Uninsured Depositors May Be 'Iceberg' for US Economy

Uninsured depositors, including company payrolls, are the next "potential iceberg" for the U.S. economy, said Larry Lindsey, CEO and president of The Lindsey Group economic advisory firm.

"All you need is one case where the uninusured depositors, the big deposits, don't get covered, and you have the potential that they start to run," he said. "To run an economy, to have a function that works, you've got to have a place where people can keep their money safely ... Unfortunately, the way the Congress has structured it now, that's not the case." (See video for full interview.)

The futility of Congress' bailout bill for mortgage lenders Fannie Mae and Freddie Mac, which includes no reforms to put limits on the companies and prohibits risk-based pricing, also a presents problem for the economy, Lindsey said.

It does nothing to protect Fannie and Freddie's securitization function, a "vital" part of the economy. It does, however, continue their role as hedge funds, a benefit only to shareholders, Lindsey said.

"You'll notice that since the plan passed, mortgage rates have actually risen in the country," he said. "That's because we have a less competitive market."

Lindsey suggested the government should do a de facto nationalization of the two companies to eliminate their role as hedge funds. This would eliminate the government-backed shared monopoly created by the bill, he said.

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