Are Banks Safe? Is FDIC worth anything?

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I'm invested in two online savings accounts: etrade(3.30%) and emigrant direct (4.00%) which both pose low CAEL ratings (4 out of 5). My question is that even though they are both FDIC insured, in times when the Dow is losing 10%+ per week, should the rating of a bank take top priority? Have we hit the tipping point where the financial sector is in such a disaster that cash should only be placed in banks with the highest rating?

How many banks can the FDIC bail out?

Thanks for your advice.

[sweeps]

In the event of a total financial disaster, your money will be worthless anyway, whether it's in an FDIC insured Etrade account, or in cash stuffed under your mattress.

[kork13]

In the event of a total financial disaster, your money will be worthless anyway, whether it's in an FDIC insured Etrade account, or in cash stuffed under your mattress.

Ah, the sanity of blunt reality... I love it. thank you sweeps! In such conditions, might as well leave it in the bank where you're getting 1-3% nothing's worth of returns on your nothing scraps of green paper.

The FDIC is capable of protecting a great deal of assets, not simply from its own capital reserves, but through its influence as well. I can't name examples off the top of my head, but a significant part of the FDIC's role (as evidenced in the last month, or few months) is to oversee and facilitate the transfer of assets from a failing bank to a stable bank. That move in itself protects deposits, and often can be done without a single FDIC payout.

[MYOM]

The markets will begin to stabilize when the treasury starts to take mortgages off bank balance sheets. The details of pricing paper are being worked out as we speak. Details of that could come as soon as this weekend.

Your money is safe because it is backed by the taxing power of the United States of America. No government currency on the planet is safer.

Dan Clemons

[disgruntable]

The FDIC is not worth a dime. They do not have a single penny to their name. The money they raise though premiums are turned over to the US Treasury. The FDIC does however have the backing of the US Government and the government's taxing authority, so your money is as safe as the US government.

[Troyrb]

So that said is anyone starting to pull their money out of brick and mortar banks?

[kork13]

maybe to invest it in the stockmarket, but otherwise no way. my money is safe where it is, whether people want to believe it or not.

FDIC-doomsday talk is pointless. As mentioned above, if somehow bank failures become so prevalent that even the FDIC (and thereby, the USG) is unable to find enough money (i.e., print enough money) to cover insured funds, inflation would be so high anyway (because the USG's final resort is to print more money, which increases inflation) that it doesn't really even matter. FDIC is mandated by law that it WILL cover everything insured, and it will--even if that means dipping into the budget, having premiums skyrocket, or getting more money printed.

[marvholly]

With all the talk of doom & gloom I am just wondering where everyone is putting their money these days.

Stocks-tanked & no end in sight
Bonds-lower returns everyday
Commodities-see stocks, wheat, corn, oil all down
Other currencies-who can you trust

That said-In the past 3 months I have opened CDs at Wachovia, WAMU & a local bank w/ a poor rating BUT all are well under old FDIC limit.

[kork13]

Doom and gloom (fear) is why people get out. When people get out, it sparks doom and gloom (more fear). Thus one of the problems we have today. There is alot of fear out there right now, and not enough confidence in the economy as a whole.

I'm leaving all of my money exactly where it is--invested in the stock market with an asset allocation I'm comfortable with (~93% stocks, 5% commodities, 2% bonds). Plus, a healthy sum of liquid assets in my banks for my daily use. If I get out and stuff it all in my sock drawer, my money becomes stagnant. Leaving it in, yes it'll likely go down over the short term (<1 year), and may stay low over the mid-term (2-3 years), but it will grow over the long term (4-10+ years). We've seen this in the past. If people will relax, it'll all be over with sooner. Unfortunately, our 24-hr media, desperate for a news story, is proliferating fear.

[tripods68]

How many banks can the FDIC bail out?

According to RBC Capital forecast: 300 banks will fail over the next 3 years.

According to Bauer Financial: 426 additional banks are grappling major problems, not necessarily will fail, but on FDIC watch list.

Independent Weiss Research: 1479 FDIC members are at risk, 158 thrifts with total assets 3.2 Trillion. 1 of every 9 banks are risk to fail. At this level FDIC will have exhaust of of its FDIC Insurance.

The next industry that will be hit the hardest are losses from commercial loans portfolio. Analyst are expecting losses to accelerate towards, and potentially exceed, historical peak losses over the coming quarters. This is were most of Wells Fargo revenues comes from. If Wells go, the whole banking industry go.

In other words, this market have yet to reach the bottom. This is just the beginning--1 year down 3 more years of downturn.

BTW: 117 total banks FDIC protected so far this year according to FDIC, but it's downplaying the bank failures beyond 117.

[Scanner]

Just a brainstorm but I am going to put in a sell order on my silver when it tops a 20% return for me (target: $16.38 for SLV . . .take the cash and buy up my JAOSX (international fund) as it has undergone a big correction during the last few weeks (around $28/share off a high of $60).

At that point, I will have used my "diversificaiton" for it's purpose - to minimize risk and then ride the wave back up being 100% invested in JAOSX and my wife's blue chip. . .which she just "buys and holds." Or I if my silver reaches it's target price and oil continues to drop, I'll go with 100% in oil.

Cause oil has to go back up. It's just gotta.

That's my brainstorm on what to do. . .I'll gladly listen to others.