In yet another piece of news that makes me wonder what planet I am living on, it turns out the Federal Deposit Insurance Corporation (FDIC) failed to collect premiums from many banks for 10 years. That's hardly heartening, since the FDIC may need to turn to the government for funds for future bank failures.

The FDIC has sought the ability to borrow up to $500 billion from the U.S. Treasury in case it needs to take over banks.

You probably remember hearing last year that a large portion of what it had on hand was being depleted as the FDIC shelled out for large failures like IndyMac and Washington Mutual, the latter of which was eventually acquired by JPMorganChase (NYSE:JPM). The FDIC had just $18.9 billion as of the end of December, a far cry from the $52.4 billion it had at the end of 2007. Needless to say, the fear is that if the FDIC had to swoop in and take over a huge entity like Citigroup (NYSE:C) or Bank of America (NYSE:BAC), it would be left with nothing but pocket lint.

Rose-colored glasses were "in" for way too long
Unfortunately, it seems the powers that be figured the FDIC didn't need to collect insurance premiums from most banks from 1996 through 2006 because times were so good. According to The Boston Globe, which broke this story, the fund had become so large that interest income on it covered the premiums (or so the argument went). Apparently, there had been so few bank failures in recent memory that this tactic seemed logical. (Then again, what are we dealing with here -- goldfish? Was the savings and loan crisis in the '80s that long ago?)

The Globe quotes FDIC Chairman Sheila Bair as saying, "An important lesson going forward is we need to be building up these funds in good times so you can draw down upon them in bad times." Um, no kidding. As ridiculous as that statement sounds (couldn't a seven-year-old tell you that?), the article does say that Bair did testify on Capitol Hill about the need to impose the fees in 2001, but nothing came of it.

We can thank Congress for this: Banks wanted the fees waived (and as much as this might have boosted their profitability, let's face it, weaseling out of these premiums had to be a negligible boost), and Congress agreed that no collections needed to be made as long as the fund was at "safe" levels. And nobody was at all intellectually prepared for the kind of massive economic storm we have now.

In another example of how messy things can get, the FDIC is now saying it plans a new emergency fee for banks to help shore up its dwindling reserves. Some community banks are complaining that this will make things tough for them. Whether you give credence to that argument or not, it seems as if had things been done properly in the first place, such emergency measures wouldn't need to be taken now.

Another blow to confidence
Given the current crisis, we can all argue about regulatory policies. And we should, because there are plenty of examples when politicians and regulators clearly dropped the ball, and citizens need to hold them accountable. Congress really thought it was reasonable to assume good times would never end? (Let's face it: Our entire culture also forgot about saving for a rainy day, but one might hope our elected representatives would be wiser than that.) It seems Americans who like the idea of the FDIC insuring their deposits should have a bone to pick with those who voted to let banks weasel out of their premiums, if the FDIC was to exist at all.

The FDIC, formed in response to many banks failing after the stock market crashed in 1929, is meant to give people a sense of confidence in their deposits in banks and to discourage bank runs. Its existence reassures depositors that their funds will be safe as they entrust them to banks like SunTrust (NYSE:STI), BB&T (NYSE:BBT), Wells Fargo (NYSE:WFC), and US Bancorp (NYSE:USB), not to mention the small community banks that might not feel too safe without it. For all that everybody's been talking about that elusive commodity "confidence," unfortunately, we are given more and more reasons to be confident of little except that there's been way too much greed and stupidity in both business and government.

That's what gets me. Although greed has been a problem in this mess we're in, I'm beginning to wonder how much has actually been incompetence. Way too many people didn't acknowledge the reality of economic cycles. Way too many people thought the good times would never end. Way too many people acted myopic, even just plain stupid.

Come on, all you supposedly smart ladies and gentlemen in the top ranks of business and government. Start flying straight and proving you're all as smart as you're supposed to be; give us something to be confident about. These days, you're not exactly batting a thousand. 

Alyce Lomax does not own shares of any of the companies mentioned. BB&T is a Motley Fool Income Investor pick. JPMorgan Chase and US Bancorp are former Income Investor picks. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.