Washington Mutual, that’s who.

Hey, I’m thinking Treasury Secretary Hank “The Hammer” Paulson is probably wondering when the Hell he will get a weekend off. He bailed out Fannie and Freddie, the Toxic Twins, last weekend. This weekend he’ll be busy, busy, busy trying to find a buyer for Lehman before their debt gets downgraded and stress fractures appear on financial edifices worldwide. I’m guessing he’s already penciled in the weekend after that to preserve whatever smoldering ruins remain from what once was Washington Mutual.

Socialists spend considerable time theorizing about crises of capitalism. Well, no need for more speculation, because we’re in one right now. Problem is, such crises tend to hose down everyone rather than just raining righteous retribution on evildoer capitalists (who often have a way of escaping relatively unscathed anyway, if they don’t actually eventually profit from the whole thing.) No, it’s those with less money and resources that get whacked worse by such crises. But you knew that.

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The FDIC may have to borrow money from Treasury to prepare for a expected wave of bank failures.

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A small business owner, Fran Quittel, posts in California Progress Report that she lost 50% of her amount deposited over $100,000 when IndyMac failed. Understandably, she is frantic, looking for someone to blame. She thinks the blame goes to the FDIC for not mandating that banks tell depositors in advance that they are over the $100,000 limit. But the real blame belongs to IndyMac who were a major player in subprime. Some of their depositors, like Quittel, are now paying the price for the bank’s recklessness and greed.

Should she have known? Probably. But a small business owner is busy with, well, running a business. Some of us (like me, I trade options on financial stocks) follow bank news closely. To us, it was obvious IndyMac was going down. But to many small business owners, it clearly wasn’t.

Quittel says that banks should routinely notify depositors if they are over the $100,000 limit. This makes sense, especially in these uncertain times. The problem for many business owner is, if they deposit money in the bank to make payroll, they may often be over limit. She thinks liabilities, like payroll, should be applied against the limit, but there’s no feasible way to implement that.

Why, she says, does FDIC seize a bank with no notice on Friday right as many businesses, like hers, are doing payroll? Because FDIC never notifies in advance and because IndyMac was insolvent, that’s why.

Some of the comments are merciless towards her. But over 10,000 IndyMac customers also lost money and it’s clear there will be more bank failures. Some businesses will not be able to withstand such a hit and will go under. Others will be forced to scramble to make payroll and pay the bills.

And the end is nowhere in sight.

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The FDIC seized two more banks on Friday.

Mish says

If you must [have money in a bank above the FDIC limit] for some reason (corporate payroll for example), at least pick a bank the Fed and the FDIC will defend at any and all costs. Right now that means Bank of America, JPMorgan, or Citigroup.

This is the point I want to stress: Every regional bank is suspect and can fail at any time.

Is he being alarmist? Maybe. Maybe not. But it is certainly easy enough, if you are fortunate to have over $100,000 in a bank, to transfer some of it elsewhere, to another bank or maybe a brokerage. While brokerage accounts are not federally insured, enormous and stable brokers like Fidelity have private insurance on accounts and are also, in my estimation, too large to fail. (Not that there is the slightest reason to worry about the conservatively-run Fidelity.)

The FDIC has a wealth of information about bank failures and insurance online, all logically and clearly arranged. Kudos. They’ve done a fine job of presenting vital information.

From the FDIC

Deposits up to $100,000 per institution are insured, period.

A depositor can have more than $100,000 at one insured bank or savings association and still be fully insured provided the accounts meet certain requirements. In addition, federal law provides for insurance coverage of up to $250,000 for certain retirement accounts.

Calculate your insurance coverage if your accounts are above $100,000.

When a bank fails - facts for depositors, creditors, and borrowers

In the FDIC’s 75-year history, no customer has ever lost a single penny of insured deposits.

Emphasis added.

Failed bank list (might want to bookmark this…)

Is my account in a seized bank fully insured?
Select your failed bank off the drop down menu, enter your account number, and it’ll tell you if it’s fully insured.

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