As shallow as it may be to say, perceptions matter greatly. If you were to truly think rationally concerning people’s perception, much of the time it makes very little sense. That statement I just made gave with one hand and took away with the other. Why? Because the words “rational” and “people” have had a very storied and difficult time coexisting since the beginning of sapience.
Here’s what had me wondering about perceptions a few months ago. One of my habits is to listen to the Marketplace podcast every day after I get home from work. It keeps me up to date on the day’s new. On one particular day, there’d been an awful drop in the stock market which was one more bit of bad news on top of an already ginormous pile of bad news. On this particular day, the FDIC chairman, Sheila Bair, proposes and later implements the lifting of the FDIC deposit insurance limit from $100K to $250K.
Gather all the information and think about this for a moment. The market has dropped and is dropping drastically. People have already lost (unrealized losses, if they haven’t sold) equity in the market. If they sold (thereby realizing their losses) and put that money in a FDIC insured account, it’s done nothing to help the bigger economy. They’ve just put that money in a figurative mattress. Mattresses don’t generally yield a very good rate of return. Actually you’re taking a loss if inflation is taken into account.
You might be say that it’s more of a stop-loss than an income generating measure. I’ll give you that. I’ll then counter with the following questions. How many people out there actually have $250K on hand to deposit into an account? How many would even own an account with $100K which was the original limit? I would say very few people. If they did have that kind of money around prior to all this happening, it probably would have been in the stock market. The people who have that kind of money to begin with are financially buffered enough that they don’t worry about those amounts. $250K would be considered a pittance to them.
Finally, the people who have those amounts of money in FDIC insured accounts are probably the most fiscally conservative people out there. They’re most likely doing better than the general population in this economic climate. At the end of the day, raising the insured limits hasn’t done anything but to assure the general populace that the sky is not falling. It is straight up marketing. Put 100% organic juice on the packaging and very few will question it. They’ll drink it up and ask for more.