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A less-than-comforting gaffe at ABC Evening News

Monday, July 14, 2008

Anyone looking for a little reassurance that the U.S. banking system is not about to implode sure didn't get it from last night's edition of the ABC Evening News.

In a somewhat disturbing sequence of reports while discussing the FDIC takeover of IndyMac Bank, the second largest bank failure in U.S. history, host Dan Harris turned to ABC's "in-house voice of reason and calm" Mellody Hobson, President of Chicago-based investment firm Ariel Capital Management, and asked an important question.

In light of this huge bank failure, should Americans be concerned about the money they have on deposit at U.S. banking institutions?

Mellody replied:

I would not be concerned. The American banking system is sound and the main reason for that is for 75 years we've had the Federal Deposit Insurance Corporation, otherwise known as the FDIC, that stands behind the money you put in your bank up to $100,000 per individual in their deposit, so, most Americans have to know that that money is safe.
A reasonable reply - everyone seems to know about the Depression-era FDIC and their role in guaranteeing $100,000 held on deposit by individuals at member banks.

But, considering that the IndyMac failure will reportedly consume a full 10 percent of the FDIC's available funds and that many more bank failures expected, Dan then asked whether depositors should be concerned whether their bank might be involved in risky loans that could lead to their failure.

Mellody answered:
The FDIC and other government agencies actually go and monitor banks in a very detailed way. They have a watch list, believe it or not, that has about 90 banks on it and they're watching those banks very closely. But, they don't release any information about what they're doing or who they're watching, because that might lead to a run on the bank ... you have nothing to worry about.
While this sounded good (despite the very slow, sometimes almost baby-talk delivery), there was just one problem.

In the prior segment just one minute before, Yunji de Nies revealed an important bit of information about the FDIC "watch list" that so comforted Mellody and (probably) most viewers.
The government keeps a private list of financial institutions at risk. Two years ago, there were 50 on the list, today it stands at 90. The government now acknowledges that IndyMac wasn't even on the list.
Oh dear.

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fish said...

Man I'm glad that you catch these things!

Movie Guy said...


staghounds said...

Remain calm! All is well!

David said...

FDIC will need a tax dollar bailout or it will have to raise its fees (it charges member) tremendosuly to cover losses.

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