Friday, May 22, 2009

It's Good to be Government

Recently congress passed a law limiting the ability of credit card companies to rates their rates. Often, as accounts got riskier by going past due, the companies would increase the interest rate. Companies complained this was rational risk pricing. The government said it's gouging, taking advantage of people down on their luck.

Today the FDIC announced it is raising the cost of deposit insurance. Again. As more banks fail, the FDIC needs more money to cover this cost. They already raised rates in January when banks were starting to show they were in trouble. Obama recently stated that "If a credit card company wants to raise interest rates, then that new, higher rate should apply to the debt you add going forward, not what you already owe." So, is the FDIC going to apply this only to new deposits?

Note also that the TARP is giving money to banks and charging interest on the money, in order to shore up bank capital. So, the government has one group putting money in, another taking money out. Different objectives, same tactic, opposite sign. Why not have the TARP give the money to the FDIC?

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