"Don't take the money and run" says FDIC

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

If you're thinking of withdrawing extra money for the Year 2000, read this first

You may have heard someone say that before January 1, 2000, you should have stocked up on extra money just in case your bank can't cash checks or operate ATMs because of a Year 2000 computer problem. What do we have to say about that?

The FDIC recommends that you make a reasonable decision based on solid information, not on false, uninformed or exaggerated reports on the street, in the media or over the Internet. We also think you'll find that you may only need about as much cash as you'd have on hand for any other three-day holiday weekend. We believe there is no need for you to take out extra money. Why do we feel this way?

-- Federal and state regulators expect that most banking services will be functioning normally on January 1. Examiners have been visiting every FDIC-insured bank and savings institution in the country to check on its progress. Almost all insured institutions are on schedule to become Y2K-ready. The very few institutions not making satisfactory progress are undergoing increased scrutiny by bank regulators and are required to correct their deficiencies.

Federal and state regulators will continue to closely monitor all institutions throughout 1999 and into next year. This government oversight is a big reason why John A. Koskinen, Chairman of the President's Council on Year 2000 Conversion, said at a March 31 press conference that ''banking is clearly in the best shape of any industry in the country.''

As part of this readiness effort, banks, automated teller machine manufacturers and ATM networks (the systems that give you access to your bank account using another bank's teller machine) are fixing and testing their machines. And if problems do occur, banks have back-up plans in place so service to consumers can continue. If you have questions about what your banking institution is doing about the Year 2000, talk to an employee there who is knowledgeable about its Y2K program.

-- The funds you leave in a federally insured account are absolutely safe. The same can't be said for the money you take out of the bank. Wallets and purses are easy to lose. And while robbers are always out there, as we get closer to the New Year they may be especially active if they hear that people are carrying extra cash. Among the potential crime targets: people who have just taken cash out of ATM machines.

As we've reported previously in FDIC Consumer News, your best defense against ATM theft is to use machines only in well-lit, busy areas where unusual activity would be noticed. Be alert to people loitering around the ATM, often in a car or behind bushes. If you have doubts about a particular location, go to another ATM where you feel safer. (For tips about protecting yourself from Y2K problems, see our checklist.)

We also caution everyone about hiding a large sum of money at home, where it can be taken by a thief, misplaced by a family member or destroyed in a fire, even if the cash is in a metal safe or file cabinet. One press report from North Carolina told of someone who allegedly stole nearly $15,000 from the home of a relative who had withdrawn the money from a retirement fund because of concerns about Y2K.

"It's never a good idea, at any time, to carry around a large amount of cash or keep it at home," says Frank Hartigan, the Washington-based Y2K Project Manager for the FDIC.

-- If your favorite ATM is out of order, you can get cash elsewhere. Just because an automated teller machine is "down" doesn't mean your bank or the bigger ATM network your bank belongs to is having a Y2K problem. You could just be arriving at the ATM while it's turned off for basic servicing (perhaps for cash to be added).

Or maybe the ATM is temporarily unable to dispense cash or give out receipts because of a problem totally unrelated to the Year 2000 (such as a paper jam or money misfeed). So, if one ATM isn't working, try another nearby. Or, during regular banking hours, just go into a bank branch.

You also may be able to use your ATM card or credit card to get cash at a merchant's cash register. Depending on the type of card you use and where you use it, you may have to pay a small fee to get cash from an ATM or sales terminal.

-- There are more ways to pay for products and services than just using cash. Most merchants accept your check, credit card or debit card (an ATM-type card that deducts from your account to pay for purchases). "In this day and age, when there are so many options for making payments, consumers shouldn't feel they need to rely solely on cash," says the FDIC's Hartigan. If you have a question or problem regarding the best ways to make a payment (or even get additional cash), consider calling your bank or credit card company. Many banking institutions will have extra customer-service staff answering phones or otherwise assisting consumers during the Year 2000/New Year holiday weekend.

-- Y2K problems won't cause your bank to lose track of your money. It's highly unlikely that a Year 2000 computer problem will trigger an error in your bank account balance. If something does goes wrong, though, institutions are required to keep back-up records that can be used to identify and correct any errors that might affect your accounts. So why take out a lot of cash because you're afraid the bank will lose your money...and then risk losing it yourself?

You're better off just keeping good records of your account transactions-deposits, checks, ATM withdrawals, etc.-and then comparing your records against your bank statements. (That's something a bank customer should always be doing, not just in response to the Year 2000 problem.) If there's a discrepancy, contact the institution immediately. And remember, every extra dollar you take out of your account is a dollar that no longer earns interest.

Final Thoughts Rest assured that the banking industry will be ready if you and other consumers have a need for more cash. The Federal Reserve System, which supplies banks with the coins and currency they need to handle daily banking operations, has plans to print extra cash as a precaution to meet any increased demand.

But as we've described here, federal bank regulators and bankers have spent years preparing to overcome the Year 2000 problem, so that there should be no need for anyone to withdraw extra money.

