Run on Banks

Update: The Run On Banks Pinned Down

The problem with our money market bank run in September 2008 is solved. It was likely the European banks that needed dollars. They had redemptions that could only be settled in dollars. We can see that with this study by the folks who should know, our favorite one world bank, the BIS. It is a very technical study. Don't worry so much about that, and don't worry about the math or all the complexities. Point is that two significant issues are part of the study. First, the European banks all suffered from a massive dollar shortage. Second, the Fed ended up bailing out the entire central banking system of the entire world. This is why the US deficit long term doubled. We went from about 6 trillion in debt to 12 trillion.

While many would say that this was just a crisis established by financial panic, I think it was much more. I am working on getting answers to questions regarding the roll of the toxic assets of our investment banks, you know the mortgages gone bad, that were sold to European banks. How did they affect the shortage of dollars. We know from various speeches given by Bernanke in 2007 he knew that the crisis was coming.

BTW the author of that crisis link immediately above is a follower of the Austrian school of economics. I like some things Austrians think about but this school of economics, represented by Mises Institute and Mike Shedlock, etc, doesn't give answers as to why demand for loans decrease post bubble. I think we need to take a look at various economic models but think for ourselves too.

Austrians believe everything should be allowed to fail and while this is desirable in theory, the Fed underpinning of the entire world economy seemed to be a necessary thing, at least to buy a little time, because the banks have interlinked their risk with swaps, a form of insurance. You can see the chart of that in the pdf link at the top of this section. That does not mean I don't think that the Fed and the BIS didn't set this scheme up. And terrible austerity, without state banks coming to the rescue, will be the only choice. Before letting these massive banks fail, it should be necessary to set up alternative banks, maybe even state banks as Ellen Brown has advocated. Also banks should be wound down in an orderly fashion and not be allowed to fail en masse!

We know that at Basel 2 the BIS deliberately allowed low capital requirements for western banks and off balance sheet banking, just the opposite of what they allowed with Japanese banks at Basel 1 which has resulted in deflation in Japan. And certainly, Basel 3 is easier than once thought.

But the conspiracy may have continued. We know that the same banks who had a dollar shortage were also bailed out by Bernanke and Geithner at 100 cents on the dollar with regard to AIG swaps gone bad. I am working on whether this entire crisis was manipulated, allowed to fester, established by the Fed and the BIS and if it was a means for getting the US taxpayer into massive debt. I have some proof this is the case here.

Update:

It has been reported that the military is leaning toward China or Terrorists as being the instigators of the run on the money markets. First I don't buy it and second I explored this issue of who had motive to run the money markets as a contributor to Business Insider.

Update: How 500 Threatened Trades Almost Blew Out the Financial System.

I am truly frustrated that we have not been able to determine who threatened to run the money markets in September 2008, resulting in the Fed injection into the shadow banking system. We know that institutional investors ran the money markets for less than Congressman Kanjorski said. Certainly Kanjorski, the Congressman from Pennsylvania was mistaken when he said that the run was 500 billion dollars. Apparently it was no more than 104 billion total.

Perhaps the run itself was not extortion although institutional investors ran the money markets, while retail investors were still putting money into them. My problem is the story in the New York Post that on the morning of Thursday, September 17, 2008, reporting that the threat of trades totalling 500 Billion dollars, would have been devastating to the financial system. I think that the real issue was the commercial paper vulnerability some had. My issue is that those who threatened the market with the 500 billion, (each trade about 1 billion so only 500 potential trades) had positions in the commercial paper market that could have exposed them to massive losses. Bottom line, this was a crony bailout, IMO. This was extortion, IMO.

And even if none of this can be proven, we know that after the Fed injection, Bernanke came running to Paulson to go to Congress for TARP. They knew how to handle bets gone bad. Just put it on the taxpayer much like bailouts of banks have been rigged for centuries.

Silent Run on Banks Is a Reality

"We have Jim Cramer assuring everyone on CNBC that the banking system is safe. If it is so safe why is it necessary to proclaim it's safety?" Bgamall

A silent run on the banks is a reality. It is caused by electronic withdrawals, and we may not get a sense of a bank panic going on because there are no lines outside the banks. E banking, once thought to be a real money maker for banks, is now turning into a curse for the banking system.

People need to understand that they cannot wait for a line to form at the local bank, that a system wide banking meltdown can occur at any time. A near meltdown occurred in September 2008 when 550 billion dollars were pulled out of the banking system in the course of under 2 hours. I want to know who made this run and if it was a blackmail by international bankers or if it was someone else responsible.

