I'm aware that for every $100 we think we have in the bank, the actual case reserve is $1.17 (cf Y2Ksupply.com).

I've heard the advice: get your money out of the bank because the runs start. But I'm having an ethical problem with this. If I go to the bank and withdraw all my money, then I am contributing to the bank run mentality. I am a part of that problem and its enormous consequences.

If I don't go to the bank and withdraw, or if I only withdraw a limited amount, then I risk being one of the "losers left behind" who didn't get in line fast enough (given that reserves can cover only about 4% of the population in hard cash---forgot where I read that).

I honestly think that if people don't run on the banks, that the banks will probably be all right, as they are apparently the most prepared of all the industries.

This is a kind of Catch 22 to me: either be a part of the problem in creating it, or a victim of a problem that others create.

Intelligent analysis? Comments? Solutions?

-- anon (anon@anon.com), October 09, 1998

Answers

Maybe I should have put this on a new thread (though it seems if anything the number of new threads has grown quite a bit lately!), but you belief that "the banks will probably be all right", brings up an interesting question. DOES ANYONE KNOW OF A SINGLE BANK THAT IS, TODAY, Y2K COMPLIANT? I don't mean 99%, I don't mean in the testing phase, but actually truly ready for January 1, 2000. (I keep hearing rumblings, but nothing solid, like "well, there is this bank in Jamaica...".) Can anyone provide the name of such a bank, and better still back it up with the bank's web site that makes this statement, or some other form of credible documentation???

-- Joe (shar@pei.com), October 09, 1998.

it seems like our economic system has become so fragile and interconnected that the only thing keeping it going is the fact that most people still have faith in it.

-- sec (ciattis@earthlink.net), October 09, 1998.

The other notion that's out there is that somehow "bank runs" will be the culprit that takes down the civilization, which is mixing up correlation with causality. The bank runs will be as a result of heightened awareness that banks, utilities and government dropped the Y2K ball years ago....that, and awareness that the fractional reserve system works on faith that "your" money will be there whenever you want it,..(which everyone should know is a bit like believing in the tooth fairy, cos now your money is electron dust in mainframes)..but suddenly ice water awareness of many many people will lead to panicked withdrawals,...and for good reason.

At a recent city council meeting our Mayor Pro Tem kept asking,....shouldn't we be preparing and countless bozos speaking to the council kept saying: "well we don't want people to panic", again these folks using flawed critical thinking skills, and a dictionary from the Planet Mongo...Preparation is not synonymous with panic. Panic, when you understand cause and effect, happens when humans are caught unprepared.

Don't buy the illogical PR that removing your money will cause a bank run...it is your money, you have right and reason to remove it...unless of course you still are placing all that faith in zero compliant banks, zero compliant power companies, zero compliant telecom co.,etc. Then, by all means...leave your money there.

-- Donna Barthuley (moment@pacbell.net), October 09, 1998.

So let me get this straight: The banks loan out ten dollars for every one dollar deposited - and charge interest on the loans. And you have a problem with taking your money out? I would think the moral problem would be contributing to this extreme and unsustainable form of usury in the first place, by putting your money IN. It exists to concentrate wealth in a non-value-producing sector of population. Thats why many ancient cultures forbade it, and offered periodic blanket forgiveness of debts - they didn't want the wealth of the nation devoured by professional lenders.

People say that "You Y2k survivalist nuts are the problem; you're going to cause a bank panic!" Putting the reality of Y2k aside for a moment, again let me get this straight: we're dealing with a system that, for reasons of maximum profitability, is constructed such that a persistent and widely disseminated *rumor* or *perception* can topple it. Hmmm. And we're hearing that it is our moral responsibility to limit our perceptions, refrain from speaking, and to restrain our claim on our earned wealth, in order to preserve this system. Did I miss something?

E.

-- E. Coli (nunayo@beeswax.com), October 09, 1998.

For some reason I can never get qoutes to show up here, so I will try to remember as best as I can. Someone was saying do you know of one bank that is compliant, not 99%, not testing and so on. Well no I don't nor do I think you ever will. The regulators are saying they CAN'T tell us. They feel it would give an unfair advantage in attracting new customers, non-compliant banks (who would be working towards being compliant, but not there as soon as their competition) may lose all their depositers and so on.

My feeling is no one will know anything about compliance until 01/01/2000

Rick

-- Rick Tansun (ricktansun@hotmail.com), October 09, 1998.