The FDIC wants you to be an informed consumer. We hope we've given you some solid information that will be helpful when you decide whether or not to remove cash from the bank before January 1, 2000.

We leave you with the words of respected financial columnist Jane Bryant Quinn. In writing about the Y2K issue recently, she said: "Would I take savings out of the bank, lose the interest it's earning and risk total loss if I had a fire? My money stays put, where it's FDIC-insured."

-- Mild Mannered Reporter (Clark@super.duper), June 28, 1999


We leave you with the words of respected financial columnist Jane Bryant Quinn. In writing about the Y2K issue recently, she said:

"Would I take savings out of the bank, lose the interest it's earning and risk total loss if I had a fire? My money stays put, where it's FDIC-insured."

Look like Ms. JBQ has the intelligence and self-preservation instincts of a drunken gnat.

Didn't know that gold could catch fire but whaddaiknow...

-- Andy (2000EOD@prodigy.net), June 28, 1999.

The FDIC statement is good timing on someone's part. Is there concern about the potential impact of the Washington Post article?


"District Prepares for Y2K System Failures"

-- Linkmeister (link@librarian.edu), June 28, 1999.

and here is just a little more for (is this the new and improved --al- d?) the FDIC-insured(bwaaaahaaahaahah)lover.........

"But crowd psychology does not seem to be in our favor, and the banks themselves seem to be failing in their efforts to convince that hard- core minority that their deposits will be safe. Most people on this forum already know how just how fractional the fractional reserve banking system is (somewhere between $.86 and $1.50 in bank vault cash reserves for every $100 of deposits) and just how limited the FDIC is (the FDIC can currently cover less than 1.5% of all bank accounts nationwide; for that matter, most of the FDIC's assets are presently not in cash: reportedly, the FDIC has about $258 million in actual cash, while there is over $4.3 trillion in American bank deposits)."

cya superman

-- R. Wright (blaklodg@hotmail.com), June 28, 1999.

You know, I 'could' be wrong, but.......I sense the person who wrote this, just may have a damp pant leg??????????

-- Will continue (farming@home.com), June 28, 1999.

I was just over at another Web site where I found the link to this Bloomberg.com article:

http://www.bloomberg.com/bbn/ratetop.html?s=48bdb0f27039090a7505f7249a c0db38

"Rate of Return - Y2K May Drive Investors to U.S. Bonds: Rates of Return"

-- Linkmeister (link@librarian.edu), June 28, 1999.

Doesn't this article sound like a 'little talk' you would give your 8 year old. Now Son... you know maybe you should leave your $1 at home insted of taking it with you to school where some bully might steal it from you.

Do they think we are totaly helpless and can not care for ourselves.

I agree with Will, damp pants.

-- bulldog (sniffin@around.com), June 28, 1999.

I've always wondered just who the examiners are. Sometime last year, the FDIC began investigating banks for compliance and remediation efforts. They sealed the results right off the bat, even promising penalties for any breach of confidentiality. Are the examiners programmers or bureaucrats? If they're programmers, are they the typical government contractor (lowest bidder, usually limited talent)? I've used government-reporting related software produced by government contractors, and it was a cruel joke! I just hope they have hired more talented people to do the examining.

-- ariZONEa (my_money_aint@thebank.com), June 28, 1999.

the FDIC is incapable of bailing out banks from any widespread failure. The BIF is the "Bank Insurance Fund" and the SAIF is the "Savings Association Insurance Fund." These are the two funds managed by the FDIC and used to bail out failed banks.

The FDIC strives to maintain a total reserve ratio of 1.25%. That means for every $100 you deposit in the bank, the FDIC has one dollar and twenty five cents ready to bail out that bank if it collapses. (Right now, their reserves are running as high as 1.4%, but we'll use 1.25% throughout the examples below.)

This means that if banks controlling over 1.25% of the bank deposits actually fail, the FDIC will be bankrupt.

The FDIC covers approximately $2.7 trillion in deposits. System-wide, there are $3.7 trillion in deposits in the United States, meaning that $1 trillion in deposits are not insured by the FDIC.

The BIF has reserves of $28.9 billion to cover deposits of over $2 trillion. The SAIF has reserves of $9.6 billion to cover deposits of almost $700 billion.

The FDIC reserves are paper-thin. Like any insurance entity, the FDIC is counting on isolated, infrequent bank failures, not a system-wide, multi-bank failure. While 1.25% may be sufficient to bail out the one or two failed banks in any normal fiscal quarter, the fiscal quarters in late 1999 and early 2000 are hardly normal. Clearly, the possibility exists for an unexpected increase in failure, due not only to cash withdrawals, but also to exposure to derivatives. If banks begin failing on a widespread basis, can the FDIC actually make good on its promise?

Donna Tanoue of the FDIC says, "If a bank or thrift institution should fail because of Year 2000 problems, insured deposits will be covered- no ifs, ands, or buts."

Given the 1.25% reserve ratio, it appears there are plenty of ifs, ands and buts.

