What I Learned Today

Fascinating fact: Over the last 40 years, the re-election rate of members of the House of Representatives is 94%. In the last five elections, incumbents have won 97% of the time. This phenomenon has been studied since the 1970s, and has come to be known as the Congressional Stagnation theory.

This seems to fly in the face of the approval rating of Congress, which recently fell to just 14%, the lowest rating ever recorded. However, as Elliott Wave International pointed out in its latest Theorist newsletter, this percentage of Americans is roughly in line with the percentage of people who work for the federal, state and local governments!

Sobering fact: The nation's Federal Depository Insurance Corporation (FDIC), which insures nearly $4 trillion of bank deposits in the US, had $52.8 billion in its insurance fund as of March 31, 2008. Since that date, it is estimated that nearly $10 billion in funds have been committed in several bank failures, the largest being IndyMac.

The FDIC's fund raises its cash through fees levied at all member banks in the US. Typically, banks pay on average 5 cents to the FDIC for every $100 of deposits. For high-risk banks, these fees may be raised to as high as 43 cents per $100 of deposits.

The bureaucrats who run FDIC are now faced with a conundrum: either hike the fees to member banks to replenish the fund (and further worsen the credit crunch) or try to ride out the current crisis with a depleted fund (and risk spooking depositors should the fund balance continue to decline).

Rule of thumb: For every 1% hike in fees to the banks, the FDIC will raise roughly $700 million.

Point to consider: If just 2% of total US deposits wind up as FDIC claims over the next 12 months as a result of bank failures, $80 billion will need to be raised, at a minimum.