I’ve previously written about the perennially uninformed – those who are so caught up in their own little worlds that they never pay attention to the things that are going on around them. Most of the time, their ignorance is costly only to them. Recently, though, some of them created big problems for lots of other people, as their lack of awareness was a catalyst in the collapse of IndyMac Bank.
The media, along with various politicians, had been reporting that this bank was in danger of failing. Oblivious to the fact that, in the majority of cases, their money was completely insured, depositors created a run on the bank to try to withdraw their money as quickly as possible. This led to IndyMac’s failure and subsequent takeover by the Federal Deposit Insurance Corporation (FDIC).
All of this could have been avoided if its customers had been mindful of the fact that the FDIC insures their money, up to $100,000 per account. The FDIC was created by the government during Franklin Roosevelt’s administration to prevent a repeat of the bank failures of the Great Depression, when people lost all or most of the money they had on deposit with those banks. Now, banks pay the FDIC a small monthly premium to insure their depositors’ money. With the FDIC insurance in force, those who don’t have more than $100,000 in any bank account (I would say that this is the case for more than 95% of all account holders) have nothing to worry about and are never in danger of losing their money. Why is that so hard to understand?
Of course, those who had more than $100,000 in any IndyMac account will likely lose some of their money, although the FDIC is promising to return to them at least 60% of amounts in excess of $100,000 per account. These people have no one to blame but themselves for any losses that they incur. They should have known the limits of the insurance and therefore structured their deposits in a way that none of their accounts exceeded the $100,000 limit. Either they were among the perennially uninformed or they just assumed that their bank would never go under.