The big bailout What would really happen if the FDIC went broke? As we witnessed in the S&L scandal in the 1980's, the taxpayers get the privilege of stepping up to the plate and footing the bill. In other words, the "government" would probably step in and bail out the additional failed banks, using taxpayer dollars, of course. This means that the American people would essentially be bailing themselves out... the people would be forced to buy their own money a second time!

Why might banks fail? System-wide, the banks hold one dollar and seventeen cents for every $100 you deposit. This could obviously be a contributing factor to any widespread banking problems. Other factors include massive exposure in derivatives in Asia -- a region likely to be hit hard by Y2K. View the bank reserves chart to read more details.

Want to stay informed? Sign up for the free daily e-mail news alert that keeps you posted on Y2K news that affects your money. Click here for details. It's free.

Source for the numbers used here: The FDIC, of course! You can view the 1998 2nd quarter report by clicking here. Read the numbers yourself.

Note: Y2KNEWSWIRE.COM provides this information for awareness purposes only. It does not wish banking failures to occur. In fact, the failure of our banks and our Federal Reserve system would be extremely harmful to our quality of life and would obviously put Y2KNEWSWIRE.COM out of business. This information is provided in the hopes that the truth may be known and that some solution may be found to alleviate or prevent the potential problems mentioned here.

-- zoobie (zoobiezoob@yahoo.com), June 28, 1999.

that crap about not being safe with your money inplies we are sheep who need big business to look after our interests,since we're so ignorant.Said opinions are usualy voiced by mouthpiece shills like Deano.

-- zoobie (zoobiezoob@yahoo.com), June 28, 1999.

Well Clinton has convinced the country that nobody can trust what "the government says" - in big things, and in small things. It doesn't matter what the lie is, a government worker is not going to be held responsible for is or her lie.

So what happens when the vast majority of people don't believe the government when it whitewashes things, and decide this kind of blantant hand-holding "mothering" is the single best reason to pull cash "before everybody else does"?

Can you spell bank holiday and gun confiscation - right after Christmas shopping ends? Blamed of course on right-wing fanatics and profiteering panic-mongers!

-- Robert A. Cook, PE (Kennesaw, GA) (cook.r@csaatl.com), June 28, 1999.

personally, I don't care if my bank fails. I only keep enough money in at any given time to pay current bills. Somehow, that 1.5% interest doesn't excite me.

OTOH, the gov't can have my guns when I'm dead. And I'll make DAMNED SURE I take a few of them with me...

Can I spell "gun confiscation?" No, but I can sure spell "1000 rds light-armor-piercing .223".

C'mon & get my guns guys. Got a little somethin' for ya...

-- Dennis (djolson@pressenter.com), June 28, 1999.

There is the additional issue of *how soon* would FDIC (thanks to our collective tax dollars) bail us out. In a widespread bank collapse, it might be months or even years beyond when having the money again would do you any good.

-- Brooks (brooksbie@hotmail.com), June 28, 1999.


Don't sweat it! Mr. Decker says, "Bankers see Y2K much like pilots see a patch of bad weather. Since I actually work with regional bankers on a daily basis, I think I have reasonable access to the thought process. Not a single banker I know is "terrified." They know the Federal Reserve will have one hand firmly on the tiller. Not only is there enough currency, demand deposits, money order, cashier's checks, etc. are also money and the FR has the ability to give these quasi-currency instruments the weight of currency with the swipe of a pen. Unlike a plane, the system crashes only if the FR allows it to crash.

I answered him, "The image of the Fed as a casual sailor with, "one hand firmly on the tiller", is a soothing one, but not one that gives me much confidence in our central bank as it approaches "a patch of bad weather". I should think that oilskins, safety lines, much reduced canvas and both hands firmly on the rudder would be in order. But, you're the "expert" here, Mr. Decker. One hand it is."

Perhaps we should begin referring to Mr. Decker as "One-Hand Decker". . .

The single most valuable piece of legal advice that I ever paid for was this: "Don't ever trust a banker."

-- Hardliner (searcher@internet.com), June 28, 1999.

Maybe it's time to look at what's going on here a little.

First, recognize that banks are the circulatory system of our economy. Bank failures, if not rapidly and effectively addressed, can have far-reaching negative consequences. As a nation, we have decided to construct a variety of methods of public backing to handle any such problems.

Next, recognize that banks in the US are private businesses (although heavily regulated). And like any private business, a bank can prosper if its management makes good decisions, and fail if those decisions are sufficiently poor.

Since the banking system relies on public confidence, we've set up a banking insurance system, to guarantee that depositors of a failed bank don't lose their deposits. The current funding behind this insurance is sufficient to cover a "worst normal case". Just like the local car dealer has enough vehicles on the lot to handle "highest normal demand." Of course there isn't enough funding presently available to handle a demand for currency far outside the normal range, just like the car dealer doesn't stock enough vehicles just in case everyone in town wants to buy one the same day.

