Now You Can Panic: Economist Withdraws All of His Money from Bank of America

by John Galt
January  31, 2014 20:00 ET

 

Care to start a bank run?

Uh, no, that’s illegal. But according to an economist at the same school our Illegal Alien in Chief attended, Harvard University, it might be wise to do so. The PBS article from yesterday should cause everyone to take a moment and pause to reflect:

Is your money safe at the bank? An economist says ‘no’ and withdraw...

Excuse me? It isn’t safe? Bush-Bernanke-Bimblette all lied? No way? From the article<excerpted>:

Terry Burnham, former Harvard economics professor, author of “Mean Genes” and “Mean Markets and Lizard Brains,” provocative poster on thispage and long-time critic of the Federal Reserve, argues that the Fed’s efforts to strengthen America’s banks have perversely weakened them. (See our 2005 segment with Burnham below about how “lizard brains” influence our economic decisions.)

Last week I had over $1,000,000 in a checking account at Bank of America. Next week, I will have $10,000.

Why am I getting in line to take my money out of Bank of America? Because of Ben Bernanke and Janet Yellen, who officially begins her term as chairwoman on Feb. 1.

Before I explain, let me disclose that I have been a stopped clock of criticism of the Federal Reserve for half a decade. That’s because I believe that when the Fed intervenes in markets, it has two effects — both negative. First, it decreases overall wealth by distorting markets and causing bad investment decisions. Second, the members of the Fed become reverse Robin Hoods as they take from the poor (and unsophisticated) investors and give to the rich (and politically connected). These effects have been noticed; a Gallup poll taken in the last few days reports that only the richest Americans support the Fed. (See the table.)

Why do I risk starting a run on Bank of America by withdrawing my money and presuming that many fellow depositors will read this and rush to withdraw too? Because they pay me zero interest. Thus, even an infinitesimal chance Bank of America will not repay me in full, whenever I ask, switches the cost-benefit conclusion from stay to flee.

Let me explain: Currently, I receive zero dollars in interest on my $1,000,000. The reason I had the money in Bank of America was to keep it safe. However, the potential cost to keeping my money in Bank of America is that the bank may be unwilling or unable to return my money.

They will not be able to return my money if:

  • Many other depositors like you get in line before me. Banks today promise everyone that they can have their money back instantaneously, but the bank does not actually have enough money to pay everyone at once because they have lent most of it out to other people — 90 percent or more. Thus, banks are always at risk for runs where the depositors at the front of the line get their money back, but the depositors at the back of the line do not. Consider this image from a fully insured U.S. bank, IndyMac in California, just five years ago.
  • Some of the investments of Bank of America go bust. Because Bank of America has loaned out the vast majority of depositors’ money, if even a small percentage of its loans go bust, the firm is at risk for bankruptcy. Leverage, combined with some bad investments, caused the failure of Lehman Brothers in 2008 and would have caused the failure of Bank of America, AIG, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, and many more institutions in 2008 had the government not bailed them out.

In recent days, the chances for trouble at Bank of America have become more salient because of woes in the emerging markets, particularly Argentina, Turkey, Russia and China. The emerging market fears caused the Dow Jones Industrial Average to lose more than 500 points over the last week.

Returning to my money now entrusted to Bank of America, market turmoil reminded me that this particular trustee is simply not safe. Or not safe enough, given the fact that safety is the reason I put the money there at all. The market turmoil could threaten “BofA” with bankruptcy today as it did in 2008, and as banks have experienced again and again over time.

Based on just this article, the action of the emerging markets, and worse, the panic many of us are witnessing as wealthy individuals and nations are attempting to obtain the delivery of their PHYSICAL gold, I would advise everyone to decide on their own accord of what course of action to take.

In my opinion, PANIC would be the first step…. 

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US judge OKs $8.5B Bank of America settlement

ALBANY, New York (AP) A judge on Friday approved most of the $8.5 billion Bank of America settlement over investor losses from mortgage-backed securities, concluding that trustee Bank of New York Mellon acted reasonably with one exception.

Critics of the settlement had argued that it represented only a fraction of the losses.

but the bank does not actually have enough money to pay everyone at once because they have lent most of it out to other people — 90 percent or more. 

As I understand it a private person can lend out everything he has: if he has $1,000,000 he can lend out $1,000,000.

A bank can lend out everything it has times 20, if it has $1,000,000 it can lend out $20,000,000 (in that way it is difficult to compete with banks, and banking is a very profitable business ... as we should understand when we view their offices)

Too me, It really doesn't pay to park money at a bank, especially B 0f A. I don't have enough to worry about anyway. What little I do have I keep just enough in my account to pay utility bills and a little extra for online shopping. I guess we each have to balance the risk and make our own choice on what to do. Perhaps tucking it under a mattress is the best bet? Time will tell... 

All a bit 'exciting', say what?

I estimate this all happened some years ago, and the assholes up there have been shoring up their bunkers with our money since.

Media, being completely complicit, are guaranteed a space in the bunker/s, so are happy to get their meth and coke plus all manner of trinkets and big-boys toys to stay mute to the majority.

Might well be time the 'illusion' was ended?

i don think me withdrawing 222 is going to scare them much

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