Nader cited a memorandum from March 10, 2008, on insurance assessment rates by Arthur J. Murton, the Director of the Division of Insurance and Research for the Federal Deposit Insurance Corporation (FDIC). Murton’s thought then that, “the U.S. economy and the banking sector currently face[d] a significant amount of uncertainty from ongoing housing sector problems, financial market turbulence and potentially weak prospects for consumer spending.” And Murton believe that the fund which the FDIC uses to deal with bank failures “could suffer insurance losses that are significantly higher than anticipated.”
He highlighted the failure of IndyMac and held it up as an example of why Congress needed to investigate and hold hearings.
Nader specifically said, “Banking experts have indicated that the cost of the collapse of IndyMac alone will be between $4 billion and $8 billion. The FDIC has approximately $53 billion on hand to deal with bank failures. This amount may not be adequate given the cost of IndyMac and given the approximately $4 trillion in deposits the FDIC insures.”
He ended his letter with a series of questions that were primarily designed to ask about the FDIC list of “Problem Institutions” which is put together to anticipate bank failures. Nader wanted to know if any banks that failed this year were on the FDIC list, what banks are likely to fail in 2008 and 2009 based on the list, what is the estimated range of costs for dealing with bank failures, and what FDIC planned to do to adjust the Designated Reserve Ratio (DRR) for the Deposit Insurance Fund (DIF).
How did Sen. Chris Dodd and Rep. Barney Frank respond to the letter?
Ralph Nader wrote on Counterpunch.org, “When Congress reconvenes after Labor Day it would be prudent for Senator Dodd and Congressman Frank to focus on the FDIC and our nation’s troubled banks through some tough no-holds-barred hearings. These two lawmakers are going to have to hear from the people back home soon.
Neither Senator Dodd nor Congressman Frank has responded to my letter of July 23, 2008.”
What kind of response if any has either of these politicians fashioned so that something can be done?
Sen. Dodd had a hearing scheduled for today, which was postponed:
Title: (Hearing has been POSTPONED) Recent Bank Failures and the Regulators' Response Date: 9/18/08 Time: 10:30 AM Place: 538 Dirksen Senate Office Building
Panel 1 Honorable Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation
Honorable John C. Dugan, Comptroller of the Currency, United States Department of the Treasury
Honorable John M. Reich, Director, Office of Thrift Supervision
Sen. Dodd’s plans appear to be the textbook type of hearing that Congress convenes. Invite the perpetrators into the room to defend themselves and make sure a majority doesn’t assail them or go on the offensive with tough questions. Make it evident that the perpetrators were just doing their job and there were much bigger things at work here that could not have been controlled. Use lofty rhetoric to explain what purpose the hearing will serve and expect the American people to nod their head “yes” to your decision to what should have been done months ago.
Sen. Dodd has thought since January that the housing crisis is at the core of all the economic problems being experienced. Dodd had this to say about the market turmoil. These remarks are posted on his government webpage:
“The economic crisis facing our country is deepening, as we saw over the weekend with the failure of Lehman Brothers and the sale of Merrill Lynch. To fully understand the implications of these events, we need to learn more about the Administration’s involvement, and its plans going forward. At the Treasury Secretary’s request, I have postponed tomorrow’s hearing.
“Millions of Americans are struggling to make ends meet as unemployment rises, home values plummet, and everyday necessities like food and gas cost more than ever before. The Banking Committee has played a vital role both in revealing the pattern of lax regulatory oversight that helped to create this financial crisis, and in addressing related economic problems by crafting comprehensive legislation passed earlier this year. As Chairman, I will continue to work on solutions to help Americans weather this storm, including strengthening the housing sector, developing a second stimulus package, and of restructuring the regulation of the financial sector.”
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