Sheila Bair has a reputation for operating with few checks or balances, but believe it or not the FDIC does have some limits imposed on it.
It has a limited fund, for example, and it can only lend out so much money. When it runs low on money, for example, it has to hit up its member banks for more cash.
Of course, the FDIC has a major role to play in Tim Geithner’s bailout plan, as it will provide guarantees for the loan aspect. But there’s just one small problem, notes Andrew Ross Sorkin, it is specifically prevented from taking on any loan or guarantee over $30 billion.
But, um, that’s kind of a problem, because the FDIC will be insuring 85% of TARP debt. That’s awkward.
So how’s the FDIC getting around this little hitch?
“We project no losses,” Sheila Bair, the chairwoman, told me in an interview. Zero? Really? “Our accountants have signed off on no net losses,” she said. (Well, that’s one way to stay under the borrowing cap.)
Oh, well that’s reassuring, the accountants have signed off on it!
But really, Bair says the loans are adequately collateralized and that if there are losses, then the FDIC can hit up its members for more cash.
What could go wrong?