Armchair Analysis

A couple of recent developments have got me thinking about the nature of the socialist, nanny state, what it does to people's self-reliance and the insidiousness of entitlement programs in general.

South of the border, a minimum wage raise has been passed while up here the airwaves are full of cheery ads from the CDIC that the amount of bank deposits covered by the CDIC has been raised to $100,000.

The Canadian implementation of deposit insurance is supposed to be funded by the premiums of its member institutions. Thus the CDIC is a Crown Corporation funded by it's member banks and it pays out settlements from its own reserves, or if depleted it is allowed to borrow up to $6 billion to cover banking collapse. So on the surface it appears as if bank failures covered by CDIC don't come out of the taxpayers pockets.

This looks nice on paper. In reality the CDIC has cash reserves on-hand of 1.4 billion to cover payouts on a failed bank. It can, in a pinch, borrow that further 6 billion which brings it up to 7+ billion. Which basically means it has the resources to cover about 1.6% of the 437 billion worth of deposits insured, most of it with borrowed money. In the event of some sort of systemic or cascading banking failure, the rest would have to come from the Federal Government, better known as, the taxpayers.

We've seen exactly this happen in the US during the S&L scandal of the late 80's. The sister body to the FDIC, the FSLIC (which covered S&L's specifically) went insolvent and the entire debacle is said to have cost the American taxpayer $150 billion.

In a very under appreciated and obscure book called The Monetary Elite vs. Gold's Honest Discipline by Vincent LoCascio, the flawed logic of government underwritten deposit insurance is revealed time and again.