After doing a little research into the fractional reserve system, I noticed how it resembled the prisoner's dilemma -- a famous demonstration of the logical necessity of selfish behaviour -- and so I wrote a brief essay about it. Like to hear it? Here it goes:

The Fractional Reserve System and the Prisoner's Dilemma

Cheers,
     Alex

-- Alexander Garrett (agarrett@demiurge.org), October 09, 1998.

Your essay's great Alex. Thank you. Like you I've never had any money and probably never will...pianist/music teachers are not high rollers, contrary to popular myth. Makes many of my decisions a bit easier.

-- Donna Barthuley (moment@pacbell.net), October 09, 1998.

I think one of the positive aspects of y2k is the enlightenment it causes.

The financial system IS a confidence game and no one should have faith in this "system".

Amazing how many lies we hear everyday from so many we thought we could trust.

It's a great wake up call.

_______________________________________________________________

-- Michael Taylor (mtdesign3@aol.com), October 09, 1998.

listen, not to come on too strong, but i have already took 1/2 my $$$$$$$out. I will remove rest shortly. it is my money, the banks charge us per atm usage, forced us to grow dependant on atm's and whos making out? not me. 4sure. i plan on using my money to purchase items, so i can barter and feed my family. Is this a crimee? if so, i'm guilty. but, i do not have faith in the banks now anyhow

-- woeisme ($$@aol.com), October 09, 1998.

I shall withdraw all of my savings prior to the end of this year. As other have said, it's mine. The worst that can happen to me is I lose out on the paltry interest I would have "earned".

If the banks survive (and the power stays on, etc.), I simply put it back in, and I accept my minimal loss. If they don't, at least I've got mine, even if it is devalued. Not a difficult decision for me given the enormous risk involved with Y2K.

BTW: great analogy, Alex.

-- Steve Hartsman (hartsman@ticon.net), October 09, 1998.

I don't know that you need to panic just yet, but then again I have my "Dash Cash" already. That is half of the total that was in the banking system to start with. Which was very little anyway. There will certainly be a time when you, me, the guy behind the tree, all of us, will panic. I don't even pretend to know when it will be, just that it will be. As for myself, I will complete my coniving as of 31 Dec 98. (oops 1998). The operative word here is YOUR money. Take what you need, leave some small amount if you want to feel better about it (mugger money?), or take it all out. It's yours. FWIW: The Federal Reserve (the guys who run ALL of the banks, S&Ls, Credit Unions, etc. is not a federal institution at all. It is no more federal than federal express or federal candy canes are. It is a system of private banks (12 reserve districts) that we allow to print the notes that we use as money. Since 1974 they can print as many as they wish and there is no limit to it. Don't feel bad about taking your money out whenever YOU want to.

-- sweetolebob(La) (buffgun@hotmail.com), October 09, 1998.

Back in 1933, at the height of the bank-run panic in the United States (remember that scene in It's a Wonderful Life when Jimmy Stewart thwarts the run at his family's bank by ponying up his own money?), newly elected President Franklin Roosevelt closed the banks. Called it a bank holiday. A good many of the shakiest banks never reopened -- that was the genesis of FDIC and stricter federal banking regulations. But FDR used one of his first fireside chats to explain some basic economic principles to the American people. One of the points he made was that the money citizens put in their savings accounts didn't just sit there gathering dust. The banks turned around and loaned it out to their neighbors to start businesses and buy cars and homes. That's why banks paid interest on savings -- it was a rental fee for allowing them to use our money. That's why banks collected interest on loans -- it was their rental fee for allowing other people to use the money. Back in the 30s, people bought into this, because banks were, by and large, local and they operated locally. The banks reopened and there were no more runs. Imagine if WJC were to make the same fireside chat now. (Of course, his fireside probably has a bearskin rug and a trophy collection of thong underwear.) "The banks use your money," says Bill, "to shore up unstable foreign dictatorships and bail out the investment funds of millionaires. The hard-earned money you deposit in your savings account tomorrow will be instantly transferred outside your town, your county, your state, and be given to wealthy New York yuppies so they can cover the margin calls on their brokerage accounts. . . " And so on. I understand the need for fractional reserve banking, but you'll have to excuse me if I no longer see the need for my money to be involved in it at that level. That's one of the reasons we do what little banking we require through a local credit union that is not a branch of a division of a subsidiary of a multinational bank. If your money is in Chase or MegaGlobalBankCorpOne or whatever, I say get it out now, while you still can. Unless, of course, you *want* to shore up foreign dictatorships and multimillionaires.

-- J.D. Clark (yankeejdc@aol.com), October 09, 1998.

Charlie: Ill take mine now.

