Rolling Back Deposit Insurance May Roll Over ‘Little Guys’ Who Count on It

Regarding the Sept. 25 Viewpoints column, “Deposit Insurance Should Be Rolled Back: Take Federal Support Away, and Banks and Thrifts Will Do a Better Job”:

R. Dan Brumbaugh Jr.’s proposal to reduce federal deposit insurance would leave widows, the disabled and the retired vulnerable to the risk of losing their savings and the moderate interest income they rely on for their support.

People in these situations put the funds they have saved or received from insurance as a result of personal catastrophes in federally insured accounts precisely because they know what can happen to money “invested” for them by stockbrokers and financial advisers. Does anyone remember the crash last fall? Little people can’t afford that risk. And how often do we read about the widow “advised” out of her only livelihood by a stockbroker or adviser who has “churned” the money and invested badly to gain high fees and then lost it all?

Then the professional they trusted need only say how very sorry he feels and drive home in his Mercedes. After all, bad judgment isn’t illegal; and he hasn’t lost everything he had.

Federal deposit insurance was created to prevent runs on banks and keep our country’s economy stable. It is also in place to protect the depositors who have trusted the federal government. Without this trust, panics could result when the market or the economy gets shaky. If the system hasn’t been really been tested in 50 years, it’s because it has worked. The federal government would be betraying its promise to its citizens if it backs away and throws out the system simply because it was called upon to honor its promise.

The government must not betray the depositors who depend on it by covering only small amounts of money with federal insurance. To do so would risk the loss of everything for innocent people. Retired people, the disabled and the widowed cannot relive their lives and re-earn their savings, on which they now must live. The change Brumbaugh recommends would throw them to the mercies of financial advisers who cannot and would not assure safety and to the financial markets they cannot hope to survive.

K. J. KLEM

Mission Viejo