Presidential hopefuls Barack Obama and John McCain recommended today that the government raise the federal deposit insurance limit from $100,000 to $250,000 as part of a massive attempt to rescue the financial system of the United States.
The current limit, set in 1980, is clearly outdated, though Obama argued that the limit is sufficient for most families, but not enough for small businesses.
Meanwhile, McCain chose to focus on the idea of a Main Street rescue as opposed to a Wall Street bailout, calling for the limit to be raised and Treasury to exercise its ability to purchase up to a trillion dollars worth of bad mortgages.
Politics aside, such an increase in the FDIC limit would ease concerns among jittery depositors wondering if their bank is the next to go down.
Both the Indymac and Washington Mutual failure could be attributed to a run on deposits, as both experienced a surge in withdrawals once fears of a collapse took flight.
The OTS said depositors pulled out $16.7 billion in deposits in about a two-week span before WaMu’s collapse, while the Indymac bank run was well documented, and allegedly driven by remarks made by Senator Charles Schumer.
Yesterday, the massive bailout bill failed to gain House approval, sending stocks to their worst single-day point loss in history.
President Bush, stunned by the failure, noted that the $1 trillion loss of wealth experienced from yesterday’s stock crash dwarfs the $700 billion bailout price tag.