Message from my Brother: A Run on a Bank

I remember stories from my grandmother and stepfather about runs on banks. I remember that famous scene from "It's a Wonderful Life." Today my brother left a message telling me he saw an actual run on a bank in Duarte California. It begins.

Got home after a long day at work to just miss a message from my brother. Sometimes my brother calls because my mother is sick, so  I rushed down to hear it. My mother was fine. But my brother had just seen the run on the IndyMac Bank in Duarte, California.

Let me introduce this with dueling headlines. From the Pasadena Star-News:

IndyMac appears close to collapse: US regulators may not be ready to protect bank

And from the LA Times:

IndyMac denies that it's close to collapse: "Depositors have been pulling money from the Pasadena-based thrift, whose share price is down 90% this year."

Today, my brother saw a crowd at the Duarte IndyMac Bank desperately trying to get their savings out. Many elderly people were claiming that they are being offered dollar for dollar on the first $100,000...after that only fifty cents on the dollar. Sounds like collapse to me.

This, my friends, was the result of the Harding/Coolidge/Hoover economy...and it is the result of the Bush/McCain economy. Economic collapse. Let us desperately hope that this will be a fairly isolated occurance. Collapse now won't be the same as the Great Depression. I do not forsee food and fuel prices declining, so this time around we aren't going to see cheap prices going along with our high unemployment, failed farms and failed banks. It seems to me was are heading for a bizarre combination of the Great Depression and the Stagflation of the Nixon/Ford/Carter years. As far as I know this is unprecedented, but it is hard for me to see prices going lower even as the economy tanks.

To paraphrase "Those Were the Days," the All in the Family Theme Song:

"Mister, we could use a man like FDR again."

•  FDIC has taken over the bank

  All deposits upto 100,000 dollars will be covered at 100% by the FDIC.

  I heard this reported on NPR driving home this evening.

  by FishOutofWater on Mon Jul 14, 2008 at 06:28:24 PM PDT

  •  After that

    Apparantly 50 cents on the dollar. What my brother described sounded like some elderly people's life savings on the line.

    This is just the start. Will the government effectively step in and stabilize the situation? Or will it fail to act appropriately?

    All I keep thinking of is Katrina, the Minnesota bridges, the Iowa levees, the Iraq War...all cases of the Bush adminsitration completely failing to act appropriately in a crisis.

    by mole333 on Mon Jul 14, 2008 at 06:33:50 PM PDT

    •  50 cents on the dollar

      How I read it was that you could take 100,000 out and if you had more, you could take 1/2 of it out - - while the Feds are figuring out what they can do. It may be all, but it may not be all.

      by OLinda on Mon Jul 14, 2008 at 06:41:40 PM PDT

      •  and

        with all the warning signs for a year or more it is really too bad so many people and business did not pay attention and move their money around among banks.

        by OLinda on Mon Jul 14, 2008 at 06:43:11 PM PDT

      •  Could be

        Can't find any details, so keep in mind (and I hope this was clear) this is what people in some panic who want their money out are saying they have been told. This could only be a part of the story.

        by mole333 on Mon Jul 14, 2008 at 06:43:58 PM PDT

        •  OLinda has it exactly right

          There are a lot of caveats joint accounts, trusts, IRAs, etc. but it's half after the first $100K in regular deposit accounts.

          http://blog.greedycapitalist.com/...

          Link above spells out the different payouts and how each type of account is covered (with examples).

          by MKSinSA on Mon Jul 14, 2008 at 07:36:33 PM PDT

    •  I would bet anything that the FDIC comes out with

      a full guaranty of deposits above $100,000(if they don't this will exacerbate fears about other institutions).

      by lordcopper on Mon Jul 14, 2008 at 06:42:07 PM PDT

    •  Actually...

      what the FDIC covers is more than $100,000.  It just depends upon how the account is titled.  From recent knowledge, I believe the FDIC will actually cover up to $400,000, all based upon how well you actually understand account titling.  The run on withdrawals at Indymac Bank was like a play from the history books, but it was hysteria.  I doubt most people making a run at the bank had $100,000 on deposit.  

      by LtdEdishn on Mon Jul 14, 2008 at 06:43:30 PM PDT

      •  Occurred to me

        It occurred to me that some of this is hysteria. But a great deal of any economic collapse is hysteria. The hysteria takes on a life of its own.