But concentrating on the size of the current insurance fund is misleading. The FDIC is simply the administrative conduit between the taxpayers and the depositors. Ultimately, the security of deposits rests on the willingness of taxpayers to insure depositors, whatever it costs.

So the real question is, what is the public cost of this insurance in a crisis, compared to the public cost without that insurance? The taxpayer cost of propping up a banking system that's failing due to computer errors is a straight (and very large) dollar amount. The public cost of letting the banking system fail, however, is much greater. Few businesses could survive for long without banks, and they'd take our jobs with them. And without those jobs, the economy contracts enormously and our standard of living implodes. Much higher taxes for a while has a similar, but *much* less intense or long- lasting, impact on our lives.

Y2K represents a pure economic inefficiency, of large but currently unknown size (we can count remediation dollars, but we just can't project ultimate economic losses). Huge amounts are being spent just to preserve the status quo and add no productivity at all (and we probably haven't spent half of what it's going to cost even in the most optimistic scenario).

The cost of maintaining the banking system is surely worth paying. Up to now, this cost is being borne by the banks themselves (who pass that cost through to customers or stockholders one way or another). Even if massive taxpayer funding is required later, it's still worthwhile.

Of course, all of this assumes that a banking function (however reduced) will still be possible at all. If banking becomes physically impossible because the bugs are completely unmanageable and/or the grids fail for a year, etc. then the entire question of banking insurance becomes moot.

This week, the banks must report themselves compliant or face sanctions. So at least our chant can change from "we don't know" to "we don't believe them."

-- Flint (flintc@mindspring.com), June 28, 1999.

Well again - the only consistent message from this administration is "leave your money in the bank."

Why? What good does it do people if their money is in the bank, but the corner store will only take cash?

Who forces the store to accept checks or credit cards or debit cards - if they work?

The only people who will be trying to take their money out of the banks will be those who have been convinced not to prepare, and who panic when they realize they haven't prepared.

-- Robert A. Cook, PE (Kennesaw, GA) (cook.r@csaatl.com), June 28, 1999.


If nobody will trade for what you have to offer, then you don't have a medium of exchange. Seems simple enough. Now, why do you make the assumption that one medium will be accepted and another will not? If the banks are working, checks should be fine. If the banks aren't working, cash itself is of dubious value (except maybe for a couple of days until people figure it out).

Once again, you've made a self-serving assumption and started to build an argument around it. You really should check your assumptions first, you may be better off that way.

-- Flint (flintc@mindspring.com), June 28, 1999.

That makes me feel SO much better MMR.

Now if I go to an ATM and the screen is blank, along with all the rest of the lights on the street, can I still go to the bank and get money??? Do ATM's have back-up generators built in??? If the power is out at the store, will they take my bank/credit card?

I am so glad I am not as stupid as I look.

Don't forget the other two precious metals... Dennis touched on them a bit...

lead and blued steel...

Always remember, paper is just that, paper. No matter what is printed on it. It burns at 451 degrees F. even if it has $ signs on it.

Got precious metals?

lyin' on the porch...

The Dog

-- Dog (Desert Dog@-sand.com), June 28, 1999.


Your analysis is quite well put together and I think it is also correct in its conclusions.

The most pertinent remark to me however is this: "Of course, all of this assumes that a banking function (however reduced) will still be possible at all. If banking becomes physically impossible because the bugs are completely unmanageable and/or the grids fail for a year, etc. then the entire question of banking insurance becomes moot." I would add to this the assertion that if banking is reduced to such a level as to be useless to you as an individual (through delay in access to your funds, for example), it may as well have failed entirely. Paying for my funeral is not what I have in mind for my money.

From my perspective, it appears as a choice between the words of the bankers themselves (who I am on record as not trusting) and the words of those that I do trust, implicitly, the IEEE.

Actually, there's a little more to it. To be completely accurate, I do trust bankers. I trust them to invariably do that which is in their own financial best interest, regardless of all moral, legal, or ethical considerations.

To be honest, my default position of distrust of bankers would be sufficient to settle the matter not in their favor, unless some independent and trustworthy (trustworthy, IMO) information supported them. Until the IEEE letter to the Senate was published, I had found no such third party information. That the IEEE letter stated so unequivocally that banking systems were likely to have problems has irrevocably tipped my scales in favor of not gambling on the bankers.

The bankers say, "Y2K problems won't cause your bank to lose track of your money. It's highly unlikely that a Year 2000 computer problem will trigger an error in your bank account balance." (from the first post on this thread)

The IEEE says, "There will be system failures, especially in large, old, richly interconnected "systems of systems" as exist in the financial services and government sector." (from the IEEE letter to the Senate)

That is far clearer than it would need to be in order to convince me that there will be enough problems with banking that I don't want whatever assets I may have to be at risk.

The more immediate question though, would be does one have a social responsibility to attempt to "prop up" a confidence dependent social system with their own resources when it appears likely that such an attempt would be futile in any case? Do not those people have a more immediate responsibility to their families and even to the society to be self sufficient in the face of need? I'm all for Spock's, "Needs of the many outweighing the needs of the one", but unsuccessful sacrifice will do no one any good and will obviously destroy the individual who performs such sacrifice.

