Did the FDIC Essentially Bailout Countrywide?

Well, it certainly could be argued that it has.  How so?  Take a look at this post over at the WSJ Economics Blog.  When you look at it, this could easily be seen as an unknowing blessing the way they put it.

Simply put, they compare Countrywide and its problems with that of the problems over in the UK with Northern Rock.  If you have been watching the financial news for a while, you would know that Northern Rock has been in serious trouble due to a "run on the bank."  That means that those people who have money deposited in the bank for one thing or another, want it back and want it back now.

Well, whenever the US has had a run on the bank, serious issues (such as the Great Depression) occur.  The US has taken steps to ensure that doesn't happen again, or so they think.

So, how did this protect Countrywide? 

Well, the UK's version of our own FDIC insurance does not protect as much assets in the accounts as ours does.  So, Northern Rock's accounts are only insured 100% for the first £2,000 (approx. $4,100) and 90% for the remaining insured money up to £33,000 (approx. $67,500) for a total of £31,700 out of £35,000 (or approx. $64,850 out of approx. $71,600).

Now, compare that to the FDIC insurance that covers 100% of Countrywide's deposits per account holder up to $100,000. 

As you can see, Northern Rock account holders stand to lose more money if they have significant amounts of money in the bank.  Countrywide account holders have less to lose, especially when you factor in that Americans do not save enough in the first place, so almost every account holder at Countrywide probably is fully covered.

So, in a round about way, the FDIC is preventing the complete collapse of Countrywide and is in essence helping to bail them out.