Banks ability to service retail customersgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Okay, as I've said in another message, I haven't read the book yet. Ed, I promise I will lay my hands on a copy within two weeks and devour it.
Issue: My bank (BankBoston) assures me that it will have no problem supporting retail banking operations. I will be able to get my money, make deposits, have EFT work, get money from the ATM machine, etc. They admit that they have other problems, primarily in the areas of reporting and short term loan management, but that won't affect me. My mortgage lender (Bank United) assures me that the Y2K problem for mortgages was solved years and years ago and they better get my 1/1/2000 payment on time because they sure as shootin' will be able to handle it!
Question: What, exactly, is all the hububb about? So long as panicky depositors don't start a run on the bank (a sadly distinct possibility), I figure I'm okay. I will admit that I am planning on stashing some money at a second bank just to lessen my chances of getting locked out of my cash should a run occur, but I just don't see this as a major cause for concern. How naive am I being here?
-- Paul Neuhardt (firstname.lastname@example.org), March 11, 1998
Paul, Why would you take money out of one bank and transfer it to another? If there is a bank run, ALL BANKS WILL BE HIT!! Another thing. Do you really think your bank would tell you, "No Paul, your money is not safe with us." What if the power supply fails? Banks won't open!! As I see it, those of us who know of the Y2K problem and have been following it have been given a gift! The gift is awareness! Prepare and hope for the best! Good Luck
-- Gail (email@example.com), March 12, 1998.
Gail, I don't buy the "if one bank suffers a run they all will" line. Someone, somewhere at some bank is going to be smart enough to lock the doors before insolvency hits. The smaller, "neighborhood" banks have generally proven to be much more run-proof than the mass-market banks. For some reason, people are less likely to panic when their money is in the hands of a local they can meet and greet rather than some mysterious corporate board in New York or Chicago. This was true in the 1920's, it held during the banking problems of the 1970'2 and 1980's, and I'm willing to bet that it will hold for the 2000's.
Also, I'm not worried about the power failing.They may screw up the bill, but I believe the juice will keep flowing. If that makes me an ostrich with my head in the sand, so be it. I'll take optimism over panicked fright any day.
BTW, I've been in the IS arena in greater Boston long enough to have made a lot of contacts in a lot of places. Believe you me, I didn't ask some publicist I got on the Customer Service Line. I asked programmers, managers and systems analysts I know in the bank's various DP depatments. They told me the truth because they know that if they didn't I would catch them at it, and that would damage one of the most valuable assests they have: their reputations.
-- Paul Neuhardt (firstname.lastname@example.org), March 12, 1998.
Paul, I am hoping the power grid remains up too! You said that some banks will have the foresight to close their doors before a run hits! That would still leave you without access to your money! You also said: " The smaller, "neighborhood" banks have generally proven to be much more run-proof than the mass-market banks. For some reason, people are less likely to panic when their money is in the hands of a local they can meet and greet rather than some mysterious corporate board in New York or Chicago." Our bank is one of these small institutions that you refer to. The population of the town I live in is about 5,000. The president of the bank has a son who plays soccer with my son. We know him quite well. I would not care if he was my brother. If I knew my money could be at stake... I'd make other plans! Gail
-- Gail (email@example.com), March 13, 1998.
Yes Gail, I would lose access to my money if the bank closed before it became insolvent. But I would regain access faster than I will if the FDIC has to come in and reorganize the place or dissolve it entirely.
In my mind, there is a bigger issue here. Panic. Suppose that a bank were completely, totally, 100% Y2K bullet proof. I mean, no problems whatsoever. If enough depositors take your point of view (i.e. "I'm gonna be scared and yank my money no matter what") then the bank will fail anyway, and your doom and gloom prediction will be fulfilled, but not at all for the reason you expected. This hysteria surrounding the Y2K problem could end up causing the failure of businesses that, if allowed to function on their own, would have otherwise survived.
