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"Give banks money so they will lend." (I think the suckers are falling for it!)
Old 03-03-2009, 05:27 AM   #41
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"Give banks money so they will lend." (I think the suckers are falling for it!)

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Originally Posted by samclem View Post
"Rely on the same market forces that have proven to be the best system for allocating capital, labor, and other resources." We definitely need to modify some regulations and improve oversight to assure risks and reward are transparent and alligned, but that's a far cry from nationalizing the economy and throwing money at the very actors, big and small, who have proven least adept at using money responsibly.
Exactly. Do not give money to the banks that are "in trouble".

If you want to free up consumer credit just deposit money in the thousands of credit unions and savings and loans that are perfectly fine.

They will lend it responsibly and make money collecting the interest and principal.
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Old 03-03-2009, 07:42 AM   #42
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Exactly. Do not give money to the banks that are "in trouble".

If you want to free up consumer credit just deposit money in the thousands of credit unions and savings and loans that are perfectly fine.

They will lend it responsibly and make money collecting the interest and principal.
Exactly, let all of those troubled banks fail and fail miserably such that we have a cascading effect throughout the entire system, then lets bankrupt the deposit insurance system and tie the pension guaranty system in knots (and not bail out depositors and pensioners with any federal money), squeeze all those credit engines dry by not providing any more liquidity into the system, and let the chips fall where they might fall!

We can all get loans and credit from the neighborhood loan shark.

Do nothing (or Santelli's "F___ them all" rant) is not a plan either -- just a recipe for greater disaster and with the potential for civil unrest.
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Old 03-03-2009, 07:55 AM   #43
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Exactly, let all of those troubled banks fail and fail miserably such that we have a cascading effect throughout the entire system, then lets bankrupt the deposit insurance system and tie the pension guaranty system in knots (and not bail out depositors and pensioners with any federal money), squeeze all those credit engines dry by not providing any more liquidity into the system, and let the chips fall where they might fall!

We can all get loans and credit from the neighborhood loan shark.

Do nothing (or Santelli's "F___ them all" rant) is not a plan either -- just a recipe for greater disaster and with the potential for civil unrest.
Oh, the humanity! And they will take away everyone's birthday, for good measure.

Look at the bottomless pit this has become. The entire economy is in limbo while everyone waits to see when/if the feds will/will not bail out this entity or that. And we're not even talking about the tax bills that will come due.

We have a process for liquidating banks--the FDIC runs it. Some of the more "extreme" proposals for repairing the system have mentioned nationalization of the banks, but in one sense this is not extreme at all--the government briefly nationalizes insolvent banks all the time through the FDIC. It's not a good deal for the targeted bank, which is why they try to avoid it by staying solvent (exactly as it should be). But when it is implemented, it is orderly, transparent, and brief.
If/Once the government bailout gravy train stops, I think people will be amazed how fast the private deals materialize to buy up discounted assets. But those deals won't happen as long as the irresponsible ("troubled") entities can realistically hold out in hopes for a better deal from Uncle Sam. They are behaving rationally.
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Old 03-03-2009, 08:07 AM   #44
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Do nothing (or Santelli's "F___ them all" rant) is not a plan either -- just a recipe for greater disaster and with the potential for civil unrest.
Is that what Santelli said? Hmmm, here's the text:

Rick Santelli Rant Transcript « America’s Tea Party

Quote:
How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?
I can turn that around - if someone bought a house they couldn't afford, or got a mortgage with no concern about how future payments may change, and NOW they want *me* to pay their mortgage after it went bad (but would not share the profit with me if the leverage went well), well *those* people are saying "Eff you for being responsible, I want my MTV - money for nothin', get your chicks for free".

I think *that* is a recipe for social unrest.