Now obviously, there can be no determination until after the fact as to whether or not the sacrifice was in vain, and the self fulfilling prophecy idea is a valid one as well, but that's the crux of the matter here, isn't it? We all must decide for ourselves what we think is going to happen and act accordingly.

-- Hardliner (searcher@internet.com), June 28, 1999.

I haven't got much use for the banking industry anyways, so if Y2k forced a return to Constitutional Money, it'd be for the best.

Back in the "Old Days", banks took deposits, and charged a small percentage fee to store it. If you wanted your money, you went down and got it. To the best of my know knowledge, there was no interest paid to YOU for storing your money there. They didn't loan it out - loans were made with the fees charged, not the principal.

None of this "we're sorry, our computers are down, you can't have your money", or "we're restricting how much of your money you can take out, so as to not collapse the bank" crap.

Back then, if you wanted a loan, you could get one, and you paid it back in real money, not this fractional reserve funny money.

It would go a long way to forcing the country to live within it's means (although there are examples of countries going into debt during war, etc, even with gold and silver as their money), and reduce the stranglehold that the banks have on this country (and indeed the world). He who controls the money, controls everything in the long run.

I'm not too keen about using public tax money to bail out the banks. It's a bad deal because 1) it's a situation where all the tax-payers are being burdened with additional taxes to bail themselves out, 2) the bankers (Congress too) escape responsibility (as usual) for their actions in foisting such a system on us, and 3) We return to business as usual, when, in my opinion, we need a drastic change.

I know enough about the Fractional Reserve system, and the not-so- Federal Reserve to hope that Y2k collapses such system. Perhaps a better one can be instituted.

-- Bill (billclo@msgbox.com), June 28, 1999.


As LBJ used to say, Let us reason together. I fear that once your ideology has been set aside, little or nothing remains of your observations. And while I have no objection to your adherence to any ideology you choose, I don't want it to be mistaken for analysis.

First, note that the only part of my analysis you chose to emphasize was not strictly part of that analysis, but was only thrown in as an afterthought, intended to show that concerns about FDIC *assume* the survival of the banking system.

Now, you've made it very clear here that as a "default", you trust bankers ONLY to act in their self-interest as they perceive it. To me, this entails a projection of bankers' motivations. First, it means that you a priori reject any good news coming out of the banking system itself, however accurate it may be. But how would you assess its accuracy? Second, if a banker had a visible interest in self-protection, would you reject *anything* that banker said on those grounds? Specifically, if bankers appeared before Congress arguing for special favors, and perhaps exaggerated their problems just a smidgeon to get those favors, would you *still* reject this exaggeration as explainable by the visible self-interest of the circumstances?

Clearly, your answer is a resounding NO! You'd treat it as gospel! How do I know this? Because a group of electrical and electronic engineers appeared before Congress, also arguing for special favors, and happened to predict problems in financial systems (knowing this is a Senatorial hot button), and you swallowed this bald self- interest whole! Imagine what you look like (if you will) -- you are accepting (via exaggeration) the collapse of the banking system, because some engineers were arguing for special favors! So if we want to know what's going on inside banks, let's ask engineers? Worse yet, engineers speculating about banking problems to get special political consideration. I can only laugh. Beyond a certain point, you look like Rose Mary Woods stretching to support a prejudice.

Next, consider what these engineers might mean by 'system failures.' To an engineer, a system is a small, carefully delimited territory. These engineers would be glad to tell you that banks suffer system failures quite often. Disk drive systems, console systems, tape transport systems, lots of systems. To an engineer, it's a long, long voyage from the failure of a 'system' the the failure of banking as an economic function. But based on the part of my post you chose to pay attention to, you snagged the word 'system' and equated the global banking system with a disk drive system. Systems is systems, eh? Try looking at it as an engineer would, OK?


Your observation about social responsibility is subtle, because it's so totally shortsighted yet looks so superficially reasonable. But I'll take what you say at face value and give you a serious response.

Banking is the lifeblood of any working economy. Even barter economies have a banking function (in a nutshell, you can't make change by subdividing a breeding hog). And confidence is required even in this microcosm - you must trust whoever takes your hog and gives you smaller units of tradeable goods equalling the value of the hog, to give you fair value. If you don't trust the 'hog banker', you can't easily trade your hog.

The idea that it "appears likely" that an attempt to rescue the banking system would be futile, is an unwarrrented assumption on your part. In my earlier post, I tried to show that the social impacts of the *loss* of the banking system, although indirect, would be much more devastating than the cost of preserving that system. Even granting that I have a responsibility to society which I can fulfill by doing useful work, a banking function remains *essential* to facilitate my efforts. This function permits others to remunerate me for my efforts, and permits me to continue to perform useful work. Banking permits the division of labor that makes it possible for me to support my family by doing what I'm best at. Without a banking function, I am reduced to being a largely incompetent jack-of-all- trades, master of none.

