A lesson that everybody has drawn from the debacle of Fannie Mae and Freddie Mac is that free guarantees from the Treasury Department, and therefore from the taxpayers, are a bad idea. Everybody now agrees that Treasury guarantees should be both explicit and explicitly paid for.

Now let's consider the Federal Deposit Insurance Corp., which benefits from a free Treasury guarantee.

As originally conceived, deposit insurance corporations, including the FDIC, were expected to stand on their own. In reality, of course, they had an implicit Treasury guarantee, like Fannie and Freddie. When faced with the financial collapse of the Savings and Loan Deposit Insurance Corp. in the 1980s, Congress made the deposit guarantee explicit. The taxpayers then paid $150 billion to cover the failure of FSLIC.

That is why the sticker you will see in every bank no longer merely says that deposits are protected by the FDIC. Instead, it says, "Backed by the full faith and credit of the United States government." This guarantee has enormous value to the FDIC and its member banks, but is not paid for.

In the current financial bust, the FDIC has publicly reported its insolvency for some time, with a negative net worth of billions of dollars. But nobody worries about it and no depositor cares. Why? Because of the Treasury guarantee. How valuable is that? Very valuable!

Add to this that the Treasury has protected the FDIC in other ways. Imagine the state of the FDIC without Tarp investments to shore up banks and AIG, or without the tax advantages Well Fargo got in its takeover of Wachovia, or without extraordinary assistance to Citibank. Only one failure of a really big bank would have made the FDIC insolvency dramatic indeed.

So what is the explicit guarantee of the FDIC by the Treasury worth? A lot, without question. What should the FDIC pay the Treasury and the taxpayers for it? Not nothing, that's for sure.

We should set ourselves the task of calculating and then charging the fair price.

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