The following week only banks that had enough cash on hand to cover all their deposits were allowed to reopen. Banks that were unsound stayed closed until they received a government loan to rebuild their reserves, or declared bankruptcy. Millions of Americans lost their life savings during this � ���"bank holiday� �� �.
Today we don't have bank runs or bank holidays, we have bank bailouts.
The Federal part of FDIC's name refers to the US government, (not to be confused with the privately owned Federal Reserve). When a bank in the United States goes into receivership, the FDIC uses taxpayer money to cover all the insured deposits at the bank. This has been done for small, local banks that create bread-and-butter loans for homes and businesses.
But the really big financial firms like Citigroup, AIG, and JP Morgan, the ones that made this mess, simply won't be allowed to fail.
Last October the Bush administration passed the $700 billion Troubled Asset Relief Program. Just like the bank holiday of the Great Depression, TARP was sold to the American people as a way to end the economic crisis. Instead the money is being used to bail out Citigroup, Bank of America, and the other institutions that have caused this depression.
The � ���"troubled assets� �� � referred to are of course derivatives. TARP has funneled billions of our tax dollars to Morgan Stanley, Goldman Sachs, and other financial firms in exchange for these worthless assets. Unfortunately, the nominal value of all derivatives contracts held by US banks has reached 200 trillion dollars, so TARP is just a drop in the bucket.
Since President Obama's election, the Federal Reserve and Treasury Department have tried various ways to contain the economic meltdown.
The Fed has launched an alphabet soup of new auction facilities that have purchased over one trillion dollars worth of derivatives. The U.S. Treasury has created the Public Investment Corporation. This aptly named government agency will invest another trillion in derivatives, using our tax dollars as collateral.
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