Deposit Insurance for Billionaires?

Politicians in Washington have the shortest memories.

Maybe that’s why they so seldom learn from their sometimes catastrophic mistakes.

It was less than 20 years ago that the U.S. economy was flattened by the mortgage and banking crisis. Anyone remember?

The experts said that the odds were tiny that the housing market could crash; that the federal housing agencies Fannie Mae and Freddie Mac would never need a bailout; that mortgage-backed securities were as good as gold.

Then they crashed overnight spectacularly and devastatingly. Banks made riskier and riskier housing loans to subprime borrowers — and the government covered the bets with essentially 100% loan guarantees. The book “The Big Short” famously tells the story of strippers in Las Vegas playing the market and flipping houses by taking out three or four mortgages.

One reason depositors and investors were paying no attention to the big banks’ high-risk lending strategy is that everything was guaranteed.

By you and me.

Americans are still rightly infuriated by the taxpayer bailouts in the trillions of dollars. The media has swept it all under the rug as an example of the excesses of greed and get-rich-quick capitalism. These factors played a role in the meltdown, for sure, but their partner in crime was the government itself, which insured all the financial Hail Mary passes.

One contributing factor to this moral hazard is deposit insurance. Right now, accounts are insured up to $250,000, so most Americans don’t have to worry about the soundness of the bank where they store their hard-earned savings. We don’t want 1929-style bank runs, for sure. So this safety net, there for shock-absorbing systemic risks, makes sense for mom-and-pop savers and investors.

But now there is a proposal to raise that taxpayer-insured limit to — drum roll, please — $10 million.

Huh? How many Americans have $10 million to deposit in the bank? Well, let’s see: There’s Bill Gates, Elon Musk, and Taylor Swift, to name a few, in the billionaire class. I’m the last person on earth to join Bernie Sanders in tearing down “the rich” when they earn it.

Supporters in both parties claim this will allow smaller community banks to more easily raise capital for lending and compete with the “Big Five” banks. That’s a good goal.

But we really should call this latest proposal “the Billionaire Insurance Act.”

A recent study from the Cato Institute found that fewer than 1% of deposit accounts exceed $250,000, the level at which Federal Deposit Insurance Corporation coverage currently ends. So to increase that amount to $10 million will mean taxpayer-supported insurance for the deposits of not the top 1% but the top 0.01% of Americans.

But who will be watching over the banks? It’s one thing to have the proverbial fox watching the henhouse, but with these kinds of limits, NO ONE is watching except the federal regulators who were asleep at the switch in 2006, ’07, and ’08. Think of how much larger the taxpayer losses would have been if this policy were in place 20 years ago.

There is another reason why lifting the deposit insurance limits is foolhardy. We don’t want to encourage investors to seek safe harbor in risk-free investments. The millionaires and the billionaires are the people we DO want to take risks with their fortunes. We want them to discover and seed-invest in the next Microsoft or Google, or Walmart.

Risk-taking is a virtue — it’s what built this country.

But we want investors to make the big bets with their own money, not yours and mine.

Stephen Moore is a former Trump senior economic adviser and the cofounder of Unleash Prosperity, which advocates for education freedom for all children.

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