What Does A Bank Run Look Like In 2008? A Lot Like 1912.
The FDIC was created in 1933 by the Glass-Steagall Act, and provides $100,000 of deposit insurance to checking and savings deposits. "Bank panics" used to be fairly common, and the FDIC was intended to instill confidence in the banking system after the Great Depression. The most recent big failure, that of California bank IndyMac, will cost the FDIC between $4 and $8 billion, and they estimate that about $1 billion of IndyMac's deposits are "potentially uninsured," meaning that the depositors had more than $100,000 on deposit. So what does a bank run look like these days?
Well, we took a peak at the Library of Congress' photo collection and we realized that a bank run in 1912 looks a lot like a bank run in 2008, even though a much higher percentage of the modern day depositors will be leaving with smiles on their faces and their money in their pockets. Some things never change.
Photos: (Library of Congress, Run on East Side Bank, N.Y. 2/16/12)
(AP Photo/Kevork Djansezian)
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Comments:
People sure liked hats a lot more in 1912.
@jwlukens: Every president wore a hat at their inauguration until JFK, after that, hats for men fell out of style.
@Git Em SteveDave is a poor substitute for LindsayJoy: no, now they just incapacitate you with tasers.
depositor - "i'd like to withdrawal all of my mon..."
ZZZZAP!
bank manager - "what was that? i didn't quite get that. you'd like to keep your money here? convulse uncontrollably if that's a yes."
ZZZZAP!
bank manager - "ok, great! NEXT!"
@jwlukens: For real. You notice the guy on the right appears to be both wearing a bowler hat and carrying a fedora hat under his arm?
I thought it was $100k protection per bank? Example, if I had 2 accounts with $80,000 in each, I would only be insured for $100k total. Am I wrong to think this?
So where's the list of banks that AREN'T likely to go tits up? My buddy works for Citizen's Bank and he laughs at other banks because they didn't get involved in the subprime market. I GUESS they will be ok.
Are there any other banks that are in good shape?
@sleze69: Wearing the Bowler, had the box it came in with him, to hold all the money he's hoping to get out of the bank, would be my guess.
Indy Mac. Sounds a lot like Freddie Mac and Saly Mae, right? One of the other articles here pointed out that Indy Mac has Countrywide's DNA through and through; Countrywidespun off Indy Mac as a means of collateralizing Countrywide Financial loans too big to be sold to Freddie Mac and Fannie Mae [wikipedia].
I just bothered to read the references last night and was appalled to discover this.
Therefore, regardless of their official FDIC status or anything else, Indy Mac was not a bank, trust or anything else: it was just a fraud machine. "Bank Run" inappropriately aggrandizes its failure. It's nothing more/less than Countrywide, Part Deux.
FYI, the Glass-Steagall Act was basically eliminated in 1999 by the Gramm-Leach-Bliley Act, signed by Clinton.
@jwlukens: Actually it's a common error, JFK did in fact wear a hat at his inauguration
Now just think, if the FDIC was privatized, rather then through the government, the insured amount could be 10x higher. The 100k thing never seems to change, even though as inflation moves along its happy way.
Note: the FDIC has an allotted money on hand as well, just like a private company would. A depression would wipe out the FDIC just as quickly. There is not infinite money in there.
This is ALL because of that wonderful, fateful, supercalifragilisticexpialidocious tuppence!
Wow, that was really gay of me.
@homerjay: Good to see you've come over to the dark side. Now tell me, who was it that recruited you, so we can get them their toaster.
@Bladefist: If FDIC was privatized then they would only pay out if no banks were collapsing. Once a bank or two collapsed then they would figure out a way to lower the 100K mark to closer to 5K. Also, the 100K was set in the Carter Administration I believe.
I don't have $100k in the bank or anywhere close. But if I did, I can't imagine keeping over $100K in a single account to be at risk for not qualifying for FDIC insurance.
@MayorBee: Come on! I just bought a new toaster!
I wish someone had given me a copy of the gay agenda before I decided to be gay. The free toaster is probably right there in it.
My favorite part of that picture are the mannequins in the window. They look like Disney Main Street USA cast members.
@shoelace414: No. It would be a contract, the same it is with the FDIC. How often do banks fail? It sounds extremely profitable.
I'm sorry you have 0 faith in privatization.
FWIW - each "depositor" is insured up to $100,000. For example, if a CD is worth $300,000 but it has three owners (or beneficiaries), it is fully insured.
@Bladefist: The point of the FDIC is that markets do fail, and the very fact that it is required of banks to participate makes sure we don't have the massive market failures of the past. You are amazingly ignorant of history if you say that the market can save itself from its participants.
@camman68: not quite true. that account's depositor is three people, therefore it's insured for up to $100,000. If each of those three people had their own individual accounts at the same bank, those too would be insured up to $100,000, even though they have that CD jointly.
There is no good reason to kept money in American dollars right now. If you have that much money lying around, buy gold.
Sheesh, I wish I just had over $100K lying around in a bank.
Well, the main difference is that the people in the lower picture had absolutely no reason to be there. The bank had already closed on the 11th, and depositors were either insured (and could access their money other ways, like via ATM) or too late to do anything.
So people have gotten dumber.
If the average Regional bank will cost the FDIC $6bn (Between $4bn-$8bn), and 150 banks are expected to fail in the next year or so.. thats $900bn.. Dont think they will be able to cover that..
My understanding was that a if your married. you can safely keep 400k in a bank. 100k per person, and then 200k in a joint account. It has something to do with payment on death clause or something like that.
@lockers: I could say the exact same about you. Historically the markets can be very volatile. Just early this week, we were on another scare. Yet starting yesterday, the markets are behaving beautifully.
