In October of last year, President Bush increased insurance coverage per individual from $100,000 to $250,000. This was done, essentially, to prevent a sweeping run on all banks. It was a brilliant move to build confidence that really cost taxpayers nothing (so far).

On May 20th, 2009 President Obama signed into law a continuation of the enormous increase in FDIC coverage. This additional coverage was set to expire on December 31 of this year. The new law extends the coverage through the end of 2013.

Here at my bank, we had already fielded several calls from concerned CD customers about this potential loss of coverage. One man went so far as to request something in writing from me stating that he would be allowed to pull his money if the coverage reversed back to $100,000, and we had done nothing to otherwise insure his funds. We were already developing a game plan to combat a run on our tiny little bank if the coverage had reverted. Depositors would have taken money out in droves to accommodate for the reversal of insurance. This could have been very bad not only for us, but for the system in general. We might have had a situation similar to the one I’ve discussed in a related blog post below.

So this is your good news headline of the day: “President Obama Averts Potential Run on the American Banking System, Seven Months in Advance”

Kudos Obama.

For more information on the extension, please see the following website:

http://www.fdic.gov/deposit/deposits/changes.html

Throughout the course of the global financial crisis, I have loosened most of my tightly held beliefs concerning market/capitalist economies and all ideas therein. Like many others, I was on board the Free Market train though out the majority of the decade. Letting go of this has been sobering to say the least, but it is becoming increasingly evident to me that we as a nation are dealing poorly with our enormous hangover.

In econ/philosophy we study a simple term called the “slippery slope.” In this term we come to understand that any deviation from a defined dogma or practice creates a greater propensity to continue to move farther away from the original position. This concept is troubling in terms of market economies with everything from universal health care, and more obviously now, governments taking ownership interests in private entities.

While I have acquiesced to the concepts of “systemic risk” and “too-big-to-fail,” I have struggled with each step. The article mentioned above highlights what happens when we go down the slippery slope. “Dr. Doom” asserts that a major reason for nationalization is because we have effectively done it already. This is of course partially true, but his assertion and reasoning are deeply disturbing. It is now, more than ever, that governments and the populace should most fervently resist outright socialism. If we set the precedent of nationalization, we lose credibility on every front. Investors will be even more reluctant to purchase equities and provide private capital. Just look at Venezuela’s most recent economic troubles resulting directly from socialism and lack of foreign investment. If continued and outright nationalization were to occur, the government would turn into a true Leviathon, and set the table for all manners of other socialist policies. If the media, major economists, and the Obama administration want to not only preserve the heart of our capitalist integrity, but also the “moat” around America that makes it so attractive for investment relative to other countries, they will ardently work towards market solutions- not government ones.