Now you tell us... DOH!!!

One lingering anxiety over the financial bailout is that the relevant government agencies may not have taken obvious, preemptive steps much earlier when they would have made a huge difference. For example, I was reading a Reuters article by Karey Wutkowski entitled "FDIC program covers $1.9 trillion in debt, deposits" which discusses the new FDIC program that fully guarantees business transaction deposit accounts and tells us that:

Bair said the extra guarantee for transaction accounts "definitely would have made a difference" for Wachovia. She said the North Carolina bank experienced a serious liquidity issue after business transaction accounts fled the firm.

Sure, Wachovia had other problems as well, but it would be a shame if one of the primary factors causing them to "collapse" was simply that FDIC did not introduce the new program a month or two earlier.

We do in fact need a blue-ribbon investigation panel to determine which agencies were effectively asleep at the wheel or otherwise distracted when they could have been highlighting to policymakers the need for urgent reforms.

So, here is an interesting test case. Because FDIC monitors banks fairly closely, they knew in advance that depositors were fleeing Wachovia, but who should they have brought this problem to to get permission to fix it, or did FDIC have this authority all along and is this in fact an instance of gross negligence by the head of the FDIC and her staff? Or, is Treasury responsible for FDIC and the fault is theirs? My suspicion is that it is all FDIC's responsibility and that their lawyers were simply reading their charter a little too narrowly.

OTOH, maybe we do not actually need as many big banks as we had (and maybe still have), so the fact that one of the "extra" banks is now gone could be a distinct benefit. We will know in about five years or so.

-- Jack Krupansky