George: No, but you youyoure thinking of this place all wrong. As if I had the money back in a safe. Youre moneys not here. Youre moneys in Joes house(to one of the men)right next to yours. And in the Kennedy house, and Mrs. Macklins house, and a hundred others. Why, youre lending them the money to build, and then, theyre going to pay it back to you, as best they can. Now what are you going to do? Foreclose on them?

Tom: I got a hundred and forty two dollars in here, and a hundred and forty two dollars isnt going to break anybody.

George: (handing him a slip) Okay Tom. All right. Here you are. You sign this. Youll get your money in sixty days.

Tom: Sixty days?

George: Well, now thats what you agreed to when you bought your shares.

(There is a commotion at the outer doors, a man, Randall, comes in and makes his way up to tom)

Randall: TomTom, did you get your money?

Tom: No

Randall: Well I did. Old man Potterll pay fifty cents on the dollar for every share you got.

Crowd: Fifty cents on the dollar!

Randall: Yes, cash!

Tom: (to George) Well, what do you say?

George: Now Tom, you have to stick to your original agreement. Now give us sixty days on this.

Tom: (turning to Randall) Okay Randall.

Mrs. Thompson: Are you going to Potters?

Tom: Better to get half than nothing.

George: Tom! Tom! Randall! Now wait now listennow listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan therell never be another decent house built in this town. Hes already got charge of the bank. Hes got the bus line. Hes got the department stores. And now hes after us. Why? Well its very simple. Because were cutting into his business, thats why. And because he wants to keep you living in his slums and paying the kind of rent he decides. Joe, you lived in one of his houses didnt you? Well have you forgotten what he charged you for that broken down shack? Here, Ed. You know, you remember last year when things werent going so well, and you couldnt make your payments. You didnt lose your house did you? Do you think Potter would have let you keep it? Cant you understand whats happening here? Dont you see whats happening? Potter isnt selling. Potters buying! And why? Because were panicky and hes not. Thats why. Hes picking up some bargains. Now, we can get through this thing all right. Weve got to stick together though. Weve got to have faith in each other

-- Uncle Deedah (oncebitten@twiceshy.com), October 09, 1998.

I trust that you will sleep better at night if you take the money out! Or at least half of it now. I know at first it was hard for me to take a big chunk of what I did have in the bank out, especially since I did work for a major bank for many years. We didn't even get paychecks! The money had to automatically go right into our checking account and then we could write checks or withdraw it out. Now that I have done my little bank run, I feel more at peace about it. (Oh, thanks Steve :-) for your encouragement!) So why wait? Get going while you still don't have to wait in lines! Blondie

-- Blondie Marie (Blondie@future.net), October 10, 1998.

I would think that the bank panic will be heightened by everyone coming at the same time. By people withdrawing their money earlier, it seems that it will be a service, and enable banks to ATTEMPT to gear up more based on what they can read as a "trend" instead of a last-minute "run"... which will happen later, anyway, no doubt.

-- Sara Nealy (keithn@ptd.net), October 10, 1998.

My mother-in-law is 80. She recently received a letter from AARP(American Association of Retired People) advising her to have cash, water, and extra food in the pantry. I don't see why taking YOUR money out of the bank should make you feel guilty. If this country can bail out a bankrupt Hedge Fund,(nothing more than a bunch of greedy gamblers) you should not feel ANY guilt about stashing some cash.

-- Dave (dave22@concentric.net), October 10, 1998.

A few observations:

1.) "Banking is a confidence game." Yes, and so is holding gold, or any other form of barter item. Unless you can personally use what you've got in your hand, then you are placing confidence in the idea that someone will value that item. (Just take a look at baseball card collectors, for example. Are these little scraps of paper really worth anything?)

2.) The main reason I keep my money in the bank is to keep it safe from theft, fire, etc. Under "normal" circumstances it's probably not a good idea to have thousands of dollars sitting around the house.

3.) It is YOUR money, and making withdrawals now, or steady withdrawals over the next few months or so will give the banks a chance to adjust. That's alot better than everyone walking in and demanding cash in December of 1999.

4.) Since Americans are so heavily in debt, all of the money in banks can't be going to foreign countries or wealthy gamblers down on their luck. There are still plenty of loans going to small businesses.

5.) I'm very angry that the Fed bailed out Long Term Capital. I understand the reasons for doing it, but if the Fed doesn't regulate their activities, then they should not bail them out. That's how the FDIC works - you want to offer FDIC insurance, you play by the rules. (Some would argue with the rules, but that's another story.)

-- Mike (gartner@execpc.com), October 10, 1998.