        If the Bush administration handles this the way they did Katrina, our infrastructure, the Iraq War, our Veterans...well, then I am pretty ready to feel a bit hyterical. If we had someone who could actually effectively lead, well, then maybe we'd see the problem handled effectively.

        by mole333 on Mon Jul 14, 2008 at 06:47:45 PM PDT

        •  I have to agree...

          a real leader would be offering a speech today, reassuring IndyMac account holders assurances they won't lose a dime if their accounts were $100,000 or less, or were titled jointly, in trust, etc.  

          by LtdEdishn on Mon Jul 14, 2008 at 06:50:40 PM PDT

          •  Exactly!

            "We have nothing to fear but fear itself."

            It sounds so trite, so ineffectual. But at the time was a turning point. We will be needing several such turning points in the next decade, from the economic collapse to global warming to the deficit, etc.

            by mole333 on Mon Jul 14, 2008 at 06:53:05 PM PDT

        •  The Bush Legacy

          Hysteria you'd better believe in.

          All of these "psychological" impacts the Conservatives are trying to sell us are solely to protect the financial markets and keep them buoyed long enough for them to pull out their profits. After that, we are free to grab the dregs.

          by MKSinSA on Mon Jul 14, 2008 at 07:40:09 PM PDT

      •  account titles

        Well, for example if it is a joint account with 2 names it is insured for 200,000, and retirement accounts are insured for 250,000. I don't know how it gets to 400,000.

        by OLinda on Mon Jul 14, 2008 at 06:51:54 PM PDT

      •  FDIC coverage is as such

        There are four categories of coverage that are handled by the FDIC  .  Personal accounts,  Joint accounts and  Trust accounts  ( these include payable on death which are considered to be revocable trusts.) And IRA's. No matter how many accounts you have, each category is covered 100,000.00 per person per beneficiary.   Say you have 2 people who are joint owners on an account and they have 3 beneficiaries. That would fall into the Payable on death or revocable trust category.   That account would be covered to 600,000.00 (300,000.00 for each beneficiary X 2 people)  as would all accounts in joint titling with 3 beneficiaries.   IRA's are easy  a flat 250,000.00.  Personal 100,000.00  Joint accounts category with no beneficiaries  are covered separately also 100,000.00 per owner.   So if one structures there accounts carefully the accounts can be covered for a whole lot'o money.

        by kansasgal on Mon Jul 14, 2008 at 06:57:01 PM PDT

        •  What about just using multiple banks?

          Does that get multiple $100Ks covered without playing games with account ownership (which single people can't really do)?

          Nowhere near even having one $100K myself, but I'm curious.

          by nanobubble on Mon Jul 14, 2008 at 08:17:37 PM PDT

          •  That's my understanding too

            And that's why it's a good idea not to put all your savings in one place, assuming you can sock away more than $100k.

            by sfbob on Mon Jul 14, 2008 at 09:07:28 PM PDT

          •  of course different banks

            for the single person.  Yes that works... In fact banks now offer CD's that are parceled out to several banks in order to fully cover a person. These are referred to as CDARS.  The depositor directs this account through his or her own bank and gets a statement showing where the deposits are.  No bank gets more than 100,000.00 so full coverage is obtained.  I don't have this problem either nanobubble.

            by kansasgal on Tue Jul 15, 2008 at 08:27:09 PM PDT

  •  thank god for the FDIC

    The existence of the FDIC is perhaps the greatest legacy of the New Deal era, and the Indy Mac news shows why. Whenever libertarians or conservatives whine about "big government," someone ought to point this out to them.

