Taxpayers have not even had time to digest that last bailout yet they'd better be prepared to pony up some more dough. The FDIC is soon going to need its own bailout. This time the government will be smart enough not to call it a "bailout." It will be an "involuntary taxpayer funds withdrawl" and it could total another $1-200 billion.


The financial mess that the United States finds itself in has not yet crested and the public needs to brace itself for yet more bad news. The deal to save failing bank Wachovia is an indication of things to come. There are estimates that another 100 banks may fail within the next 12 months. While this is not yet approaching the 800 banks and savings and loans that failed in the early 1990s, banks today are much bigger and hold considerably more assets.

The Federal Deposit Insurance Corporation (FDIC) could easily see $1-200 billion being necessary to cover the loses. At present the FDIC has $45 billion in reserve. It's only option is to borrow from the U.S. treasury to cover the loses. Thanks to the bribery that was necessary to get the last bailout bill passed, the FDIC now must cover deposits up to $250,000 which means the amount the FDIC may require could be up to 2-1/2 times greater than what it expected just two weeks ago. The only bright spot in this is that most depositors arranged their accounts according to the old system of $100,000 FDIC limit so there may not be a large percentage of accounts above the old limit.

As the FDIC reserves dwindle the taxpayers will be required to make up the difference but this is only part of the problem. In recent months the FDIC has been playing a more active role in brokering deals for trouble banks to be sold to larger institutions. This is "vulture capitalism" where big players try to pick up the scraps of meat from dying carcasses. The problem with buying failed competitors is that the buyer doesn't always know the extent of the loses it might incur nor the value of the assets it just bought. JP Morgan found when it bought Bear Stearns, that it had overestimated Bear Stearns assets and the value of its acquisition was far less than it expected. They are also bracing for similar findings with their purchase of Washington Mutual. It is still unclear whether Bank of America's purchase of Countrywide Financial will be a $4 billion steal or a big headache and financial loss.

As more companies move closer to bankruptcy there will be others willing to buy up the scraps in the hopes of reaping profits by purchasing on the cheap. However; the success of the vultures is predicated on one crucial condition. The economy and the housing market must rebound and do so fairly quickly. If it does not the value of the assets the vultures are buying and the bad debts they are absorbing will simply not produce value for the buyer. The vultures themselves may find themselves in trouble, gorged on bad meat and needing assistance as well. Again, the only pocket deep enough has the taxpayer's name written on it. When the final bill for government created housing bubble is finally tallied, it is unclear whether there will be sufficient funds left to cover the charges.