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Old 03-03-2009, 08:45 AM   #45
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We have a process for liquidating banks--the FDIC runs it. Some of the more "extreme" proposals for repairing the system have mentioned nationalization of the banks, but in one sense this is not extreme at all--the government briefly nationalizes insolvent banks all the time through the FDIC. It's not a good deal for the targeted bank, which is why they try to avoid it by staying solvent (exactly as it should be). But when it is implemented, it is orderly, transparent, and brief.
If/Once the government bailout gravy train stops, I think people will be amazed how fast the private deals materialize to buy up discounted assets. But those deals won't happen as long as the irresponsible ("troubled") entities can realistically hold out in hopes for a better deal from Uncle Sam. They are behaving rationally.
Yeah, but you're missing the real point. The process does not entail liquidating banks that are too big too fail! At one end of the process, the gummint (principally through the FDIC) orderly resolves troubled institutions and the FDIC takes care of depositors (a form of Government subsidy and intervention that you don't seem to have an issue with, correct, so much for moral hazard and unregulated capitalism) and at the other end the gummint can't "liquidate" banks that are too big too fail. So, the rant against pumping money in mega-troubled banks is misplaced -- it's part of the process designed to deal with systemic risk.
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Old 03-03-2009, 08:51 AM   #46
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Is that what Santelli said? Hmmm, here's the text:

Rick Santelli Rant Transcript « America’s Tea Party



I can turn that around - if someone bought a house they couldn't afford, or got a mortgage with no concern about how future payments may change, and NOW they want *me* to pay their mortgage after it went bad (but would not share the profit with me if the leverage went well), well *those* people are saying "Eff you for being responsible, I want my MTV - money for nothin', get your chicks for free".

I think *that* is a recipe for social unrest.



-ERD50
Ok, you got me on misreading Santelli's rant.
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Old 03-03-2009, 10:49 AM   #47
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Exactly. Do not give money to the banks that are "in trouble".

If you want to free up consumer credit just deposit money in the thousands of credit unions and savings and loans that are perfectly fine.

They will lend it responsibly and make money collecting the interest and principal.
Wow.

This may work for an auto loan but big banks are needed for big investments. Building a Fab is much more difficult if there are 50 credit unions in the room all trying to negotiate terms.
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Old 03-03-2009, 12:41 PM   #48
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Wow.

This may work for an auto loan but big banks are needed for big investments. Building a Fab is much more difficult if there are 50 credit unions in the room all trying to negotiate terms.
There's a shiny, new, EMPTY fab in Richardson, TX you could probably get cheap...
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Old 03-03-2009, 12:43 PM   #49
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. . . resolves troubled institutions and the FDIC takes care of depositors (a form of Government subsidy and intervention that you don't seem to have an issue with, correct, so much for moral hazard and unregulated capitalism)
Because, just like it says on the little sign at the deposit window, federal insurance was always part of the deal. It's not a new twist, it's not a new giveaway, and it was already priced into the product. Maybe the price of the government insurance was too low, but at any rate, depositors accepted lower interest rates in exchange for the government guarantee. So, the government needs to pay up. There was no such gaurantee for stock or bondholders of these institutions, and their losses, to use a technical financial term, are "tough luck."

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. . . and at the other end the gummint can't "liquidate" banks that are too big too fail. So, the rant against pumping money in mega-troubled banks is misplaced -- it's part of the process designed to deal with systemic risk.
"Process" might be too complimentary by far for what we are seeing. A good alternative process (that has been proven to work) is the Resolution Trust Corp. It was expensive, but much less expensive (at the end of the day) than what we are doing now. The government recovered approx 50 cents on the dollar, and the toxic assets were scrubbed off the balance sheets and we moved on. If we'd done then what we are doing now, I guess we'd still be keeping those damaged S&Ls on life support and wondering if the pain would ever end. The RTC model is scaleable, and would work fine under the present situation. We just need someone in DC with the backbone to tell it like it is, make the hard decision, and administer the medicine. Like you, I won't hold my breath waiting for this to happen.
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Old 03-03-2009, 02:32 PM   #50
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Because, just like it says on the little sign at the deposit window, federal insurance was always part of the deal. It's not a new twist, it's not a new giveaway, and it was already priced into the product. Maybe the price of the government insurance was too low, but at any rate, depositors accepted lower interest rates in exchange for the government guarantee. So, the government needs to pay up. There was no such gaurantee for stock or bondholders of these institutions, and their losses, to use a technical financial term, are "tough luck."
Where do you get this stuff from Samclem? Deposit insurance is a corruption of the free market -- it was ushered in by that last great government socialist, FDR. Without deposit insurance, we had a total lack of confidence in the banking system which resulted in panic and inaccessibility of credit.