Ask your banker acquaintance how much of his bank's total assests would have to be withdrawn during a one or two day period for the bank to be in trouble or even to get shut down. From what I understand, it is a failry low percentage, under 2% by one figure I saw. Then ask him how many people it would take out of his total depositor base to reach that percentage should they all come in and withdraw all of their money on, arbitrarily, 12/27/1997 (the first Monday after Christmas in 1999). I'm willing to bet that his bank could slide under by noon if enough people panic and withdraw their money. Then it wouldn't matter a single whit how well or how poorly that bank would have done on 1/3/2000 (the first business day of the year) because they won't be around to see it, and all because people reacted out of fear and not out of reason.
-- Paul Neuhardt (firstname.lastname@example.org), March 13, 1998.
Paul, You are right! All it takes is 1% of the population to clean out the banks. According to an article I read yesterday, the Bureau of Engraving and Printing is working around the clock and is shoveling billions of dollars into banks right now in anticipation of this problem! It would take them about 18 years to print enough money to cover a run! Also, there is only a 72 hour supply of food on the shelves in our stores. A panic would clean them out! I can tell you one thing for sure. I won't be sanding in any lines! As a wise man once said, "Paranoia is merely a heightened state of awareness!".... Gail
-- Gail (email@example.com), March 13, 1998.
1%, huh. Scary, especially when I figure you can generally count on at least 5% of the population as a whole to act irrationally to any given situation. Hopefully, the intersection set for your 1% and my 5% is empty, or very nearly so. If not, we are all in big trouble.
Still, I am going to bank (sorry, I had to say it) on the fact that civilization as we know it isn't going to collapse 658 days from now just because the calandar rolls over the highest digit on the year meter. If the entire banking system of the U.S. collapses, it won't matter to me what I did or didn't do with my money since money will lose a great deal of it's meaning. I'll have so many other problems just living my life and supporting my children that I doubt I will care for quite some time about the loss of my savings, retirement and investment accounts.
-- Paul Neuhardt (firstname.lastname@example.org), March 13, 1998.
Paul, There is no earthly reason you should have to lose your savings. None whatsoever! From what I have been reading the past few days, the only money people will have is what is in their wallets if Y2K gets a grip. Believe me, it's hard taking that first step, stashing some food, water, kerosone lamps and heaters etc. You won't believe how good you will feel afterwards. Hey, you could have one of those nasty power outages that have hit the northeast and midwest this winter! Read about what is going on in Auckland,New Zealand for an eye opening experience! Having some survival supplies makes good sense, even if Y2K was not a factor. Best wishes, Gail
-- Gail (email@example.com), March 14, 1998.
Having grown up in Tornado Alley and now living in New England where the winters can be unpredicatable, I'm a firm believer in laying in supplies. I always have a few days of bottled water, canned food and fuel stashed around. That's not the issue.
If the collapse of the technical infrastructure really is as bad as you are making out that it will be, that isn't going to help much. It would take months or even years to recover from the kind of collapse you are talking about. Also, the money in your pocket won't be worth the paper it's printed on if the collapse of the banking system were to be as total as you seem to be predicting. Gold might be safe, but it's a pain in the rump to acquire and store. If I were you, I'ld be sure I had a skill to barter with.
-- Paul Neuhardt (firstname.lastname@example.org), March 14, 1998.
So I'm thinking today (shallowly, no doubt) about this exchange between Gail and Paul. It's obvious Gail reads Gary North and takes him very much to heart, and that Paul probably hasn't encountered him yet.
But wait. I'm ahead of myself. I'm thinking about all this and I think: so what if we all make sure we've got some cash in the basement, but don't run down to the bank and demand it all. And what if everybody did that? And then y2k came and did its damage and the bank was all screwed up for a while, but no one freaked out? So we'd all have to limp along for a few weeks while they dusted off their creaky old ledgers and maybe set up some makeshift system that nobody was wild about, but hey... Which would you rather do? Wait an extra 20 minutes in line, wait an extra week or two for some check to clear while they drove it around, or have the banking system go away for ever? Does anyone reading these forums remember handing your bank passbook to the teller who wrote your transaction down, initialed it, and handed it back before the bank got computerized? I know about the "international overnight flow of billions and billions," but still... How long have banks existed? How long have computers existed?
