Monday, February 11, 2008

Just What Are We Supposed to Do? Part II

Recently, Annie posed this question and asked if we should put all of our money in our mattress.

I don't think we can do that on a permanent basis, and almost everyone that reads this blog is living close to paycheck to paycheck. But it does argue powerfully for having some money - a weeks worth, if you can swing it, in cash, at home. You don't hear much about the instability that is going on in the markets, but the translation is 'credit crunch'= near bank failure. And if you don't think the trillions of dollars that have been injected into the system since August are symptomatic of real bank instability, then you have no idea of what is going on. Anyway, here is the quote. The author, in the preceding paragraph was describing CDS derivatives, (Credit Default Swap) which is as he describes it, sort of a private insurance for bonds. Huge (hundreds of trillions of dollars) and almost unregulated, they seem to work fine in good financial conditions. But no one knows what happens in times of trouble. The quote:

......"Be ready for the coming bank runs. These will make the recent run on all of the branches of the Northern Rock Bank in England seem puny, by comparison. The Northern Rock experience taught us a few important lessons: In a 21st Century bank run you can expect three things to happen immediately: 1.) All ATMs will be shut down, 2.) Debit card withdrawals will be severely limited or stopped completely, and 3.) Online banking will be shut down. These measures effectively funnel the "run" down to just face to face transactions at bank teller windows, to stem the tide. Bank managers must slow the outflow of cash, for without these measures, a bank could be "cleaned out" of most of its deposits within 24 hours. I've said this before: Be ready for bank runs, folks. Keep some greenback cash on hand. Don't keep all of your funds in one bank--even if your deposits are less than $100,000. Don't forget that it can take weeks or even months to get a check from the FDIC. Lastly, in the event of widespread bank runs, we can anticipate some draconian new rules limiting withdrawals, via executive order(s). Once bank runs begin in the US, even if your own bank is not yet affected, have direct payroll deposit stopped. Instead, ask your employer's payroll department to issue you a traditional paycheck."

I don't know about you, but if ATMs and online banking are shut down, then I am in trouble. So maybe Annie answered her own question. And like they say in 'You've Got Mail' - go to the mattresses.

1 comment:

AnnieOfBlueGables said...

::annie is back under the coffee table, motioning for Pixie to join her::
you have me sufficiently scared.