Quoting Mike: 2.) The main reason I keep my money in the bank is to keep it safe from theft, fire, etc. Under "normal" circumstances it's probably not a good idea to have thousands of dollars sitting around the house.

Looks like we are all getting a lesson in the relativity of the word "safe". I personally know many people who do not do business with banks...who keep a lot of cash on hand, and have not heard of any that have lost money due to fire/theft etc. It behooves us to keep in mind that it is in the banking establishment's best interest to sell their definition of "safe" in order to make a profit, their reason for being....

-- Donna Barthuley (moment@pacbell.net), October 10, 1998.

You're right, Donna, "safe" is a relative term. I personally know of no one who has had money stolen or burned in a bank. I do know people who have lost money in fires and break-ins. I hate gambling, but I do understand odds, and try to learn from experience. You may keep all your valuables and cash at home, if you're comfortable with that. People have been known to carry their entire savings with them, to and fro, every day.

I see nothing wrong with having extra "Y2K cash" around, but I wouldn't advise anyone to keep their life savings buried in the back yard or stuffed in a matress. If the wrong someone knows about a person's Y2K preparations, how tough would it be for them to take it all?

-- Mike (gartner@execpc.com), October 10, 1998.

mike, easy to be safe, I dont kiss and tell. Keeping quiet is a lesson many will learn when it comes to $$$$

-- MEAGAIN (sure@aol.com), October 10, 1998.

I do know many people who have had bank accounts frozen for one reason or another, no access to personal property...the IRS can grab your money from the bank any time they want to. Setting aside the occasional random catastrophic event like Y2K the odds still don't seem to favor the depositor...and once upon a time I was a hpapy banking customer.

-- Donna Barthuley (moment@pacbell.net), October 10, 1998.

It is not unethical to take out the money that is yours in a trust deposit account with any company or individual.

If you are worried about a shortage of cash dollars (a different issue) over which you have no control, purchase other assets to get the cash back in circulation, such as gold food and consumables.

There is no ethical question on bank runs, it was a failure of their own design if it does happen.

Brad

-- Brad Waddell (lists@flexquarters.com), October 10, 1998.

As I see it, we have exactly two alternatives as regards the banks:

(1) trust in the banking system to be able to withstand Y2K, and we might be all right;

(2) have no trust in the banking system's ability to withstand Y2K, pull all your money out, and make damn sure it won't be all right

-- John Howard (Greenville, NC) (pcdir@prodigy.net), October 12, 1998.

In answer to Joe, as posted elsewhere the Bank of Scotland is compliant (inside information), suppose that doesn't help you. Maybe people should transfer their funds to a bank that publicly states they are compliant. I have been demanding such statements from companies I deal with on a personal level. Maybe the other option is to quietly withdraw funds without drawing attention to yourself.

-- Richard Dale (rdale@figroup.co.uk), October 12, 1998.

As far as I can see, the banks are still offering home equity loans. This indicates to me that they aren't too worried and aren't experiencing any cash crunch. If they aren't worried then why are you?

-- Amy Leone (aleone@amp.com), October 12, 1998.

Two comments:

1. The Fed didn't bail out Long Term Capital, they jawboned the big banks into doing it. That's how I understood the articles I've read on it, anyway.

2. So many people in the US live from paycheck to paycheck... if people don't have any $$$ to take out, do you think they're going to line up to (not) withdraw it?

3. Lots of people who *don't* live like that have most of their money in the stock market, which has (until July) outperformed bank accounts by a long shot.

Having said that, I'm not advocating leaving your money *in* the bank. I'm just pointing out that, for many people, the state of the banking system is a non-issue. If they can't write checks, that will quickly change though.

-- Larry Kollar (lekollar@nyx.net), October 12, 1998.

Mike, the Fed did not bail out Long Term Credit. The consortium established for bailout was a composite of it's own investors, attempting to cover their own butts. It was a "put up the bucks or go down with the ship" scenario. The Fed simply acted as intermediary, probably due to the large sums of money at risk.

Amy, the idea of banks continuing to make home equity loans as a sign that everything is okay is misleading. If these loans were to grind to a halt, that in itself would cause economic havoc. Above all else, the banking industry has to maintain the appearance of stability within a range of limited movement. Either it is easy to get the loan or it is not so easy, but it is always available.

-- Goldi (goldilucks@yahoo.com), October 12, 1998.

Goldi - The fact that the bank is making loans indicates that it has more money on hand than it is legally required to. Face it, the economy is good and there is lots of money in the bank. Furthermore, people are paying off loans, not getting them. No reason you should feel guilty about taking your little spot of money out of the bank.

-- Amy Leone (aleone@amp.com), October 13, 1998.