Why do some people say the latest plan of the FDIC would be a massive boondoggle?
For the second time in recent months, bank customers have been sent phishing emails purporting to be from the Federal Deposit Insurance Corp. (FDIC). Residents in Palo Alto County, IA area have been warned by their banks of the email scam. The FDIC also on Thursday sent out an alert about the scam to all security officers. The e-mail claims that the financial institution is on a list of banks that are “failing” and that the FDIC is taking control of that institution’s assets. The e-mail then instructs the recipient to click on a link that supposedly takes the recipient to the FDIC website, when in reality the website is actually fake. When recipients click on the fake FDIC website, they are prompted to enter sensitive information such as account numbers for checking and savings accounts. This latest alert comes after a similar phishing attack was reported against banking customers in late October, asking recipients to check the amount of insurance their bank had with the FDIC’s Deposit
Like a monster from an old horror movie, the Treasury plan keeps coming back from the dead. Yes, we are in a financial crisis that needs urgent, determined, and clear-eyed help from the government. But this plan is fundamentally flawed. It won’t even work if we leave aside its horrendous cost and long-lasting damage to the financial system. The additions and sweeteners in the Senate version, and those on the table in the house, make it even less likely to work. A workable plan has to be based on fundamentally different principles: recapitalizing banks that are in trouble, including allowing orderly failures, and providing liquidity to short-term credit markets. These are not new and untested ideas; these are the tools that governments have used for 100 years to get through financial turmoil. However, they have to be used in forceful and decisive ways that will step on a lot of powerful toes.
