How much capacity does the government have to pull the train?
Fuerherm: If you look at the Federal Reserve, they’ve probably used about two-thirds of their balance sheet with the takeover of Fannie [Mae] and Freddie [Mac]. It is not a direct balance sheet item—it’s being kept off the balance sheet. But nevertheless, the potential cost there is literally in the hundreds of billions of dollars. From the U.S. perspective, if we are printing money faster than anybody else, it will . . . lead to a weaker dollar.
Are you worried about the Federal Deposit Insurance Corporation [FDIC]?
Fuerherm: The FDIC, in a severe case, is probably underfunded. Nevertheless, I think that the federal government would basically step in and backstop that. There cannot be any doubt in the mind of depositors that their deposits are good. It would probably behoove the government, the FDIC, and the Treasury as well, to move up the insurance level on FDIC [insured deposits] from the current $100,000 level up to perhaps $250,000, maybe a half-million dollars, further comforting large depositors.
What’s the government’s role?
Fuerherm: Unfortunately, I think the regulatory ball was dropped by a lot of the government agencies, and really put the government in this position as the lender, the guarantor of last resort. We need stronger regulation. That’s absolutely imperative if we’re going to improve the system. We have to get back to a more reasonable regulatory environment.
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