Now I know that's stupid and naive of me, but whenever I think about the coming bank panic and run, I just can't help but think of that big stock market crash that was supposed to happen in the fall of 1997. Remember that? Remember how "everyone" was saying, "Oh oh! There goes Asia and here it comes! This could be where it all starts! Got your gold?"
The reason it was going to crash (besides Asia) was, of course, "the little people" in the market. More of them in mutual funds and stocks than ever before> And you know what they do at the first sign of trouble, don't you? That's right. They panic. They create a run on the market that drags the whole thing down into the abyss of sure disaster (like a bank run?).
But what happened? Surprise, surprise. The "little people" looked at all the "big people" selling their stock, watched the prices fall 500 or so points and said, "This looks like a good place to buy."
End of crash.
Nothing like that could possibly happen with y2k of course because everyone's going to run down to the bank and get their money and drag the whole thing down into the abyss.
Now. About Gary North. God bless him. He's providing a wild and powerful service. But anyone who reads his stuff about banking should also read the article you'll find at the other end of this link here. While I sure wouldn't throw the baby out with the bath water when it comes to what he's saying about y2k in general, there's very likely a part of Dr. North that wants to see the banking system fold so bad that he'll be more than glad to play whatever role he can in bringing it down. A lot of people are very sure there are going to be bank runs in 1999. And there may well be. But I'd be willing to bet a lot of people who believe that at this point believe it because of what Dr. North has told them.
And don't anyone get me wrong here... Aside from making a bad situation worse by driving lots of "little people" into bone crushing poverty (people who don't know a gold coin from a brass ring), I'm not saying that'd be a bad thing. High finance, world economics, the mysterious workings of money systems, and which one is the one God intended, are not my field of expertise.
But click that link anyway...
-- Bill (email@example.com), March 16, 1998.
Bill, if you think Gary North is the one in charge of causing bank runs, you are sadly mistaken. News articles are showing up all over the place now about the seriousness of Y2K! My son brought home an article from the campus newspaper today. The man in charge of Y2K efforts said his personal opinion is that Y2K is a crisis. A disaster. The six people hired to fix the bug began reading the computer code. Guess what? They had no idea what they were reading, and the people who wrote that old code are dead or gone. Our local utility is recommeding that business get generators in case the lights go out this summer. Another utility here wants an additonal 20 million "to keep the lights on." I could go on and on!! This is not Gary North ranting from the hills of who knows where! It is happening here! I really don't care what other people do about Y2K. I am going to prepare my family as best I can! Hurray for the yuppies who saved the stock market! The only thing that saved the stock market was greed! Best wishes Bill. Gail
-- gail (firstname.lastname@example.org), March 16, 1998.
Consider the most defensive, risk averse position: cash or even gold/silver. If things shut down: no problem. If things don't shut down: no problem. Result: no problem. Why would ANYONE want to risk not having access to their savings? Why wait for others to come to this conclusion before you do? At the most you lose 5 or 10% because of lost interest and inflation. If the only effects of Y2K are sociological panic and things get crazy, then you probably will make out very well.
-- Allen (email@example.com), March 18, 1998.
Allen, Why risk a few hundred in interest when you could be risking the whole works? I agree. Either way....NO Problem! Why wait until the sheep get wind of this and get their cash out first? Gail
-- Gail (firstname.lastname@example.org), March 19, 1998.
I agree with the gold/silver idea, for saftey's sake. But I know a branch office who said they CAN continue without power/computers. The problems are: 1) your current balance. That's easy, do all your banking before Christmas, then the week between Chrismas and New Years, go and get a printout with your account balances. Make sure it's on letterhead or something, so they know it's official. They may argue over any work you may have done since then, but they shouldn't argue too hard. 2) Lack of money. But the Federal Reserve looks like it will be compliant. Now as long as transportation holds up, that should be OK. But you will most likely want a few months in gold/silver/cash, just in case. And make sure your bank manager has enough good sense to handle a crisis. Annie
-- Annie O'Dea (email@example.com), March 19, 1998.
