The WSJ is reporting that the new plan being worked on will include raising the deposit insurance limit to $250,000 from the current $100,000.
WASHINGTON — Congress and the Bush administration are hashing out an agreement to raise the level of consumers’ bank deposits guaranteed by the government, an idea they hope might bring enough support to revive President George W. Bush’s planned rescue of financial markets.
A vote should come sometime tomorrow:
The Senate will vote on a new version of the rescue bill Wednesday if a compromise can be reached on this and other issues. Congressional leaders expect the vote could build momentum for passage of the bill in the House, which stunned Washington Monday by rejecting the $700 billion banking-rescue package.
It may have stunned Washington but it didn’t stun the public. They are also looking at futher changes to mark to market accounting:
Congressional leaders were also considering changing an accounting rule known as “mark to market” that some lawmakers blame for the financial system’s volatility. The legislation would back up the Securities and Exchange Commission, which Tuesday gave companies more leeway to figure out the value of assets for which there are no buyers. Other possible additions: jobless benefits and homeowner tax breaks.
All of these things will delay recovery. Raising the deposit limit will limit bank runs but also remove that information from the market. If depositors are leaving, doesn’t that tell you something about the bank? Think of it this way: Suppose a bank was paying half the interest rate being paid by JP Morgan and other well run banks. If customers wanted to leave that bank and go to JP Morgan, would it make sense to prevent them from leaving? Would it make sense to pay the difference in interest rates out of the taxpayer dollars?
Extending jobless benefits tends to increase the length of unemployment. If you have unemployment payments and you have some savings, some people may be able to afford to turn down a job offer they don’t find “perfect”. That person will stay out of work longer than he would have without the extended benefits. Those who can’t afford to live on jobless benefits will find a job quicker because they’ll take anything they can get.
And homeowner tax breaks? What homeowner tax breaks are left? We already deduct interest payments on the mortgage and a married couple gets a $500,000 capital gain exemption on their primary residence. How can we possibly distort the market even further in favor of real estate development? Housing prices need to keep falling until they reach the price that clears the excess inventory. It is homeownership subsidies that got us in this mess to begin with.
I guess if Congress is determined to do something, this is better than the original bill. Maybe if the other methods work, Paulson won’t have to actually buy any mortgages. The chances of that seem slim though; give someone power like that and he’ll use it. At least the defeat has them thinking of something other than the Wall Street employment plan.