The Federal Deposit Insurance Corporation (FDIC) was an FDR/New Deal designed entity to provide stability to the banking system by protecting people's deposits in an effort to insure confidence and prevent bank runs. Through this insurance, the FDIC essentially was an insurance policy for average Americans with money in banks should that bank fail. It appears the President Obama is now willing to gamble with that insurance in an effort to reward Wall Street.
The new Geithner Plan for removing toxic assets from banks is a public-private partnership that essentially allows investors to leverage government money to reduce risk in an effort to create a market for so-called toxic assets and remove them from bank balance sheets. The goal of this program is to both stabilize our banking system and to recapitalize banks through a process of price discovery and elimination of bad assets. This plan has been discussed at length here and elsewhere with many people both in favor and against it. This diary is taking a different approach to the issue.
The big gamble with this plan is the use of the FDIC to "insure" these private investors (read as hedge funds) from losses on the toxic assets they will be buying to the tune of roughly 72% of the price. This use of the FDIC is being made by Obama/Geithner because it removes any sort of Congressional approval from the process, thus eliminating a very important check in our system of government about who controls the purse strings. The huge risk here is that at a time when the FDIC is already somewhat impaired by bank failures (which are likely to rise), the President is using them as a backstop to insure very wealthy investors against losses in investments/gambles as opposed to insuring the average American against bank failure like FDR had envisioned. Should these assets turn out to continue to decline (read as the economy/housing don't recover quickly) the investors will walk away leaving the FDIC on the hook for the losses and essentially bankrupting it to the benefit of many of the very "investors" who got us into this mess in the first place. Whether you believe the Obama/Geithner plan will work or not, this risk to the FDIC and elimination of normal Congressional approval should concern us all.