A reader’s idea for the Obama economic team: Up the FDIC limit to $200k

Note from Chris: I agree, this is a fantastic idea and long overdue. The bigger issue is not the insurance level being raised, but the FDIC actually having available cash. The FDIC only has $50 billion in reserves to support $1 trillion in assets. (I would encourage you to watch the previous link.) They will have to get money from Congress and surely will start asking for more money from banks, who will be asking consumers for more in terms of fees. If the US has a serious run on the bank it will be tricky. There are reasons why FDR changed the banking laws during the Great Depression. The Republicans since Reagan thought it was all hogwash. Looks like they were ever so slightly wrong and we are now stuck with too many “too big to fail” situations.

Great idea from a reader:

It’s been widely acknowledged that Obama won’t win unless he connects with people and show exactly how his presidency would affect their lives. Given the bank failures we’re looking at, here’s a real and plausible action he should take immediately: propose to double FDIC insurance to $200,000. The current $100,000 limit is archaic and doesn’t reflect the reality of today’s deposits. It would immediately put the everyday person more at ease that the Fed will protect their hard-earned savings, and it would also have the very real effect of stabilizing the withdrawal panics at banks that we’re starting to see.

I’m saving to buy my first place, and considering how much I need to keep in the bank for the downpayment, closing costs, my quarterly taxes (since I work for myself), and additional savings “just in case,” that $100,000 limit is downright scary. Say you’re looking to buy a $350,000 one-bedroom condo (that’s what they go for in DC) – that’s $70,000 in down payment, another $10,000-ish for closing, then you add in the money you’re saving in order to pay your self-employment taxes, your annual retirement contribution, and additional savings as a safety net (i.e., six months rent/condo payment on hand), and it’s not hard to get over $100,000.

Follow me on Twitter: @aravosis | @americablog | @americabloggay | Facebook | Instagram | Google+ | LinkedIn. John Aravosis is the Executive Editor of AMERICAblog, which he founded in 2004. He has a joint law degree (JD) and masters in Foreign Service from Georgetown; and has worked in the US Senate, World Bank, Children's Defense Fund, the United Nations Development Programme, and as a stringer for the Economist. He is a frequent TV pundit, having appeared on the O'Reilly Factor, Hardball, World News Tonight, Nightline, AM Joy & Reliable Sources, among others. John lives in Washington, DC. .

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