Paul Neuhardt has been raising a number of interesting questions on this thread, and I apologize for not having had the time to respond to many of them (or, for that matter, lots of other interesting comments on other threads, too). I feel badly about this, because I know Paul and respect his ideas and opinions about lots of issues. But Paul, my good friend, you seem to be suffering from the schizophrenia common to many software engineers, to wit: yes, I know that almost every project I've ever worked on has been screwed up -- but nevertheless, I'm happy to accept the optimistic, positive statements that companies are making about their Y2K projects.
I'd like to focus on one item in particular -- namely, Paul's statement, in an earlier part of this thread, in which he said, "Also, I'm not worried about the power failing.They may screw up the bill, but I believe the juice will keep flowing. If that makes me an ostrich with my head in the sand, so be it. I'll take optimism over panicked fright any day. "
Okay... Paul, consider the following: there are 9,000 electric utility plants in the U.S., including 108 nuclear plants that account for approx 20% of the nation's power supply (and about 40% of the power on the East Coast). If you know anything about software metrics, you would immediately say, "Oh, I get it -- yup, we're doomed". That's because we have 30 years of software engineering metrics that tell us that, on average, 15% of ALL software projects are late (by an average of 7.65 months), and 25% of ALL software projects are cancelled.
But let's go on ... how many nof those electric utility plants are Y2K-compliant? It's important to emphasize here that I'm not concerned about their business IT systems, though it could eventually be a MAJOR problem if they don't get their billing and payroll systems running. But for the moment, I'm only concerned about the Y2K compliance of the embedded systems that allow the generating plant to function, and that allow power to get distributed through the substations and ultimately to your house.
How many of them are compliant? Answer: zero. None. Zip. Nada. Do you understand what I'm saying to you? Not a single power plant in this country, or Canada, can confirm that their power plants are capable of generating and distributing electricity 653 days from now.
Oh, well, not to worry: they're all working on it, right? And because they're all honest, competent people, we can trust them when they tell us that they'll be finished on time, right? Hmmm... well, how many of the electric power plants really HAVE NOT EVEN BEGUN the Y2K projects for their embedded systems? Answer: one third. Another one third have begun, but are seriously behind schedule.
Well, not to worry: all of the laggards will wake up tomorrow morning and begin earnestly working on their Y2K projects, right? Well, maybe (and maybe pigs can fly, too) ... but there's a small problem: the average Y2K projects for the embedded systems in a power plant takes 2 years and costs $20-40 million. In case you haven't noticed, we no longer have 2 years left. And most utility plants don't have $20 million in spare change lying around.
As for the nuclear plants: I've been told by experts who know how these plants operate that there are enough safety mechanisms that there is NO chance of a Chernobyl-style meltdown. But precisely because of Chernobyl and Thee Mile Island, there is an enormous collection of safety regulations that nuclear plants are required to follow, including reliable operation of various supporting systems that deal with security, radiation detection, etc etc. If a plant cannot demonstrate it is capable of running a safe operation, it is required to shut down in a safe and prudent fashion.
The Nuclear Regulatory Agency (NRC) posted a notice on the Internet in Dec 1996 indicating that all of the nukes had Y2K vulnerabilities. The NRC is now in the process of expanding its definition of "safe operation" to include Y2K-compliance. Thus, if a plant cannot demonstrate that it is Y2K compliant, there is a good chance that it will be required to shut down in Dec 1999.
Assuming that the Fear of God struck the CEO's of all these power plants tomorrow morning, we're talking about 9,000 large, complex hardwar/software projects being launched with a single, hard deadline of 12/31/99. Paul, your neighborhood is serviced by Commonwealth Edison; maybe they're an SEI level-5 operation with superprogrammers who can work 18 hours a day. Yippee for you; your power company might make it in time. Alas, Commonwealth Edison is on the power grid with Con Edison here in NYC, not to mention several thousand other power plants. If Con Edison goes down, NYC goes down first ... but Boston will shut down a few milliseconds later.
