You've probably heard by now that the FDIC increased the level of insurance on standard deposits from $100,000 to $250,000, at least temporarily. A reasonable question to ask is: Why? Here are a couple of options as I see it. I'd love to see comments suggesting additional possibilities.

(1) The limit has been fixed at $100,000 since 1980, we're probably due for an increase anyway. But the increase expires at the end of 2009, so it's not clear this is the best explanation.

(2) Part of the bailout package included insurance for money market funds. An economist we'll call FG suggested to me that this might be implemented to keep consumers from moving funds from deposit accounts to money market funds. I'm not completely convinced of this, mainly because I have some rather affluent friends, and none of them keep more than $100,000 in their checking account on a regular basis.

(3) The bailout was largely a political move, and is not apt to have a major effect, or at least as major an effect as one might like. If you look at the markets since the bailout package was passed, it sort of seems like the markets agree. One scenario: Paulson/Bernanke are going to let a number of banks fail and leave the FDIC to absorb the losses. Wachovia was a candidate for this a few days ago, before Citigroup and Wells Fargo got into a bidding war over the institution.

The problem with (3), my favorite option? The FDIC has limited assets. If a single bank failed, they could probably handle it. If bank failures are correlated, they're not in a very good position to handle it. But it's possible Paulson/Bernanke have just decided to let them bear as much of the burden as they're able. They could certainly have handled the failure of Wachovia.

Any other ideas?