General Discussion
In reply to the discussion: A question for Obama and\or his supporters here: [View all]quaker bill
(8,224 posts)The TARP program literally bought "troubled assets" with with dollars that were mouse clicked into existence by precisely 4 people sitting at work stations in cubes at the NY Fed. They did not borrow it from anyone. This is really true and has been well documented. Well more than a trillion dollars were created this way, I recall the number approaching 4 trillion.
If home fire insurance had to have funds to cover a moment where all homes burned up at the same time, no one could afford to buy it. The same goes for the FDIC. The price of fire insurance is set by actuaries who determine how much loss is likely in any year and a reasonable worse case scenario. Even their worse case scenario leaves the overwhelming vast majority of homes untouched in any year. This is reasonable because have never seen an event that burns all homes up at the same time.
We have seen an even where nearly all banks failed at the same time (the great depression). However, FDIC premium rates and reserves are set to cover the occasional bank failure, and then only in the situation when the bulk of the bank's assets still have value. In these cases value the failed bank assets is not enough to cover liabilities but it is enough to cover most, so only some funds are needed to fill this gap. In 2008 the failed institutions in some cases had a net asset value of less than zero. This is why the "troubled assets" were purchased with funny money at face value, not market value, because there was no market value.
Your understanding is fair, because most of the time, things work as you described. This was not one of those occasions. The "things of value" surrendered had no value. The money to purchase them was not borrowed, because no one was lending. It was clicked into existence from nothing to purchase at high price things of no real value. Some of that funny money is now in your savings account.