You may think this is a joke or an exaggeration, but I can assure you that it is not. I may turn out to be wrong, and indeed hope that that will be the case. But I'm putting my 35 years of software engineering experience on the line here, and telling you that the chances of 100%, or 95%, or even 90% of these power companies getting their Y2K projects done on time is wishful thinking.
The situation is compounded by deregulation that is currently hitting the electric power industry. Consider: if you're about to sell your power generating plant (as several utilities are in the process of doing), how concerned do you think you'll be about the Y2K compliance of your plant? You'll spin a good yarn, generate some nice documentation, and sell the whole thing to some other sucker who won't discover for another 653 days what a mess he's inherited.
By the way, if you want to keep up to date on this stuff, you should visit the web sites of Roleigh Martin (http://ourworld.compuserve.com/homepages/roleigh_martin/) and Rick Cowles (http://www.euy2k.com/index.htm) who focus on this area exclusively.
P.S. With regard to the banks, which has been the main subject of this thread: all you have to know is that there are 11,000 banks in the U.S., and you can reach the same conclusion that I've discussed above. Yeah, probably Bank Boston will make it. So will Citibank, Chase, BankAmerica and the other big guys, maybe. But there are now serious predictions that between 5% and 20% of the small banks in the U.S. will fail because of Y2K. Well, to hell with the small banks, right? Well, okay, but what about the rest of the world? Europe is about a year behind the U.S., and is obsessed with the Eurocurrency project; Africa and South America are sound asleep vis-a-vis Y2K; and Asia has its own crises to deal with, which have diverted almost all attention from Y2K. So even if you assume that all 11,000 American banks make it (which would defy the odds of 30 years of software engineering history), the Bank of America could be dealt a fatal blow by a Y2K failure in the Bank of England or Deutschebank or the Japanese banks.
-- Ed Yourdon (firstname.lastname@example.org), March 19, 1998.
Gail, is the first lemming off the cliff any smarter than the last? Cashing out before the other "sheep" do so is still panic, it's just that you have planned your panic in advance.
-- Paul Neuhardt (email@example.com), March 20, 1998.
Paul, I just read a story from the Boston Globe, dated March 20, 1998. It said your bank, Bank of Boston has 40 people working on Y2K hoping they will make the deadline. It says nothing about them being compliant yet. You better recheck that source of yours! Yes, I did panic early. What can I say?....I'm weak! :) Gail
-- Gail (firstname.lastname@example.org), March 20, 1998.
Gail, I read that article too, and I did recheck my source afterwards.
The current staff is half of what it was 1 year ago. Why? They have completed a lot of the work. Well, and they have reduced some headcount after the merger of Bank of Boston and Bay Bank. Still, there are fewer people working on it than there had been, and that is due in no small part to progress in solving the problems.
Also, my inquiries were fairly limited. All I cared about was access to my personal checking and savings accounts at windows in bank branches and ATM machines. I didn't really investigate any other aspects of the rather sizable operation that is BankBoston. Of course, as Ed points out in another post, if the international investment division of the bank takes a hit because Europe can't get their act together, the bank could end up just as dead as if their internal systems failed or they suffered a major run.
-- Paul Neuhardt (email@example.com), March 20, 1998.
Hasn't anybody here heard of the Emergency Banking Act of 1980? Jimmy Carter's last stab. Bank runs can not happen anymore. EBA80 allows the president to declare an economic emergency, whenever she feels like it. When in effect, a govt. bureaucrat will determine how much money he/she/it thinks you "need". So if you think that paper with pictures of dead presidents is useful, grab them before EBA80 is invoked. Myself, I'ld prefer a useful object rather than FRNs, kerosene lantern, wheat, etc.
-- Ken Seger (firstname.lastname@example.org), March 20, 1998.