Priced into the product? At what price? Didn't I just get a $150K increase in my insurance without doing anything or paying for that? You mean if the Government ran the deposit insurance program as a private business the cost of deposit insurance incurred by the banks would be much higher? You also mean we consumers really have a choice to go to an uninsured institution for deposits; how many states do you think currently allow state banks to be uninsured? and there's not one federal chartered depository institution that's uninsured.

I point out federal deposit insurance because it is one true success story of government intervention into the market place.

Deposit insurance is there simply to instill confidence in the banking system. Without that confidence, we'd be going through rounds and rounds of great depressions. And the idea of protecting, in limited cases, some bondholders and perhaps some equity interests in institutions that are too big too fail, is based on the same notion that we need to bolster up engines of credit and institutions critical to our payments systems because the alternative is to take a hit on "confidence" which is perhaps the single most important aspect of psychology driving the markets right now and ultimately the real economy.

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"Process" might be too complimentary by far for what we are seeing. A good alternative process (that has been proven to work) is the Resolution Trust Corp. It was expensive, but much less expensive (at the end of the day) than what we are doing now. The government recovered approx 50 cents on the dollar, and the toxic assets were scrubbed off the balance sheets and we moved on. If we'd done then what we are doing now, I guess we'd still be keeping those damaged S&Ls on life support and wondering if the pain would ever end. The RTC model is scaleable, and would work fine under the present situation. We just need someone in DC with the backbone to tell it like it is, make the hard decision, and administer the medicine. Like you, I won't hold my breath waiting for this to happen.
Apples and oranges; the RTC process of shutting down numerous failing thrifts is simply not available here for banks too big too fail like Citi; BTW, there's nothing new with this process it was done in the 1930's with the Reconstruction Finance Corporation and the FDIC, before there was an RTC. And the FDIC continues the process; it does not work well with banks too big too fail!

RTC never shut down a mega, mega thrift; and each of the mega institutions resolved by the FDIC over the past 40 years have had "bridge banks" formed (like the conservatorship in IndyMac) and in many cases there was a "good bank, bad bank" division of balance sheets. I suspect what the Government is now doing is out of the textbooks of success they've had in the past -- the problems however are so big and daunting this time around, however: dealing with AIG, IndyMac, WaMu, Bearns Stearns, Lehman, B of A, and the toxic mess is truly unprecedented. The savings and loan mess of the 1980's and 1990's does not even remotedly approach the mess we're now facing!
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Old 03-03-2009, 03:04 PM   #51
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Deposit insurance is a corruption of the free market
Absolutely true, and I would be happy if we didn't have it. But we do have it, and because we do, there are numerous responsibilities. Government must regulate the banks (to assure adequate reserves, monitor the quality of the loans banks make, etc). In this responsibility, the government has failed (partly by negligence, partly by design. There's no need to re-hash the disgrace of Fannie, Freddy, and the Community Reinvestment Act, all of which contributed significantly to the present mortgage meltdown).

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Priced into the product? At what price? Didn't I just get a $150K increase in my insurance without doing anything or paying for that?
Again, I wouldn't have been in favor of the increase in FDIC deposit coverage. Still, the government assessed a fee to banks for the coverage, and those fees will rise along with the new cap. To the degree there are shortfalls, all taxpayers will foot the bill. This part isn't priced into the product, but at least it is keeping faith with the iron-clad guarantee made to depositors by the government. In many of these discussions people reference depositors, stockholders, bondholders, and "the financial institutions" as all being somehow equally deserving of a government safety net--I resist this notion.

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You also mean we consumers really have a choice to go to an uninsured institution for deposits;
"Institution" was your term, not mine. Investors have hundreds of choices as to where to put their money. Does commercial paper generally pay more or less interest than an FDIC insured bank account? And the reason the FDIC account can pay less is because of the government guarantee.

It is clear that "Too Big To Fail" is just shorthand for: "We don't want to think about it or even discuss it. No. Don't even consider it. Must preserve. Really. No matter what the cost. Only idiots talk about folding this tent. I'm serious. We're bigger than God. Put down the telephone."