As a taxpayer who gave Tarp to the banks, I have a right to know! There is a video below that shows this run could have been China concerned about their investments. It is a plausable reason. Will the US try to default at some point with crap money, kind of like Sampson who took down the Philistines with him? Can the United States guarantee the Chinese investments as our biggest creditor? Are we out of the woods? NOT!

It has been reported that a silent bank run ruined Wachovia.

While silent bank runs have been mainly limited to individual banks, with the exception of the September 2008 fiasco, the fear of a silent system wide bank run remains. Banks are run on the concept of fractional reserve. They do not have enough money to pay if everyone wanted to take the money out all at one time. That in itself is a cause for concern, and some have said this system is terminally flawed.

Certainly there must be some concern with regard to the powers that be regarding money being taken out of banks. While there has been a lot of talk on the business channels about money on the sidelines waiting to buy stocks, it is possible, and this too has been discussed, that the money is not on the sidelines, but rather is now in gold and in mattresses!

And the business channels are all talking about the strength of FDIC and how great local bankers are, but I have a link below discussing the difficulties of FDIC insurance if all the banks failed at once. It then becomes like the phony insurance sold to banks to guarantee their mortgage bonds, useless! FDIC could be overwhelmed, and bank withdrawels could at the very least be limited per day if runs continued.

Disturbing Movie About Potential Capital Outflows From the USA

Since The September 2008 Near Meltdown Are Major Bank Runs Likely?

Nouriel Roubini has a roadmap for fixing the banks, the zombie banks, that are essentially insolvent. With Alt a, option arm, credit card, commercial real estate, etc looming in the horizon with major banks being already insolvent, a plan is needed. And the Wall Street insiders like Tim Geithner may not have the inclination to fix the problem, preferring to protect the bondholders and the international bankers who got us into this mess in the first place.

It has been thought that because the federal reserve and the FDIC and the government of the United States stands as a bulwark against collapse of the financial system, that that system will stand without failure. Certainly, prior to 1913 and the introduction of the Federal Reserve (a private entity) banks would shut their doors if there were bank runs. After all they only contained a fraction of the deposits on hand, having lent out the rest.

The fractional reserve system prior to 1913 was fraught with danger. Yet even now, the fractional reserve system is a ponzi scheme that is legal, and guaranteed, but on top of this ponzi was a housing, commercial, credit card easy money ponzi that gave credit to anyone with a pulse.

But now the credit crisis and the fraud permitted by the selling of phony AAA mortgage bonds throughout the world has put this nearly fail safe system in real danger. It is likely that bank deposits will remain safe, but there are possible scenarios in which insured deposits will not remain safe.

Certainly many are taking their money out of banks, and they are buying gold, treasury bonds, etc. Some are hoarding cash. Nouriel Roubini has said we have survived the September 2008 bank run and that should not happen again. We have Jim Cramer assuring everyone on CNBC that the banking system is safe. If it is so safe why is it necessary to proclaim it's safety? [With the turmoil in Europe in 2012, we have a great risk to the entire worldwide banking system].

On the other hand, bank runs prior to 1913 limited inflation and risk. If more people took money out of the banks we would not have as much inflation and easy money risk. Banks figure out ways to inflate the money supply by taking more risk since they believe that they cannot fail after 1913. However, it is possible that they have gone too far, and that they are too far out to deleverage back to safety especially in Europe. Time will tell.

That is the big question that remains: Can the banking system fail under the circumstances of a major credit and economic meltdown due to massive overleveraging? Will the government lose it's will to bail out massively overleveraged banks, even with their guarantees and FDIC? Europe is teetering because they do not have the will to bail out the banks. While I don't like bank bailouts, and want the government to clawback bonuses and ill gotten gains for the taxpayer, not winding the insolvent banks down one at a time could prove dangerous to world finance.

Would the United States risk a destruction of the world's best credit rating by continuing to bail out banks without getting some reimbursement for the taxpayer? What about Europe?

The mistake the US made was to fail to prosecute those bankers who needed bailouts. That should be mandatory if we are to control the gambling and risk taking they do without sound and prudent underwriting and caution.

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Comments 9 comments

TheMoneyGuy profile image

TheMoneyGuy 7 years ago from Pyote, TX

Another good one, Although I think you might just be a modern Cassandra.