To the degree that banking is to be successful, it will always require confidence. The banking system (among other things) creates the money that makes our economy work. It relies on stochastic processes of deposit and withdrawal to make this happen. But if the fraction of reserves were required to be 100%, banks would be no more than warehouses and any economic activity would be seriously stifled.

Anyone performing useful work is fulfilling a social responsibility, adding value and productivity. Anything we can do to make that work even more useful (more productive, more valuable) is a social benefit to everyone. Banking is perhaps the single greatest facilitator in this process. If we don't act to preserve banking, we'd only have to redevelop it after a long, miserable period of suffering and subsistence. You may hate banks and/or distrust bankers, but our social and economic requirement for the function they perform remains just as significant.

And why distrust them? Sure, they're in business for fun and profit just like everyone else. They perform an absolutely necessary and valuable economic function. Earlier, I took it for granted that you largely understood this, and I can see that you did not.

And fortunately, we have a great deal of evidence that the banking system is taking y2k seriously, and well into the final throes of the testing process. Yes, some engineers predicted an increased bug rate in the financial sector, and I certainly agree with them. I would be appalled if any bank declared that they were so compliant that they had stopped testing.

Anyway, you can return to your ideology now, and hope that the system you deplore continues to provide you the ability to criticize it.

-- Flint (flintc@mindspring.com), June 28, 1999.

Someone wrote:

"Back in the 'Old Days', banks took deposits, and charged a small percentage fee to store it. If you wanted your money, you went down and got it. To the best of my know knowledge, there was no interest paid to YOU for storing your money there. They didn't loan it out - loans were made with the fees charged, not the principal."

That statement is incorrect, unless by the "Old Days" you referred to the Middle Ages, when charging interest was prohibited by the Catholic Church (all interest was considered usury). Even before then, the Ancient Greeks understood and engaged in fractional reserve banking.

There seems to be some misunderstanding of fractional reserve banking. It is not an overstatement to say that virtually all businesses function as fractional reserve businesses: every business must make sure it has enough funds on hand to pay debts as they become due, otherwise they will be forced into insolvancy. Businesses keep only enough funds on hand in liquid form to pay off the demands of creditors as they arise. Thus every economic actor (including people like you and I) operate on a fractional reserve system, if you have ever paid for any transaction in any medium other than 100% cash for the entire purchase price at closing...

-- Jeff Donohue (Jeff_Donohue@hotmail.com), June 28, 1999.

Well, we're not creating money via a base multiplier and charging interest on it. Unlike the banks, we're simply meeting our pre-agreed economic obligations as they arise, in real-time, without making any weasely noises about "taking unwise, uninformed actions".

If the banks have no confidence in us, they won't lend us any money. And if we have no "confidence" in the banks, aren't we allowed to do the same?

-- Nathan (nospam@all.com), June 28, 1999.


When you get right down to it, those who lack confidence in the banks have essentially admitted (many of them explicitly) that there is absolutely nothing the banks could do to convince these people of banking viability, that they would find credible. And these people have never had confidence in the banks (or, in some cases, are committed to the demise of our banking system for whatever reason). For them, the "invidious banking system" is a matter of dogma, unrelated to mishandling of dates by banking software.

-- Flint (flintc@mindspring.com), June 28, 1999.


What would the banks have to do to get you to put the cash you have on hand for Y2K back in them?

-- Linkmeister (link@librarian.edu), June 28, 1999.


It's become clear to me that you neither reason nor read so well as I had previously thought.

You begin, "First, note that the only part of my analysis you chose to emphasize was not strictly part of that analysis. . ." The first thing that I said was, "Your analysis is quite well put together and I think it is also correct in its conclusions." I would refer you to our previous agreement that what is clear to the writer is not always so clear to the reader. We are in violent agreement here. My intention was to agree completely with your analysis. I still do (the first one, not the one that I am now responding to).

What I did next was to take issue with your qualification of your assumption ("however reduced"). My assertion was (and is) that if that function is reduced enough that the effect will be the same as total failure.

You are correct that I project bankers' motivations, but how you conclude that such a priori rejection, coupled with your own ignorance of how I would proceed from there ("But how would you assess its accuracy?"), proves that I would ultimately reject such good news escapes me. I clearly said, ". . .unless some independent and trustworthy (trustworthy, IMO) information supported them". An example of such would be a public reassurance by an entity with a reputation for integrity, which had no direct stake in the matter, that the banking establishment was on solid footing and would not likely collapse or even cause problems. Now it is obvious that we all have a direct interest in the continuance of a banking system, but such an entity might be a trusted international figure such as the Roman Catholic Pope, or more likely, the IEEE. If they had advised that the banking industry would continue along with inconsequential ripples regardless of Y2K, I would accord the same credence to their views. When you ask, ". . .if a banker had a visible interest in self-protection, would you reject *anything* that banker said on those grounds?", I think that I just finished answering that question. To reiterate, I distrust bankers whatever they say, until verified by a trusted third entity. I hope that you do not mean to insult me by questioning my integrity here. I hold myself out as intelligent and equitable enough to accept a conclusion that is proven above one that I have merely assumed based on experience.