    I feel badly for people with deposits over $100,000, but situations like these go to show why it's necessary to diversify one's investment portfolio.

    by pine on Mon Jul 14, 2008 at 06:34:55 PM PDT

    •  Which means...

      Thank god for FDR. We owe that man so much.

      by mole333 on Mon Jul 14, 2008 at 06:49:21 PM PDT

      •  indeed

        N/T

        by pine on Mon Jul 14, 2008 at 08:13:28 PM PDT

  •  After the 1st $100,000, it's just

    50 cents on the dollar.

    Our matresses may be our next banks.

    by deben on Mon Jul 14, 2008 at 06:38:07 PM PDT

    •  Don't worry, it's all part of the plan

      Soon there won't be anyone left with more than 100K to put in the bank.  Then the problem is solved.

      by GreenHills on Mon Jul 14, 2008 at 08:16:17 PM PDT

    •  A bit of an oversimplification actually

      Most of what I have read indicates that 50 cents on the dollar is a base amount, and that what depositors eventually end up with will depend on the success the FDIC has in selling off the bank's assets. In the meantime, they're being given 50% of their holdings in excess of $100 k until things are all sorted out...which they think could take quite some time.

      by sfbob on Mon Jul 14, 2008 at 09:14:32 PM PDT

      •  That kind of thing...

        That kind of "sorting out" is likely to out last the lives of many whose retirement savings are most affected.

        Thankfully, they can all depend on Social Security to survive on, right?

        by mole333 on Tue Jul 15, 2008 at 03:47:44 AM PDT

  •  But, I wonder..

    How much does the FDIC actually have?  I think it's only a small perecentage of what the're insuring.  So it seems like there'd be some sort of a breaking point where a systemic collapse of enough banks would either

    A.  Leave them unable to fulfill their <$100k obligations</p>

    B.  Create a scenario where they have to print so much money to cover the debt that the dollar would completely collapse, and inflation would be unprecedented.

    Does anyone know where that breaking point is?

    Does anyone in our government have enough faith from the American People to assure them not to panic?

    Kind of gives you pause, no?

    by 4democracy on Mon Jul 14, 2008 at 06:40:35 PM PDT

    •  I remember

      I remember this issue came up during the Savings and Loan crisis. It all worked out fairly well then. Can we repeat that? I don't know.

      by mole333 on Mon Jul 14, 2008 at 06:48:51 PM PDT

    •  How much does the FDIC actually have? A

      better question is, How much does the general fund have?

      FDIC has no money, none.

      Never did, never will. When it "pays" anyone the check comes from the US Treasury's general fund.

      Just like social security and all other trust funds managed by the US Treasury.

      Government Account Series securities, NOT cash.

      Like all trust funds FDIC is required, by law, (we only obey the law when it benefits the government) to invest trust fund money in government obligations.

      Government obligations, regarding the trust funds,  are IOUs that earn interest which is paid in additinal IOUs.

      The FDIC has NO cash. None. Just IOUs.

      by 0hio on Mon Jul 14, 2008 at 07:51:08 PM PDT

      •  It was reported as $53 million, specifically.

        It does have a reserve fun penciled already withdrawn from the Treasury. IndyMac's refunds come to 10% of this fund.

        by DakkonA on Mon Jul 14, 2008 at 08:10:27 PM PDT

        •  *fund n/t

          by DakkonA on Mon Jul 14, 2008 at 08:10:50 PM PDT

        •  And make that billion n/t

          by DakkonA on Mon Jul 14, 2008 at 08:11:39 PM PDT

          •  Can we...

            Can we make it billion but keep "fun." Maybe that is the solution. A $53 billion fun payout to all Americans.

            by mole333 on Tue Jul 15, 2008 at 03:49:39 AM PDT

•  That's the good side of worldwide depression...

  those great songs....

  Don't you remember they called me Al
  It was Al all the time
  Don't you remember I'm your pal
  Brother can you spare a dime

  Maybe it has special meaning since my name is Al.......

  Diarist, I agree.  This time we won't have deflation, but a watered down dollar that will impoverish the working class and retirees.