Like I purposely mentioned above, the FDIC does have an allotted amount of money. In other words, In the event of a depression, you are still screwed. The amount of money they have is in the billions. That's enough for 1 or 2 failing banks. Not all of them.
@Bladefist: Kinda like the "contract" you have with your health and auto insurance underwriters in which you pay them oodles of money over time but when the shit finally hits the fan they try every which way imaginable to weasel out of it? "Oh, we insure your deposit up to $1,000,000 but only if every deposit you ever made in your account was made from one of our ATMs *or* with a human teller named 'Roberta.' It's right there on page 29 of your policy declaration. Sure I can show you...do you have a magnifying glass?"
Not that I trust the government to do any better of course...
To those talking about the 100k amount - originally the FDIC only insured accounts up to $10,000. Then sometime in the 80's, Reagan upped the amount to the current $100,000 cap... Just a bit of fun history for y'all.
Heh... Looks a lot like the banks during the Lunar New Year.
I'm happy I have an account with an international bank. At least they weren't foolish enough to lend out a lot of subprime mortgages.
So the problem of people not trusting banks was fixed by expecting them to trust the govt? hah!
@Troy F.: A Bank is not going to be as ignorant and as 'accepting of the small print' as Joe Bob - Professional idiot.
@Bladefist: the FDIC is explicitly guaranteed by the federal government. Yes they have only $56 billion in reserves, but if that becomes exhausted the government just lends them treasuries. If your privatized solution has the same spike, the insurance company goes bankrupt in a failing market. How exactly is your privatized solution going to prevent a market meltdown?
I think I disagree with you on privitization. If multiple banks failed, I could totally see an insurer declaring insolovency. Then again we thought that would happen to re-insurers after 911 and it didnt.
How about this, banks have to buy private insurance and then those private insurance companies are backed by FDIC.
I think this would solve the regulitory problems as the insurance companies would be audiding the banks hourly and if they colapsed you'd still be able to fall back on that $100K (which should be at least $250K now).
@lockers: New policy or not, lets kill the name calling, I've been guilty of it, but still we're trying to have a better blogging experence.
And remember, if, er, when the world finacial market colapses, it wont matter where your money is, CD, Bond, Stock, Bank or even that shoe box.
@Bladefist: How is your private-industry scenario different from life before the FDIC? Are you saying that some enterprising underwriter could have made billions by insuring banks, if only they had been as smart as you?
@lockers: "but if that becomes exhausted the government just lends them treasuries
Because flooding more money from the treasury always helps. What happened last time they did that? Oh yeah, this happened. And by this I mean everything that's going on right now. Yes, that includes my poor fish jumping out of his tank and suiciding himself on the hardwood floor :(
I digress, but yes, cotton is better than polyester!
@lockers: My idea works under a few assumptions:
1) A true depression will exhaust everything
2) The private company has more money then the 56 billion
3) There are still some market regulations to prevent a depression, as there are now.
I don't see the FDIC as an organization that prevents depressions. I see them as a fail safe for banks. Not every bank is going to fail at the same time. We have regulations for that. How many banks have failed in the last 10 years? It's minimal.
If you can get your mind of depressions, and think about when typical banks go under, how everyone would benefit by actually getting their money back. Competition would also drive down the price of the insurance.
And to those thinking about rip offs. These are banks we are talking about. Not contracts between people and their car insurance that they just sign and not read the small print.
OR we could just drop the $100k rule, and be done w/ it. One must ask, why is it capped? I'm guessing you government lovers will never be over the $100k rule, so hating on the big bad wolf (private companies) is easy.
It's too hot for hats in July. February is perfect hat wearing weather.
The guy with two hats... the one he is carrying is for his barbershop trio outfit, he's on his way to a gig.
@PunditGuy: I think it's more of a thing akin to social-security, both SS and FDIC are institutuions that the elderly trust and feel strongly about, it takes a bit more than lobbying to change them, even if it isnt the best solution.
@Bladefist: Ummm the entire idea of the FDIC being federally backed is that the federal government is implicitly saying, if the worst happens and the banks need more the feds'll print more.
Yes it is an inflationary action, but eh, a touch more inflation won't kill us, and the market reaps a great benefit. Few bankers will argue with the FDIC in theory (though of course they may disagree on practice such as acceptable reserve levels etc.), as it means a nasty rumor is unlikely to spark a bank run.
BTW, I love that there are two conversations going on in this thread...I should have picked the one about hats.
@Wormfather is Wormfather: Saying you would be ignorant of history if you do something is not name calling. It is historical fact that markets can't stop participants from breaking the market. I would appreciate if you could stop reading into peoples comments and assigning guilt where there is none.
@zigziggityzoo: I spent quite a bit of time at the bank yesterday. Additionally, I have looked this up online.
If my grandmother (revocable trust) has $300,000 in CD's and there are three beneficiaries, EACH of the beneficiaries is insured up to $100,000. Therefore, there is $300.000 in insurance protection. (I was very surprised by this).
The FDIC has an online calculator that will tell you the amount you are insured for.
www.fdic.com/edie
@Bladefist: no, the FDIC is there to reassure depositors that there money is safe in banks. Would be depositors rightly feared that if they had money in the bank. This created a lack of funds for all banks, hence the creation of the government guarantee to a reasonable limit. Reserve banking doesn't work if they have no depositors.
Fascinating pictures.
This makes me think though. I keep my money in an online account...how does one go about making a bank run on an online banking institution?
You guys are going to love this:
So what happens if multiple banks fail and the govenment has to bail the FDIC out?
Not "a touch more inflation" more like...
"The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run."
I guess they'll have to bring in the old strike breakers, like they had in the teens. Of course, they can't bust heads like they used to, so I guess they'll tell stories that go nowhere.