The truth is, if a failing institution really IS so big that it's failure would demand immediate government propping up in perpetuity, then that is, in itself, sufficient reason for the government to nationalize it (because the government is effectively underwriting it anyway) and rapidly splt it up into "not too big to fail" parts as a means of mitigating risk to the entire financial system.
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Old 03-03-2009, 04:50 PM   #52
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Absolutely true, and I would be happy if we didn't have it.
I assume this means that you'd reject a FDIC payout if your bank failed? That'd be the non-hypocritical thing to do.
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Old 03-03-2009, 05:17 PM   #53
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I assume this means that you'd reject a FDIC payout if your bank failed? That'd be the non-hypocritical thing to do.
Where is the hypocrisy?

If you put your money in an FDIC insured account, you are paying for the insurance out of the (reduced) interest. So, you should get the coverage.

If you don't have your money in an FDIC insured account, you don't pay, and you don't expect the insurance coverage.


Where is the hypocrisy?

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Old 03-03-2009, 05:28 PM   #54
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Where is the hypocrisy?

If you put your money in an FDIC insured account, you are paying for the insurance out of the (reduced) interest. So, you should get the coverage.

If you don't have your money in an FDIC insured account, you don't pay, and you don't expect the insurance coverage.


Where is the hypocrisy?

-ERD50
If FDIC insurance is socialism, and goes against your fine Free Market ideologies, you should therefore reject such insurance when it's offered to you in a FDIC take-over or transition. This includes WAMU and Wachovia and Merrill Lynch and all the other former banks that were guaranteed by the government when another bank bought them.

To do anything else would be accepting a form of socialist insurance and, therefore, would be hypocritical. You should immediately turn in your "Free Marketeer" decoder ring.
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Old 03-03-2009, 06:50 PM   #55
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Now, to drag this thread back on track . . .

Texarkandy, thanks for the link to the Campaign for Liberty. Ron Paul has a lot of "I told you so" coming, and his group will be useful in this regard. I don't think he's the dynamic spokesman needed for a widespread counter-revolt. Lots of good ideas.

Likewise, Fred Thompson set up a PAC, and he's good for a short video now and again. But, I don't think he's got the fire needed to lead a revolt.

I think Bobby Jindal hurt himself a lot in his GOP response to the President's plan last week. He can recover, but hopefully that's not as good as he gets.

So, the angst continues to grow, but remains unharnessed . . .
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Old 03-03-2009, 08:09 PM   #56
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Where is the hypocrisy?

If you put your money in an FDIC insured account, you are paying for the insurance out of the (reduced) interest. So, you should get the coverage.

If you don't have your money in an FDIC insured account, you don't pay, and you don't expect the insurance coverage.


Where is the hypocrisy?

-ERD50
The hypocrisy is there as Eridanus points out and it is further amplified by the several occasions in which Samclem has called out people in precisely the same manner as called out by Eridanus; see Post 27 of this thread. Obama Plans to Reduce Budget Deficit to $533 Billion by 2013.

Nonetheless, I think your point about deposit insurance and the depositor "paying for it" with reduced interest is a stretch. The depositor does not really "pay" for the insurance (the banks do and they gladly pay for the insurance notwithstanding the angst some community banks are having about the special assessment all the banks will be paying in the near future). A depositor can chase higher rates at other places such as money market fund accounts that were previously uninsured (but in another dose of socialism money market fund accounts have now been guaranteed since September of last year under the Bush Administration). However, it does not seem accurate to say the depositor is paying for the reduced rate any more to say that you're paying for the Full Faith and Credit guarantee of the United States when you purchase Treasury securities. You're trading safety for yield but you're not paying for that.
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Old 03-03-2009, 08:18 PM   #57
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This particular section of our Community Rules seems to have lost something in the translation:

"Challenge others' points of view and opinions, but do so respectfully and thoughtfully."

You kids behave yourselves...
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Old 03-03-2009, 08:30 PM   #58
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The hypocrisy is there as Eridanus points out and it is further amplified by the several occasions in which Samclem has called out people in precisely the same manner as called out by Eridanus; see Post 27 of this thread. Obama Plans to Reduce Budget Deficit to $533 Billion by 2013.
No, very different. When someone says "I think I should pay more to the federal government and would be happy to do it," then that individual can clearly achieve his objective by simply paying more money to the government. To do otherwise is to say one thing but do another--the definition of hypocrisy.