  I don't know whether this country, without the marxism that was the stick during the Great Depression can coellesque (spelled phonetically) around a central ideological opposition to the political consensus that has evolved in this country.

  Our two party system has sort of shut out incipient alternate political philosophies, so that people like Ron Paul are popular even though his economics are incoherent.

  We have built our highway to the sky, but forgot about the laws of gravity, now comes the fall, so watch out below.

  There's probably a song lyric in that somewhere.

  by arodb on Mon Jul 14, 2008 at 06:33:59 PM PDT

•  too late for the uninsured

  not sure what they were thinking over the last week when there was plenty of warning that this was going to happen.  I really don't see the point of having uninsured bank holdings at this point.  In the best of times I would think seriously about doing that.  $100k is a lot to have in the hands of a single group of greedy idiots, even after Bush has done his best to make it worthless.

  by unterhausen on Mon Jul 14, 2008 at 06:35:26 PM PDT

  •  exactly

    I feel badly for them and I hope that something is done about it, but you're right that leaving more than $100K is probably not the smartest move in the world. My parents have made a deliberate point to spread their savings across several different banks and investment funds for this reason.

    by pine on Mon Jul 14, 2008 at 06:38:10 PM PDT

    •  most people have <$95k

      they want to make sure the interest is covered, at least that's what calculated risk told me this morning.  I don't know anyone with that kind of assets, unfortunately.  Just asked my wife, we don't.

      by unterhausen on Mon Jul 14, 2008 at 06:54:51 PM PDT

•  Crappy days are here again. nt

  by jvantin1 on Mon Jul 14, 2008 at 06:37:13 PM PDT

  •  Another favorite from the Great Depression

    "Happy Days Are Here Again" is a song copyrighted in 1929 by Milton Ager (music) and Jack Yellen (lyrics). The song was recorded by Leo Reisman and His Orchestra, with Lou Levin, vocal (November 1929), and was used in the 1930 film Chasing Rainbows. Today, the song is probably best remembered as the campaign song for Franklin Delano Roosevelt's (FDR) successful 1932 Presidential campaign. Since FDR's use of the song, it has come to be recognized as the unofficial theme of the Democratic Party. The lyrics suggest optimism and buoyancy.
    http://en.wikipedia.org/...

    I'm starting to get a warm Grapes of Wrath feeling.

    by deben on Mon Jul 14, 2008 at 06:48:02 PM PDT

•  Same as the last time we had

  a Bush in office. And one of his sons ran one of the failed banks.

  by Mike S on Mon Jul 14, 2008 at 06:54:51 PM PDT

•  There are other banks ready to fall too

  I cannot believe I am living in 1932.  Pretty soon I am expecting to hear a version of Brother, Can you spare a dime.

  by renior on Mon Jul 14, 2008 at 07:15:23 PM PDT

  •  Well...

    Been hearing versions of THAT since the Reagan era. I was still young at the time, but I remember the sharp contrast between homeless pan handlers being rare and only in certain parts of the city to them being ubiquitous during Reagan's presidency. And that ubiquity has persisted since then and probably grown. I know several people, not so different to me (one closely related to me) that almost were homeless at one point or another.

    by mole333 on Mon Jul 14, 2008 at 07:33:05 PM PDT

•  So FDIC has $53 billion

  IndyMac cost us 10% of that,

  and experts expect more bank foreclosures to come (I have seen 150 more predicted, another place upwards to 300).  I realize that most of them will be chump change compared to IndyMac, but clearly the worst is yet to come.

  The Fed will crank up the presses, and inflation will go through the roof.

  Happy days are here again!

  by Tin hat mafia on Mon Jul 14, 2008 at 09:30:51 PM PDT

•  Thank Goodness

  For Chuck Schumer to bring this to our attention so those depositors could hurry down and pull their cash out, thus making certain the bank would in fact fail.

  What a jerkweed.

  by jqmilktoast on Tue Jul 15, 2008 at 12:31:41 PM PDT