Bubbles can burst?!

Remember, that was Bart Simpson's incredulous query when the Repo Depot came to take away BetterThanTv.com's ping pong tables and pinball machines after the company went bankrupt, and Milhouse said "Well, I guess the bubble burst." Fans of The Simpsons will also remember that the repo man observing the action with Bart and Milhouse replies "Yeah, but it's a golden age for the repo business, one that shall never end," and then lights a cigar with what we can only presume is a $100 bill.

Mmm, that's good satire.

Of course, that episode (featuring a web TV startup that distributes stock certificates out of a paper towel dispenser) was a send-up of the dot-com bubble, but the repo man might as well have been a Wall Street banker. After all, wasn't the era of securitized mortgages and credit default swaps, built on the rock-solid foundation of ever-rising home prices, a golden age that would never end? Nobody could have predicted that home prices would eventually stop rising, that predatory lending would lead to foreclosures, and that there's only one logical conclusion to a Ponzi scheme!

All of this is by way of introducing this doozy of a story that ran in the Globe yesterday. Here's the lede:

WASHINGTON - The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

Let's refresh: the Federal Deposit Insurance Corporation was set up after the Great Depression to protect people's deposits in banks. If your bank failed for any reason, the FDIC insured your money up to a certain threshold ($250,000 today). The confidence that ordinary Americans had that their money was safe prevented the sort of runs on banks that occurred in the early part of the Depression and contributed to more than 4,000 bank failures in 1933. Bank failures are bad. Deposit insurance is good. Like other insurance plans, participating banks pay premiums to the FDIC, which goes into the fund that would, you know, pay for the deposits that are lost when a bank fails. It's easy.

It's a shame most banks didn't pay premiums for a decade. The FDIC could kinda use that money about now. I'll let James Chessen, the chief economist for the American Bankers Associant, explain the reasoning:

"[T]he fund became so large that interest income on the fund was covering the premiums for almost a decade." There were relatively few bank failures and no projection of the current economic collapse, he said. "Obviously hindsight is 20-20," Chessen said.

Isn't that so typical? Of course Congress wouldn't authorize fees on its enablers in the finance industry. Why do the legwork of actually paying your insurance premiums when you can kick up your feet and let the interest do it for you? After all, we were living in a golden age! One that would never end!