The FDIC released new rules, of course on Friday when no one was watching. HuffPo:
As the Wall Street Journal reports this morning, in what are called a "loss-share" agreements, buyers of failed banks are getting billions of dollars in government guarantees to snatch up the bank's bad assets. To entice buyers, the Federal Deposit Insurance Corporation is offering to cover around 80 percent of the losses associated with buying a bank. The result, the WSJ points out, is a massive subsidy to the private equity industry, and a huge risk to the American taxpayer.
As bank failures have mounted this year, much has been made of the FDIC's dwindling Deposit Insurance Fund. But, as the WSJ reports, the FDIC's potential risk through loss-share agreements "is about six times the amount remaining in its fund that guarantees consumers' deposits."
This story is precious, in the New York Times article, Debt Linked to Buyouts Tightens the Economic Vise , they reveal that private equity firms bought out various companies on debt which is now coming due.
Private equity firms embarked on one of the biggest spending sprees in corporate history for nearly three years, using borrowed money to gobble up huge swaths of industries and some of the biggest names — Neiman Marcus, Metro-Goldwyn-Mayer and Toys “R” Us.
The new owners then saddled the companies with the billions of dollars of debt used to buy them. But now many of the loans and bonds sold to finance the deals are about to come due at the worst possible time.
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