When I say "I believe the government should not insure savings accounts," it would be hypocritical of me to write a letter to my Congressman urging higher limits for FDIC insurance. It is not hypocritical of me to live with the laws as they are written. If I said "People should not take advantage of FDIC insured accounts" and then opened such an account, that would be hypocritical.

I oppose the "stimulus" plan, but I feel everyone should take full advantage of the shower of money DC is going to pump out, even modifying their financial arrangements to get more if this is feasible. That's not hypocritical.

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Nonetheless, I think your point about deposit insurance and the depositor "paying for it" with reduced interest is a stretch. The depositor does not really "pay" for the insurance (the banks do and they gladly pay for the insurance notwithstanding the angst some community banks are having about the special assessment all the banks will be paying in the near future). However, it does not seem accurate to say the depositor is paying for the reduced rate any more to say that you're paying for the Full Faith and Credit guarantee of the United States when you purchase Treasury securities. You're trading safety for yield but you're not paying for that.
Well, then we truly have a unique situation here. When other businesses incur a cost, it is passed on to customers--bundled into the price. But, somehow, the fees paid by banks to the government for FDIC insurance are NOT passed on to customers. Instead, the bank absorbs these costs, apparently out of a spirit of goodwill and patriotism.

Next, I expect we'll hear that employers really pay 1/2 of the payroll tax for their employees. I love that one.
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Old 03-03-2009, 09:18 PM   #59
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No, very different. When someone says "I think I should pay more to the federal government and would be happy to do it," then that individual can clearly achieve his objective by simply paying more money to the government. To do otherwise is to say one thing but do another--the definition of hypocrisy.

When I say "I believe the government should not insure savings accounts," it would be hypocritical of me to write a letter to my Congressman urging higher limits for FDIC insurance. It is not hypocritical of me to live with the laws as they are written. If I said "People should not take advantage of FDIC insured accounts" and then opened such an account, that would be hypocritical.

I oppose the "stimulus" plan, but I feel everyone should take full advantage of the shower of money DC is going to pump out, even modifying their financial arrangements to get more if this is feasible. That's not hypocritical.
Somehow I don't see the difference or distinction you make; it appears to me to be a bit contrived. If you don't believe with conviction a particular practice, then you should not accept the practice or its benefits. It would be hypocritical, in my mind, to state that you abhor the Food Stamp Program and think it's a waste of taxpayer money or government resources, and then apply for Food Stamps when you need them; makes no difference to me that the law or program permits you to take advantage of the program -- the point is that it's hypocritical or two-faced for someone to rant against a Government program and then have his hand out for payment under the program. I think it's imprudent to turn down Government benefits that are available to you, but I also think its hyprocritical to take advantage of a program you dislike! So you should not have your savings in insured accounts, or obtain a payment for your deposit from the FDIC if the insured bank failed.



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Well, then we truly have a unique situation here. When other businesses incur a cost, it is passed on to customers--bundled into the price. But, somehow, the fees paid by banks to the government for FDIC insurance are NOT passed on to customers. Instead, the bank absorbs these costs, apparently out of a spirit of goodwill and patriotism.

Next, I expect we'll hear that employers really pay 1/2 of the payroll tax for their employees. I love that one.
I'm not sure it's so unique; it's now an ingrained cost of business, sort of like a cost to enter the trade or industry that is simply not absorbed by the consumer. It absorbs these costs because quite frankly it can't pass them to the consumer; not a question of goodwill or patriotism. Aren't there many other sunken costs of doing business that can't really be transferred to the consumer?
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Old 03-03-2009, 09:43 PM   #60
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Somehow I don't see the difference or distinction you make; it appears to me to be a bit contrived.
I don't think I can explain it in yet a different way that will make it clear to you.
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Aren't there many other sunken costs of doing business that can't really be transferred to the consumer?
This isn't a "sunken cost." When we say that a "cost was passed on to the customer" we are really skipping over a few steps, but in the end (after an equilibrium is reached between competitors) in normal markets the final price paid by the customer will be higher by the same amount as any increased costs incurred by producers. Whether we are talking about fuel costs paid by airlines or FDIC insurance costs paid by banks, it is the same.
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