It looks like check mate for the FDIC.  On one side, if the FDIC taps the Treasury then tax payers are essentially bailing out banks again.  If this happens, what’s the point of banks paying premiums to FDIC if the tax payer is the real guarantee behind deposits?

On the other side, if the FDIC doesn’t tap the Treasury but seeks to borrow money from member banks to cover the losses then where’s the extra capital coming from?  Isn’t this a giant “wealth transfer” system of robbing the rich to pay the poor?

If you think about either situation carefully,  you begin to realize that everyone’s screwed no matter what and more and more people are coming around to that fact:

Bair, the Federal Deposit Insurance Corp.’s chairman since 2006, says the agency has many options. One way to boost its coffers, now running low after a surge in bank failures, would be to charge banks higher premiums. It could make them pay future assessments in advance. Alternatively, the FDIC could borrow money from the banks it regulates. Or it could borrow from the Treasury, where it has a $500 billion line of credit.

“There’s a philosophical question about the Treasury credit line, whether that is there for losses that we know we will have, or whether it’s there for unexpected emergencies,” Bair said Sept. 18 at a Georgetown University conference in Washington. “This is really a debate for Washington and for banks,” she added.

Keep an eye out….