Rep. Barney Frank of Massachusetts, said in a memo to members of the House Financial Services Committee that “Sheila Blair, chairman of the FDIC, notified me that they will be requesting authority to increase deposit insurance limits. We will provide additional details as we have them,” according to Bloomberg.
Increasing the FDIC limit from $100,000 may be a short-term patch to mend the damage done to the markets yesterday after lawmakers rejected a plan by Treasury Secretary Henry Paulsen to infuse the financial markets with $700 billion.
As markets closed today, the Dow rose 485.21, or 4.68%, to 10,850.66 after falling almost 778 points on Monday, the worse one day point decline since Sept. 11, 2001. The massive rebound is attributed to the idea that increasing the limit could help ease a crisis of confidence in the banking system and help small businesses.
Presidential candidates Sens. Barack Obama and John McCain both called the White House this early this morning to discuss how increasing the FDIC to $250,000 would help reassure consumers who — after witnessing the collapse of Bear Stearns, Lehman Brothers, and several other top tier financial institutions — fear losing money in the system.
“The current insurance limit of $100,000 was set 28 years ago and has not been adjusted for inflation,” said Obama in a statement, pointing out that the current FDIC insurance is insufficient for businesses that need to meet payroll, buy supplies, and invest in expanding and creating jobs. “I am proposing that we also raise the FDIC limit to $250,000 as part of the economic rescue package.”
Additionally, McCain advocates that Congress include in the bill a proposal to use $250 billion from the Treasury Department’s exchange stability fund to help stabilize the financial system by buying up failed mortgages.
“A lot of small businesses are struggling to cover their monthly expenses and still have something left to put into savings,” said Stuart Robertson, general manager of ShareBuilder 401k, in a statement. “Before this down economy set-in, the number of small businesses making regular contributions to their savings plan was actually on the rise. Today we’re beginning to see a step backwards.”
Nevertheless, many in Congress don’t see the bailout as helpful to small business owners and individuals, and many of their constituents have called upon them to vote against the bill despite the aforementioned warnings. They see the $700 billion bailout as a hand out to wealthy Wall Street executives who caused the problem, while leaving main street taxpayers in the lurch.
The Center for Responsible Lending says that the crisis on Wall Street will grow worse until foreclosures are stopped. About “6.5 million homes will be lost to foreclosure over the next few years. These losses will be a huge economic blow,” said Martin Eakes, founder and head of Self Help and