Peter Atwater, one of the individuals responsible for building JP Morgan's securitization business during the late 1980s and early 1990s believes that doing away with the FDIC will help promote bank stability and soundness in the future. It's one of five recommendations he gives as part of banking reform. In an article posted on Yahoo Business entitled Five Suggestions for Banking Reform, he writes:

"Second, and at the risk of being bold, I believe the time has come to eliminate FDIC insurance. When the FDIC was created in the 1930s, it was intended to be a temporary solution. Today, it puts the US taxpayer on the hook for more than $7 trillion in bank liabilities. But as a consequence, depositor due diligence is non-existent. And putting Wall Street aside, this crisis has shown, even with specific oversight, hundreds of now-failed banks took excessive risk in their traditional banking businesses and their insured depositors neither cared nor were adversely impacted. Their risk was borne by the government, while they earned returns far in excess of comparable US Treasuries. If we're truly going to eliminate "moral hazard"/"too big to fail" we must eliminate deposit insurance in the process."

It's an interesting and bold idea, but one that ignores the reality of how FDIC insurance works and how it can be made better. First, banks fund and pay for FDIC insurance. The taxpayer does not. Yes, the fund is ultimately backed by the US Treasury but it has as of yet had to pay anything to depositors, even in the most recent financial crisis. Instead, the FDIC placed an extra levy on the banks to help recapitalize the fund. That seems entirely appropriate.

Second, without FDIC insurance, bank runs would become much more common and debilitating. Any news of a bank problem would be met with a rush of depositors trying to get their money out. A bank could collapse based solely on rumor. The orderly unwinding of a financial institution would be impossible.

Third, doing away with FDIC insurance assumes that consumers have access to the proper information to make decisions about bank viability, security, safety, and soundness. It is unclear if that information exists or that consumers would be able to process it. For example, even though Indymac was widely expected to fail for several weeks, a significant percentage of the deposit base had money there in excess of FDIC insurance levels. What is more likely to happen, is that after a few banks go under and consumers lose money, they'll begin to pull money out of the banking system and stuffing it under their mattress. That removes money from the banking system that can be used for other productive purposes.

A far more effective remedy would be to increase the percent that banks have to pay into the fund based on their leverage and risk ratios as well as their projected losses. Banks go through cycles of boom and bust and smoothing that cycle for consumers is the best way to help consumers, not removing any kind of bank responsbility for keeping their depositors whole. As we've seen, banks are incapable of self-regulating and could care less about losing investor, depositor, and government money.

The article also is sanguine about the Volcker rule, which recommends re-siloing banks based on whether they use consumer deposits or not.

"First, as much as I admire Mr. Volcker and the noble intentions of the "Volcker Rule," I'm afraid that attempting to re-silo the financial services industry is akin to trying to unscramble an egg. In fact, with all due respect to the myriad of regulators currently in place, I think our existing silo'ed regulation contributed mightily to our crisis."

In a sense, the end of Glass-Steagall and the repeal of the FDIC would remove two big pillars of bank regulation put in place after the Great Depression. I find it ironic that the banking system was relatively stable from the late 1930s through 2007. Is it coincidence that the banking system crashed so shortly after Glass-Steagall was repealed? What would happen if Great Depression remedies were further removed and FDIC insurance abolished?

Those that fail to learn from history are doomed to repeat it. What we need now are clear remedies to a broken banking system, not a return to a past that we know doesn't work.

Chances are you're goggling at that headline right now--not pay taxes?? How is THAT possible?

Oh, it's quite possible. And when you look at why, it actually makes sense.

See, banks have been having a pretty bad year. Oh, who am I kidding? Most every business everywhere has been having a bad year. But in business, you pay taxes based on your adjusted gross income. Adjusted, of course, against allowable deductions. Small business folk think of this in terms of capital investment or mileage or any of a hundred other things, but for big businesses (like banks) a seriously large allowable deduction comes in the form of BUSINESS LOSSES.

