banks could not get enough currency to meet the demand. The reason for this was that on the spur of the moment it was, of course, impossible to sell perfectly sound assets of a bank and convert them into cash except at panic prices far below their real value.”
“Sound” banks were insolvent when the public learned that the banks stole deposits and made bad investments. 🤯
FDR went on to assure people that the banks were really solvent. He said that the government was not merely printing paper money.
“The new currency is being sent out by the Bureau of Engraving and Printing in large volume to every part of the country. It is sound currency because it is backed by actual, good assets.”
He was claiming that the newly printed paper money was backed by actual, good gold money. 🤥
Continuing, he stated,
“More liberal provision has been made for banks to borrow on these assets at the Reserve Banks and more liberal provision has also been made for issuing currency on the security of those good assets. This currency is not fiat currency. It is issued only on adequate security -- and every good bank has an abundance of such security.”
The newly printed paper money was not backed gold money. Three days before the speech, Congress had passed the Emergency Banking Act (not to be confused with the Banking Act passed 3 months later). He used the act as the basis for confiscating gold from American citizens on April 5, 1933[4] and Congress (illegally) outlawed payments in gold on June 5.[5]
With the dollar no longer convertible into gold for Americans, the price of an ounce of gold was changed from $20 to $35 with the Gold Reserve Act of 1934.[6]
Anyone wishing to buy an ounce of gold worth of goods or services would need to pay $35 instead of $20.67 (69% inflation).*
If the government could just print money without the fear of redemption of paper dollars into gold dollars from Americans resulting in the government’s bankruptcy, then they could insure banks against bank runs.
So the FDIC was created.
It is insolvent.
The FDIC does not have enough money to insure all the deposits that they claim. They can not even insure 2% of deposits before depositors would need new currency sent out by the Bureau of Engraving and Printing in large volume to every part of the country.[7][8]
It is all just a confidence game. FDR said so at the end of his speech on March 12, 1933.
“After all there is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people. Confidence and courage are the essentials of success in carrying out our plan. You people must have faith; you must not be stampeded by rumors or guesses.”
The author is confident that there will be a general rush by a large portion of our population to turn bank deposits into currency or gold. -- A rush so great that the soundest banks can not get enough currency to meet the demand.[9]
The FDIC is just part of the confidence game.
[1] https://fraser.stlouisfed.org/title/banking-act-1933-glass-steagall-act-991
[2] https://www.fdic.gov/about/learn/symbol/
[3] https://www.fdic.gov/about/history/3-12-33transcript.html
[5]https://mises.org/library/great-gold-robbery-1933
*After the executive order (dictate), debtors could pay a $700 loan by working for an equivalent of 20 ounces of gold instead of the agreed upon 35 ounces. Lenders ate the loss.
[6]https://www.federalreservehistory.org/essays/gold_reserve_act
[7]https://www.fdic.gov/bank/analytical/quarterly/2010-vol4-4/fdic-quarterly-v4n4-fundmgmt-121610.pdf Pg. 2: “The current crisis, however, and the resulting large losses from 2008 onward, pushed the fund balance to a record low of negative $20.9 billion at year-end 2009. As of June 30, 2010, the fund had recovered somewhat but was still a negative $15.3 billion. The reserve ratio, which compares the fund to estimated insured deposits, is both a measure of the FDIC’s exposure and of fund adequacy.”
[8] https://www.fdic.gov/deposit/insurance/reserve-ratio.html
“Elevated levels of bank failures, especially in 2009 and 2010, resulted in a decline in the reserve ratio. The Dodd-Frank Act establishes a minimum DRR of 1.35 percent and requires that the FDIC return the reserve ratio to that level by September 30, 2020.”
[9]https://www.hamiltonmobley.com/blog/y8rzo00zq70icyksbzwtypnrsf9a1a