Before You Run To The Bank

Remember that your money is insured.  Your 401(k) is already tanked (and it will bounce back, unless like my poor neighbor the Wachovia vice president, you kept it all in one stock!) so there's no need to run anywhere.  If you're worried about your deposits above $100,000, well this is the world's smallest violin.  You should have been tracking Warren Buffet years ago.  It's not hard.  He writes cheap, easy to read books about his investment strategy (buy sound companies which earn unspectacular returns but profit consistently by delivering a good product) and Berkshire's investments can be found online.

Through Tyler Cowen, in the meantime, comes word of a more sensible plan that wouldn't involve breaking the taxpayer's back, would preserve the "moral hazard" (at least for Wall Street), and wouldn't have allowed asshats like (I count down in rough order of disgust) Henry Paulson, Nancy Pelosi, Roy Blunt, and Barney Frank to play politics when their constituents' money is riding on the line.

As things stand, some more medium and large banks are going to be absorbed by giant banks, and some more big companies are going to go bust (sympathies to their employees).  But it won't be the end of the world, or a second great depression.  I actually agree with those, left and right, who opposed the bill on principle, because it was a terrible idea all around. The idea of rewarding those who caused this mess, and giving the executive more unbridled power than it already enjoys, stuck in my throat.  A nasty recession might be better in the long run for America.  (We'll see whether I still think so when it's my house in foreclosure.)

See Stephen Bainbridge for a more doom-and-gloom, but probably more realistic perspective.  He thinks we're on the verge of Return to Waltons Mountain.

Good night John Boy!

Update: "If Congress were planning to pass a bill providing, say, a $100 per share subsidy to stockholders at the expense of taxpayers, no doubt stock values would rise in anticipation and then fall precipitously if the plan were unexpectedly voted down. That is essentially what happened here."

Last 5 posts by Patrick Non-White


  1. Patrick says

    That happened well before the vote was held. I heard about it on the radio while driving to court this morning.

    Wachovia overextended itself trying to become the equal of Bank of America in the south, and so such is life. That's not a bank run. That's an acquisition.

    More's the pity, as I regret that everywhere I drive I'll have to see that damned umbrella that Citibank stole when it absorbed Travelers.

  2. Clay says

    Every fool standing on the corner knows that you have to distribute your 100,000s across multiple banks for insurance reasons. Maybe we'll all at least learn that lesson as a nation, and stop living beyond our recourse to federal guarantees.

  3. says

    Every fool standing on the corner knows that you have to distribute your 100,000s across multiple banks for insurance reason

    I'm not sure many fools on the corner have multiples of $100,000 to spread around.

    Check back in a few years, if inflation gets a little bit out of hand.

    "Hey, Ma – look, I'm a millionaire!"
    "Henry – that's your lunch money. Stop fooling around and get to school."

  4. dave says

    I assume you're talking about the blog post that you linked to as the 'solution.' Unfortunately, it doesn't address the underlying cause of the meltdown – namely mark-to-market accounting. Unless banks can get the undervalued assets off their books, they'll remain in distress.

    The only alternate solution I can think of is suspending FASB-157, but I'd be shocked if it were that easy because someone would have already thought of it.

  5. Patrick says

    The cause of what you're calling the meltdown, and what I'd call the wisdom of the market, is debatable. But there's no question that the immediate cause of last week's trouble was an incipient bank run by money market holders.

    The FDIC solution would fix that, while stymieing the plans of those who are withholding credit or holding onto bad assets in the hope that they can use other people's money, without their consent, to save themselves from the consequences of their recklessness.

    The vast majority of Wachovia depositors are in better hands with Citibank, and Wachovia deserves what happened to it. I hope that the plaintiffs' security bar takes it out of the hides of Wachovia's board, and I'm sorry that that probably won't happen to the boards of Freddie and Fannie.

  6. Patrick says

    For those who suspect that many private investors are just sitting on their capital waiting for government money, note that Wells Fargo put in an upset bid for Wachovia last night, on substantially better terms for the shareholders, with no government involvement.

    I don't blame Citi for trying to steal Wachovia with taxpayer help, but I'm glad it didn't work.