Study: Productivity up.. Workers pay, hirings down.

[Kanastrous]

But of course you are sufficiently well-connected to reality to know that won't happen.

Someone with a better grasp of banking, finance, etc might be able to point it out...but somewhere there seems to be something amiss with borrowing money at taxpayer expense, then putting the money into taxpayer accounts, raising taxes or cutting services or both, to pay for it, and telling the end recipient that it's "their" money...

[ShadowDragon8685]

But of course you are sufficiently well-connected to reality to know that won't happen.

Hence why I asked for thoughts about it's possibility, not it's practicality in terms of the political climate. If that happened, we'd be one step away from hoisting the flag of the United Socialist States of America, or something to similar effect in this crazy nutso land where any government intervention at all is somehow seen as an unspeakable evil second only to firing up the gas chambers.

[Knife]

So let me just get this straight, Shadowdragon; you are worried that if the major banks fail and you can't pull out the couple hundred dollars most people have in their account, they will suffer more than they will if the bank just shuts down and lets no one run on them? The possibility of riots and the damage that'll do would be worse than you not getting a couple bucks while they sort through the shitmess they made.

[aerius]

Point is that I'm asking if it's possible to set things up so that if a bank comes crashing down for whatever reason, the government immediately steps in and keeps the main street branch open, keeps the ATM machines stocked and the debit cards operating; conducting as much of the normal, Joe-Average interactions the bank normally does as is possible.

It's not possible for the same reason that you can't build 1000 nuke plants by this time next year no matter how much money you throw at it. The resources do not exist, there aren't enough people with the required expertise, and neither of those issues can be changed in required amount of time even if money is no object.

Bank of America has trillions in assets and god knows how many terabytes worth of transaction & book keeping records to sort out if they go under, nevermind the giant fucking hole it nukes into the entire financial system if it blows up. You can't sort this shit out overnight even if you threw the entire US government at it.

[Uraniun235]

About how long would a "bank holiday" take, and how much warning would we have? I mean, I'm fairly dependent on my credit card, not so much because it supplies me with a line of credit as because I use it routinely for small purchases.

If there was going to be a bank holiday that locked down the electronic economy, what would the ramifications be? How much cash would I need to take out of my bank account?

If it's practical for you to do so, it's probably prudent to keep some cash reserve at home in the event of an emergency anyway. You probably don't need so much as to make rent or debt payments - if you've been victimized by fraud then you can work with your landlord or creditors to arrange late payment, and if the banks have been locked up by systemic failure then it's not like you'll get evicted or defaulted when there's literally nobody else able to make payments either.

One reassuring thing to keep in mind is that there's an upper limit to this, in the sense that if the system collapses so totally that you can't get to your money for several months (or worse, never), odds are good that money won't mean much anymore anyway.

[Simon_Jester]

If we have a bank holiday you won't be able to take money out of your account. The only way to guard against this is to have cash on hand BEFORE the bank holiday hits. That means taking cash out now and putting it in a safe place now.

"Would need to" is not "would be able to." Clearly, if bank transactions are frozen there will be no withdrawals during the freeze; the question was more "Am I looking at a day? Three days? A week? More?"

I can go a day or two without using my credit card easily enough, without making special preparations. If there is a realistic prospect of a major bank shutdown locking my credit card for a week or more in the near future, then I really do need to take precautions, because that would be rather more difficult for me to address.

Hence my question, which would have been better phrased as "how much cash should I have on hand for such an emergency?" Or "how much should I have outside my bank accounts?"

So instead of suffering all at once in a group and getting angry and rioting, everyone gets to suffer alone at home with anger simmering over a longer period and less chance of a riot?

SD, runs on banks have long term consequences, not just some people getting pissy in the front office. By creating a situation where the bank is totally without real assets (since what little it had just got taken away by the customers), the bank is left unable to do ANYTHING, with no reserve of real cash it can swap around to pull itself out of the hole.

That's what bank holidays prevent: they're the simplest way for the government to enforce some quiet time on the economy while the bank is dismantled, rather than having everyone hyperventilate and flip out and wind up breaking a financial instrument that's already badly cracked up.

Point is that I'm asking if it's possible to set things up so that if a bank comes crashing down for whatever reason, the government immediately steps in and keeps the main street branch open, keeps the ATM machines stocked and the debit cards operating; conducting as much of the normal, Joe-Average interactions the bank normally does as is possible.

It's not possible for the same reason that you can't build 1000 nuke plants by this time next year no matter how much money you throw at it. The resources do not exist, there aren't enough people with the required expertise, and neither of those issues can be changed in required amount of time even if money is no object.

Bank of America has trillions in assets and god knows how many terabytes worth of transaction & book keeping records to sort out if they go under, nevermind the giant fucking hole it nukes into the entire financial system if it blows up. You can't sort this shit out overnight even if you threw the entire US government at it.