Now clearly we perceive the IEEE differently. I do not see their advice to congress as a request for special favors, but as the obvious and well supported conclusion that legal considerations have and will continue to impede our society's efforts to deal with the Y2K problem. If it were computer engineers, arguing for relief for computer companies, I would agree with you (or telephone engineers arguing for telephone companies, etc.), but the IEEE (as I read their letter) ask on behalf of all of society. And, if they had singled out financial systems as those to have problems, I might again agree with you, but they clearly attempted to describe what in their cumulative professional opinions was likely for society as a whole.

Now if I've not put my finger on enough flaws in your logic, consider this: I do not accept the collapse of the banking system as inevitable! I take the opinion of the IEEE at face value ("There will be system failures, especially in large, old, richly interconnected "systems of systems" as exist in the financial services and government sector.") and conclude that there is some risk involved to such assets as I may have in the financial system (". . .there will be enough problems with banking that I don't want whatever assets I may have to be at risk.")

You really get lost when you ask, "So if we want to know what's going on inside banks, let's ask engineers? Worse yet, engineers speculating about banking problems to get special political consideration." It appears prudent to me that if I wish information about the technological construct that the banking industry relies on for its very existence that I ask the engineers who understand its construction. The question is not about banking policy, it is about the state and capability of the machinery! And, since it is clear that everyone is forced to speculate about the future, who better to do that speculation, about the state of the machine, not banking itself, than the engineers who built and maintain that machine? As for the notion of "special political consideration", I addressed that idea above, and I reject it for the reasons given.

Now it's clear that you consider a system to be, ". . .a small, carefully delimited territory", and since you are an engineer, it must be that some engineers consider a system to be such, but the engineers of the IEEE said, "There will be system failures, especially in large, old, richly interconnected 'systems of systems'". Clearly they were not talking about small or carefully delimited territories. I see, therefore, your request to, "Try looking at it as an engineer would, OK?", as a request to adopt your viewpoint. Insofar as I am able to do that, I understand how you arrive at the conclusions that you do, but my own perspective is different, and I've done my best to explain why.

"The idea that it "appears likely" that an attempt to rescue the banking system would be futile", is indeed an assumption, but far from unwarranted, it is supported by Alan Greenspan's "better than 99% is necessary" statement, the statements of the engineers at the IEEE and the Gallup poll which in spite of an attempt to put a brave face on its own numbers plainly tells the banking industry that they have a social problem on their hands. Further, the assumption is not only warranted, it is forced on each and every one of us (one way or the other) by virtue of the very essential nature of the banking system that you describe so well! Maybe Donald Trump can afford to shore up the banking system, but more likely he will do as Joseph Kennedy did to the stock market in 1929. Ideology is fine, unless you're hungry! How many small depositors would you have gamble to preserve the status quo?

Your final assumption (that I "deplore" the banking system) is incorrect. My experience with bankers bears out that they will indeed act in their own financial interest regardless of all else. I do not view bankers, as a class, as compassionate people who subscribe to a moral code in their business activities. I view them as adherents to the economic philosophy of Capitalism. Now Capitalism is undoubtedly the most effective and efficient monetary system ever devised by man. Many great and good things have been made possible because of it. It has, however, one glaring flaw. That flaw is that there is no moral or ethical philosophy associated with it beyond, "Make a Profit". If Profit is to be viewed as Man's ultimate achievement, count me out.

-- Hardliner (searcher@internet.com), June 28, 1999.


It seems we have a fundamental disagreement here, and that's OK. To dismiss the trivia, I (unlike you) don't regard the IEEE testimony as "amicus curae" for all mankind. IEEE represents the industry at which the gun of legal retribution is most squarely aimed. They know this. You should know this. Claiming that IEEE is requesting that this gun be set aside "for the good of everyone" is disingenuous. Perhaps those holding the gun might disagree?

As for your concept of social responsibility, we must agree to disagree. The Invisible Hand, like John Muir's Nature, acts so as to be "careless of the few, but careful of the many." You seem quite content to let the many suffer, so long as individuals are preserved. You should understand a military analogy better. The goal is to achieve the military objective, not to adjust tactics so as to prevent a single life from being lost. Those tactics will lose the battle (and the war). We'd have lost our freedoms, had we made your notion of "compassion" primary in our military tactics.

An economy works much the same. The public good is a side-effect (an epiphenomenon) of private greed, properly managed. Systems designed to protect the weak do so at great cost to everyone. I'm not commenting here about the "morality" of bankers (who seem much like any business people). Sure, they want to preserve the banking system (and most specifically their own banks). But behind this is an essential economic function -- not just for bankers but for you and me. Are you really willing to see 25% lose their jobs, just to make sure that bankers do too? Larger forces are at work here than your field of vision seems to encompass.

-- Flint (flintc@mindspring.com), June 28, 1999.