If you're just starting out in business, you may already be familiar with the idea that the government lets you declare a business loss on your taxes for up to seven years consecutively before no longer allowing it as a tax deduction. Thus, many people with more "hobby-based" businesses will run them at a loss to give them a more favorable tax picture (special note--if you're thinking about trying this yourself, don't, at least not without the counsel of a CPA). And this year, most every business (especially a whole lot of banks) operated at a loss, or bought money-losing divisions, thus allowing them to declare a paltry income or even a full-on loss.

Thus, some of the biggest companies out there, including some who got themselves a whole load of taxpayer money, will not actually be taxpayers themselves for FY 2009.

Kind of makes you think twice about storing YOUR savings in mattresses, huh?

The Pros and Cons of the Health Savings Account

Health savings accounts (HSAs) are used to save money for future medical expenses. Discover how these plans work and whether or not they are right for you.

A health savings account (HSA) is an account into which you can deposit tax-free money to be used for future medical expenses. HSAs were established in 2003 and have rapidly risen in popularity. They are part of a larger trend known as consumer-directed health care. The aim of consumer-directed healthcare is to reduce the money spent on health care by placing more of the responsibility on you to shop for health care. Want to spend less on hospital visits - smoke less, eat healthier, and exercise. Because the days of your employer footing the bill are no more!

Account Advantages

The HSA is equipped with several advantages, many in the form of Uncle Sam's generous tax benefits. Contributions to the plans are tax deductible. The contributions can come from you, as well as your employer, if you have an HSA through work. Individuals age 55 and older can make additional catch-up contributions to the account each year until they enroll in Medicare.

All HSA earnings are tax-free, and there is no limit to how much you can accumulate in the account. When you take money out to pay eligible medical costs, those distributions are tax- free, too. But perhaps the most appealing part of an HSA is that there are no time constraints on when you can spend it. If you don’t use all the account money on healthcare costs, you don’t lose it. You can carry any money that’s in the account at year’s end over into the next year to pay for future medical costs.

One Plan, Two Components

The first consideration when it comes to HSA participation is the required companion healthcare policy. Although the potential for HSA participation was opened up a few years ago, you must have a specific type of coverage.

The first criterion in any situation is that you have a high-deductible health plan. These are just like they sound; the insured policy holder will initially pay greater out-of-pocket costs.

Eligible plans are available through various insurance companies; however, they all have deductibles for 2009 of at least $1,150 but no more than $5,800 for singles and between $2,300 and $11,600 for covered families. If your healthcare costs reach the deductible level, the policy coverage kicks in.

Once you get your insurance policy, then you can open your health savings account. Currently, an individual can put up to $3,000 a year in an HSA. An account for family coverage can be as much as $5,950. HSA contributions often come from savings by paying the typically lower premiums charged for the accompa- nying high-deductible policy. Then, when you have to meet some deductible costs, you use HSA money to pay. The deductible part is pure insurance costs and healthcare costs. The side fund, the HSA, is a sep- arate entity, an actual savings account. You have the opportunity to put money aside for those emergencies when you do need to meet the deductible.

While a high-deductible insurance policy and HSA works well for many, it’s not a good fit for everyone. Some folks find that a traditional employer- provided plan, while it generally costs more in up-front payments, is more cost-effective over the longer term. In any traditional health plan, you will have an office visit and prescription co-pays, but that’s not the case with an HSA. There is no office visit or prescription co-pay.

There are a lot of cases, such as young families making really good money, who would appreciate the tax advantages of HSAs but have small children that will have to go the doctor three or four times a year for shots, checkups and illnesses picked up at day care. In those cases, more traditional healthcare coverage is the better financial and medical choice. But for individuals or families who are in good health, HSA-eligible cover- age could be a better prescription. An HSA is particularly good if you’re rea- sonably healthy, in a higher tax bracket and your kids are older and don’t need regular checkups. Then you can really take advantage of the tax benefits of an HSA.