All right. So how long would this take? Back in the Depression, FDR's bank holiday lasted about a week. Today, the banks have grown vastly more complicated, but I'm not sure our ability to sort the records has improved, and our reliance on bank-supported transactions has completely overwhelmed the cash economy: I suspect that many businesses would be unable to do all transactions in cash even if they wanted to.

So as far as I can tell there's no reason to assume we could resolve the problems of a bank holiday in under a month, and a shutdown that long would be a horrible disaster even for people with a significant cash reserve- even if you've got thousands of dollars that's no good if the supermarket can't get shipments of bread because they have no way to pay their suppliers.

One reassuring thing to keep in mind is that there's an upper limit to this, in the sense that if the system collapses so totally that you can't get to your money for several months (or worse, never), odds are good that money won't mean much anymore anyway.

That's kind of what I'm getting at- it's a problem with the bank holiday as a tool in the modern era. How long would it take us to sort a giant bank's assets? Could we do so in a short enough amount of time to keep the economy from dying for want of circulation during the holiday?

[J]

About how long would a "bank holiday" take, and how much warning would we have? I mean, I'm fairly dependent on my credit card, not so much because it supplies me with a line of credit as because I use it routinely for small purchases.

If there was going to be a bank holiday that locked down the electronic economy, what would the ramifications be? How much cash would I need to take out of my bank account?

Keep an eye on Twitter, Facebook, and the other social networking sites, plus bloggers. That's how we found out about the runs on Northern Rock in the UK and Indymac & WaMu in the US shortly before CNN and the business channels updated their headlines. You'll have a few hours of warning at best before the state or nationwide bankruns start.

How long? Nobody knows. I think two to three weeks would be a safe bet, any longer than that and we're probably looking at either some sort of government run rationing, distribution and commerce system or the beginnings of Mad Max. My best guess is it will be in the week to two weeks range for the bank holiday. If the government has everything pre-planned and pre-positioned the way they did with GM's bankruptcy they should be able to resolve everything over a long weekend or a 4-day Easter weekend. I haven't heard of any such plans though so I'm not confident they exist.

[Jalinth]

Now, thanks to various laws on the books, if a bank needs to sell a large number of homes at a X% discount it can no longer hold the remainder of its foreclosed and repossessed homes at the original undiscounted value. The problem here is the banks are still holding all their foreclosed homes on their books at the full undiscounted price, if they didn't do so they'd all have negative shareholder equity and be completely insolvent. That's why they're stuck with their foreclosed homes and can't unload them, if they did so in significant numbers they'd all be instantly insolvent, get bank runned and end up as dead as Washington Mutual and Wachovia.

Pretty good explanation. It is similar to the whole derivative "mark market" problem. For many contracts, banks used "mark to model" which turned out to be marked to fantasy. Houses are actually similar because you are marking to a model - this is all assessed value is.

Here is one example: Area one has an average house price of $300K and is representative of Areas 2, 3, 4. Average turnover in each area is 100 homes per year. BigBank has foreclosed on 300 houses in each area - three years of sales - and have recorded these homes as a $90M asset per area (they'd have written off the loan balances above this amount). If they put all of Area 1's inventory on the market all at once, the selling prices will nosedive to $225K (assumption due to firesale prices). Suddenly the other 900 homes they own (areas 2, 3, and 4) must be reduced in value by $75K a piece, meaning the bank has to show a loss of $67.5M, which means their Tier 1 capital (a very key measurement of bank health) goes down. Tier 1 capital going down means they need to reduce their lending or increasing their capital ASAP or risk regulators stepping in.

So banks are currently praying things improve so they might be able to recover without suffering massive write-offs jeopardizing their jobs. The "Extend and pretend" scenario as J correctly points out which keeps the banks' assets as mortgage rather than actually foreclosing on the homes.

[Kanastrous]

Is there an alternative to 'extend and pretend' that doesn't crash the banks? Something that perhaps still means losses, but not losses sufficient to bring the whole happy fantasy crashing down completely?

[J]

Is there an alternative to 'extend and pretend' that doesn't crash the banks? Something that perhaps still means losses, but not losses sufficient to bring the whole happy fantasy crashing down completely?

Sure. Nationalized banking, with a bit of luck if we do it right. Unfortunately this crashes the banks in many other countries since they have all sorts of hinky holdings & swaps with US banks and nationalization would void most of those things and bankrupt foreign banks.

Or possibly a "pre-packaged bankruptcy" such as the one carried out with GM; the government & FDIC go over all the papers & legal stuff in advance then close down all the too big to fail banks for a long weekend while they're Chapter 11'd. They reopen on Tuesday and business goes on as usual. Unfortunately as with nationalization, this crashes many of the banks in foreign countries so they're not exactly going to love the US afterwards.