The banks will be functioning normally on Jan. 1? If my memory serves me correctly, that means they will be *closed.* All this effort at dissuading depositors from withdrawing more money than normally needed for a *three-day weekend* is starting to tweak my paranoia.

-- gene (ekbaker@essex1.com), June 28, 1999.


I have no problem with agreeing to disagree, but communication and understanding is prerequisite to such agreement. My perception is that either I'm not making myself clear or you're not understanding what I'm trying to say, so once more. . .

That which you characterize as "trivia", does not appear so to me, nor do some of the assertions that you make. You say, "IEEE represents the industry at which the gun of legal retribution is most squarely aimed. They know this. You should know this." Which industry are you talking about? Do you mean the electrical power industry or the consumer electronics industry or the commercial electronics industry or the computer hardware industry or the civilian or military aerospace industries or maybe the weapons industries or the automotive industry or. . . I'm sure you get my drift. All of these employ electrical or electronic engineers. I know that legally, they are all at risk for Y2K issues, as are all sectors of our civilization. As I suspect you know, a great deal of software is written in-house because of the unique needs of a particular company. No one except that company will be liable for damages caused by the software that it wrote. If any one industry were the target that you postulate, I would think it to be the computer software industry. How do they relate to the IEEE?

Perhaps you're unaware that in order to institute a liability lawsuit, you must basically do two things. First you must state a cause of action which means that you must explain to the court how you were wronged by the defendant, and second, you must demonstrate damages; that is, you must explain how and in what amount you suffered loss due to the actions of the defendant.

Personally, I don't like the idea that anyone would "get off the hook" and not be held responsible for their own actions for any reason, but I believe that extraordinary times call for extraordinary measures. It seems clear to me that the legal ramifications of Y2K are already impeding the effort to survive the crisis.

You clearly do not understand my concept of social responsibility. I am not in favor of anyone suffering at all, but if someone must, I do not wish it to be those least able to endure it. I understand the military analogy quite well. The goal is certainly to achieve the military objective, and it is impractical to adjust tactics so as to prevent a single life from being lost, but it is just as impractical to adjust your tactics so as to protect the generals and REMFS at the expense of great loss of life on the part of the front line soldiers. My ideas of compassion are embodied in the Marine Corps practice of "Follow Me" leadership, as opposed to "go there and do that" leadership.

You misunderstand my position completely when you ask, "Are you really willing to see 25% lose their jobs, just to make sure that bankers do too?" Of course I am not! I do not want anyone to lose their job, let alone 25% of the populace, but if 25% is in the cards, I damn well want 25% of bankers (but not necessarily banks) to go under too. I may be willing to sacrifice my life in order that America continue, but I am not willing to go bankrupt in order that my banker may keep his BMW! If he's going to do me in to keep himself afloat, I'm damn well going to take him with me if I can.

I understand perfectly well what the stakes here are. I simply do not see the survival of our banking system or even our society as justification for the PTB to gamble with the wealth of the populace without their informed consent.

-- Hardliner (searcher@internet.com), June 29, 1999.


Uh, it's early and I haven't had my coffee yet. You make good points. I confess a distrust of the legal system. If people are badly inconvenienced (even die) because "the computer failed", those who made that computer are the easiest targets for unsophisticated juries. Same with embedded devices. As I wrote in another thread, the IEEE argues that such breakdowns will be distributed such that everyone involved shoulders some of the blame. But the legal system must pick *one* of them as guilty. A dangerous situation. I'm not saying the IEEE doesn't make an excellent point about the inappropriateness of our legal system to such a situation. I just don't see IEEE as a better source of information about banks than the banks are themselves. I'm trying to argue that *everyone* has an axe to grind. I believe you give more credibility to the IEEE than to banks because their axe more closely resembles your own, even though (as you just pointed out) electronic engineers are not known for their in-depth knowledge of banking software.

When you write "I simply do not see the survival of our banking system or even our society as justification for the PTB to gamble with the wealth of the populace without their informed consent", I'm not sure what you're saying. The survival of our society and the wealth of our populace are very closely related. Wealth takes many forms besides BMW's. It includes everything of real value. Our society is built on everything of real value within it -- and this includes our freedoms, our education, you name it. *All* of these are endangered if the banking system is permitted to collapse unnecessarily (or any other apex of the iron triangle). I think you're drawing a distinction without a difference, in practice.

-- Flint (flintc@mindspring.com), June 29, 1999.

Someone wrote: "Well, we're not creating money via a base multiplier and charging interest on it." No. You're running a business and hopefully generating a profit out of which you repay your obligation. That is called leverage. Functionally, it's no different than the bank, which charges interest as its way to make profit.

There are times when the lack of knowledge of basic economics on this board is staggering.

-- Jeff Donohue (Jeff_Donohue@hotmail.com), June 30, 1999.

First, I am not a business. Second, businesses don't possess the monopoly of creating fiat money; they add real value to the real economy which is in no way analogous to what the banking system does. Third, thank you for your input.

-- Nathan (nospam@all.com), June 30, 1999.

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