TMG


bgamall profile image

bgamall 7 years ago from Las Vegas, Nevada Author

Thanks Moneyguy, I will try to fix my hair up to fit the roll. All kidding aside, I am lacking in PR, and google has not yet loved me. But I only started getting serious about Hubpages in early January. So there is still hope.

So far, Yahoo has picked up more of my hubs.


pgrundy 7 years ago

FDIC was never intended to cover ALL the deposits in ALL the banks, but most people never consider this. I laughed out loud when I read your first statement about Cramer--if things are so safe why do we have to proclaim that so loudly? I laughed because when I worked at the bank and they started sending out letters from the CEO on a daily basis about how we were in fine shape, pay no attention to that man behind the curtain, I said right away, "Oh God we're about to go down!" and I about got lynched by my coworkers. Not even a month later the  bank's request for TARP funds was denied and a forced sale was brokered to another big regional bank to prevent FDIC seizure. So, you know, just because you are saying something unpopular and people react it doesn't necessarily make you wrong.

Cramer was on TV the day before Bear Stearns failed advising people to hang onto their Bear Stearns stock because there was no way in hell that Bear Stearns was ever going to fail. I think Cramer is entertaining but I don't know why they keep trotting him out as some kind of expert genius type. He's just a loud guy who can talk about money and investing---loudly.

I appreciate you taking over some of these Cassandra duties. I can't do ALL the wailing! lol!


bgamall profile image

bgamall 7 years ago from Las Vegas, Nevada Author

PGrundy, I think some of my family doesn't get it. I think an L shaped recovery is almost assured, because, as a guy on CNBC said, Asia, Europe and consumers are tapped out. That leaves the government and they are screwing it up.

He wants the government to take over the zombie banks, and he wants a real job creation stimulus. And he wants these fast so that the US will not ruin their credit rating. Just giving money to failed banks does not help the US credit rating.

And yes, one wailer on hubpages is not enough. I know there are some others but we need to be louder or no one will hear us! Thanks for the post.


Jana67 profile image

Jana67 7 years ago from Waves, NC

The stuff hit the fan and you made a great hub, what will we do? What will my children do??


bgamall profile image

bgamall 7 years ago from Las Vegas, Nevada Author

Hopefully other nations will grow and the trade we get improves our situation. Otherwise it will be difficult for the United States.


bgamall profile image

bgamall 7 years ago from Las Vegas, Nevada Author

Hopefully other nations will grow and the trade we get improves our situation. Otherwise it will be difficult for the United States. Jan I hope you look into Jim Cramer's short selling escapades and let me know what you find. I know you are interested in his shortcomings:)

Also, Jan, there is some idea that this bank run in Sept 08 was a blackmail against the US treasury forcing Paulson to give the tarp money to the banks. I really don't know.


MikeNV profile image

MikeNV 7 years ago from Henderson, NV

At the same time, Bernanke argued that the Fed must remain "effective and independent" to make decisions that may be good for the economy but unpopular with politicians or the public. That was directed at a provision — passed by a House committee on Wednesday — that would subject the notoriously secretive Fed to congressional audits. Bernanke fears that could interfere with crucial decisions about interest rates.

Why would the Press call the Federal Reserve "Notoriously Secretive"? Why because it's true. Congress has done nothing to exercise any kind of Control over the FED. The FED tells the Government what to do not the other way around. And the FED is NOT a Government Organization. In the United States Private Bankers dictate monetary policy. Most people are clueless.

There is only $3 of actual paper currency per $100 of total currency. A simple run would completely remove all hard currency from the market.

Banks like Wells Fargo continue to hold billions in Bad Loans, but are allowed to show a PROFIT on accounting documents. This is the result of a fractional reserve banking system. Money is created out of NOTHING!

A smart person would be well served in getting their money out of banks. Even if it's just worthless paper.

When ever I try to get money from my bank they require me to wait almost a week if the amount is greater than $2,000. That is not very confidence inspiring!

The Federal Reserve MUST be abolished. American needs to get back on a Gold Standard. Currency has to be worth something and the perpetual debt model must end.

The system has failed, and will continue to fail. It's best to fix it now than later. You can't just stick another finger in the damn.

Voting UP. I can't understand why people are so uneducated to what is really going on and why politicians won't get off the bankers payroll and fix things.


bgamall profile image

bgamall 6 years ago from Las Vegas, Nevada Author

Mike I appreciate all your comments, and note that it is funny that our currency is not only not backed by gold but it isn't even backed by paper, lol.

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