Props to Clay Risen

Posted By Daniel W. Drezner Wednesday, October 1, 2008 - 4:46 PM Share

Democracy editor Clay Risen has been guest-blogging at The New Republic because of the financial crisis. I want to highlight a post of his from today:

It looks like Congress is seriously considering an increase in FDIC limits from $100,000 to $250,000. Contrary to my post yesterday, this looks like a good idea, particularly in that it will help small businesses holding a lot of short-term cash. Why the change of heart? Commenters, my friend. I don't blog often, so maybe this is an everyday phenomenon, but instead of harsh blowback I received about a dozen intelligent, thoughtful explanations for why this is, in fact, a good idea. I won't re-hash them; read them yourself. I stand corrected, and appreciative.

I bring this up because it's so unusual. An occupational hazard of blogging is that it promotes excessive certainty, and these are really uncertain times. I think I know something about what's going on in financial markets right now, but I sure as hell don't know everything. I'm 85% certain that some kind of financial rescue package is necessary to prevent a complete meltdown of the credit markets -- but that leaves 15% of me gnawing on the possibility that I'm wrong. So if I see new information that persuades me that I'm wrong, I'll be happy to say I've changed my mind. And anyone blogging about this should be prepared to do so as well.

EXPLORE:ECONOMICS, THE BLOGOSPHERE, FINANCIAL MELTDOWN

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ZATHRAS

5:16 PM ET

October 1, 2008

The guy listens to blog

The guy listens to blog commenters. What a moron.

Seriously, it occurs to me that people and businesses with enough money to crack the $100,000 ceiling, and who might want to use a higher ceiling to put more money in banks and credit unions, would be taking that money from somewhere else. Now, to the extent doing so offers them a greater feeling of security amidst the turmoil in financial markets, that's good for them.

Who is it bad for now? Who might it be bad for later, when credit markets might have become unfrozen, and stock, bond and money market funds better risks, but individuals and businesses holding cash are still spooked enough to want the feeling of security provided by FDIC insurance? How much will the insurance premiums banks pay to the FDIC change with the higher ceiling?

I'm not down on the idea. I just want to know who's paying for this lunch.

7:54 PM ET

October 1, 2008

Humility is

Humility is good.

Depressions don't happen overnight. You don't know you're in it until you've been there for a while, and then you look back and see when it started.

But maybe in a year or two we'll look back and be glad we were wrong.

MARK BUEHNER

9:17 PM ET

October 1, 2008

Maybe i'm wrong (and somebody

Maybe i'm wrong (and somebody please correct me) but my view on the FDIC is that its all well and good if your local bank fails, but what most people count on is it being the ultimate life preserver if there is a genuine run on banks and we see multiple, big houses go down in quick succession.

That being the case, the FDICs rainy day fund will run out in about half an hour, and they will turn to the treasury for funds. Ok, but if the treasury prints, say, a trillion dollars in new currency, whats that going to do to inflation? The last thing we need in a disaster like this is run-away inflation, but thats exactly what the FDIC would precipitate. Thats when you want that basement full of canned food and shotgun shells over all the FDIC insured currency on the planet, which at that point would be worthless.

IF this is a scenario that is plausible, wont raising the limit aggravate that risk even more? Substantially more?

ERIC (THE ECON DUNCE)

9:57 PM ET

October 1, 2008

@Mark "Ok, but if the

@Mark

"Ok, but if the treasury prints, say, a trillion dollars in new currency, whats that going to do to inflation? The last thing we need in a disaster like this is run-away inflation, but thats exactly what the FDIC would precipitate."

For those of us with a mortgage we can manage, run away inflation may be "fun". My debt would be less since it's not adjusted for inflation, and a monthly payment may be as expensive as a Starbuck's latte. But, oh, I'd have to have wages that keep up and a functioning society to realize that benefit. Never mind.

Our academic department working with a business as usual approach, even though we're dependent on a mix of endowment (investment income), state support, and fees. I suppose many other institutions are working under a similar fiction, until impacts start hitting. I'm not quite sure what to expect as far as impacts, if we won't know we're in a depression for years (ala Jo), then I guess this will feel like a frog in pot of water that's slowly reaching a boil than an acute crisis where all of a sudden ATM's stop working and the lights go off.

RANDY PAUL

1:43 AM ET

October 2, 2008

I'm the president of my co-op

I'm the president of my co-op board. We had a meeting the other night and one of the issues we discussed was opening another bank account at a different bank simply because of the 100K limit. What changing this limit could very well do is keep people who have over 100K in banks from taking their money out. One of the reasons why WAMU collapsed was because depositors took out $16.7 billion from 9/15 until the government closed it. A higher ceiling and educating the public about the FDIC may help prevent that.

LEILA

2:27 AM ET

October 2, 2008

I think the deal has to go

I think the deal has to go through. I am an investment advisor and haven't been able to get bids on some AA/AA rated financial bonds that mature in under 5 years. The system is truly clogged....

MR. GREENBEAN

5:51 AM ET

October 2, 2008

How does the Senate deal help

How does the Senate deal help or hurt McCain given that McCain helped "drive" passage, but needed to add pork in order to get it passed? Doesn't that...I don't know...torpedo his claim for being a maverick reformer?