The Knoxville Case, 1982: The Lawyers Came Back to Get the Depositorsgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
From Gary North's Site
Now here's a story that will cause some of you some nightmares.
As it turns out bankrupcy laws consider a bank to be nothing more than a creditor for anyone who has funds there. Bankrupcy laws make it illegal to remove any funds from an institution in which you have information that it is in, or may be headed toward financial trouble. (Think about that! That could be interpreted to mean that it is illegal to remove any funds from any bank due to Y2K worries!) But the laws go further than that. Anyone who had money and removed it from SIBC in the preceeding 6 months had to return the money to the bank, to pay the creditors (but in reality ended up paying the lawyers with virtually nothing left for the creditors).
I don't know how much of this is true. I suspect all of it.
If you plan on taking out currency, set up ten small accounts at ten banks, and then make your withdrawals. That way, you diversify your risk. You also force ten teams of lawyers to go after you for a little bit per team.
Your bank is insured by the FDIC. Probably. So, politically, it would be hard for the banks to come after you. I don't think they will. But bankruptcy laws are tricky.
In any case, no use setting of warning bells. A little money from a lot of banks beats a lot of money from one bank.
* * * * * * * * * * * * *
The potential for bank failures in Knoxville, have many of the people here more nervous than most. For those who are not from this area or are under 30 and cannot remember the events starting immediately after the 1982 World's Fair here, I will provide a short recap.
In 1982 Knoxville hosted a worlds fair. One FDIC insured bank, United American Bank, bankrolled huge loans for support of the fair. Many of the loans were ill conceived, and resulted in default. Shortly after the end of the fair the FDIC reviewed the books at United American Bank, and closed it. Depositors of up to $100,000 did eventually receive their money, although I am still preturbed that checks I wrote on that bank were marked "Insufficient Funds" and returned, making my creditors think that I had bounced them, when in fact it was the bank that had insufficient funds!
Anyway, other banks had made large loans to United American Bank. Three of these were the City and County Bank of Anderson county, City and County Bank of Knox Country, and a very old bank called the Southern Industrial Banking Corporation. What resulted was cascading defaults. Since each of these banks had big loans between them, and were creditors of United American bank, once United American Bank closed their doors, they suddenly were bankrupt as well. The FDIC paid the depositors, but did not pay the interbank loans. The result was a domino effect in which shortly after United American Bank closed the other banks followed suit, and were all closed within a couple of months.
Now things start getting interesting. As it turns out even though Southern Industrial Banking Corporation (SIBC) was telling its depositors that it was Federally insured (Don't trust the bank to tell you if they aren't, check with the FDIC to be sure); in reality, they were not. Everyone who had any money in SBIC lost all their money.
But the story doesn't end there. As it turns out bankrupcy laws consider a bank to be nothing more than a creditor for anyone who has funds there. Bankrupcy laws make it illegal to remove any funds from an institution in which you have information that it is in, or may be headed toward financial trouble. (Think about that! That could be interpreted to mean that it is illegal to remove any funds from any bank due to Y2K worries!) But the laws go further than that. Anyone who had money and removed it from SIBC in the preceeding 6 months had to return the money to the bank, to pay the creditors (but in reality ended up paying the lawyers with virtually nothing left for the creditors).
Many people around here suddenly found themselves being sued for money they did not have and did not owe. Some had taken a vacation, bought a home, or paid a huge hospital bill, and were forced into bankrupcy when they could not repay the money. Several others died for lack of medicines that they could no longer afford, and several committed suicide after the bankrupcy trustee stole their life savings, or sued them for money they no longer had and took their homes and farms.
So how does this relate to Y2K? Well for us who went through it, it seems obvious that when one bank fails, it can take others with it. In this case at least 4 banks went under, and that was with the FDIC staying solvent! Also it means that those who are planning on taking their money out of the bank in November or December may not be able to keep the money if the banks go under. They could very well have to return all the money they took out, to be divided among the bankrupcy lawyers. Remember that the FDIC has less than a nickel for every dollar you have deposited. If the FDIC goes broke, then the bank's trustee can and likely will look up the bank's records and sue everyone to return the money they have taken from the bank over the last 6 months.
This possibility has serious consequences for those who are planning on taking their funds and dividing them among several banks in case one or more of them go under. If this is done and all the banks go under, they could not only lose all their funds, but could be sued for them a second time by the bank they took them out of originally!
How can you protect yourself? You might consider tieing up much of your real property in an LLC or Corporation that has no debts, and no money in the bank. You could consider hiding any money you take out of the bank, but if the trustee decides to sue you to get it back, and you don't give it back, and say you don't have it, that is a criminal offense that can send you to jail (which several people found out first hand in the early 1980's here, including Jake Butcher who was trying to get into the governor's mansion, but ended up in federal prison instead). Another possibility would be to put it in gold, silver or another precious metal. If the banks fail then this could be expected to appreciate sufficiently to pay the banks back and still leave you with something remaining.
For those who want to research this event, you can go to the main library in Knoxville and view the old papers of the Knoxville News Sentinel and Knoxville Journal on microfilm. The Knoxville News Sentinel's web site only goes back to 1990, but does have a few followup articles published in the 1990's. Their web site is http://knoxnews.com . Search for SIBC in the archive of all years.
-- Forum Regular (email@example.com), September 17, 1999
Bankers + The Feds + Politicians/Lawmakers = SWINE!!!
-- Billy-Boy (Rakkasn@Yahoo.com), September 17, 1999.
Wouldn't the average person be protected by the legislation dealing with the prevention of filing Y2K related lawsuits in these cases? Or is the law specifically meant to address Big Business and prevent JQP from hitting them below the profit margin due to inferior preparation and lack of foresight? Either way the Supreme Copurts would have to rule that the same anti-Y2K lawsuit issue would have to be capable of being adapted by the general public, and prevent the large Financial Businesses from roto-rootering the average depositor. Who's to say that this entire reminder of an unpleasant event was not propagated by the Banks themselves in order to instill fear of withdrawal in the common man? No doubt that these events happened...But what is the reality of the banks attempting to sue individuals for withdrawing what is LEGALLY THEIRS to begin with. the very repugant thought that just because you at one time entrusted your funds to them, that gives them the right to sue to take the money back when the bank itself becomes insolvent is absurd. I feel that this is nothing more than a caculated effort to insure that the money stays right where the banks want it. In their grubby little hands.
-- Dr.Moreau (Where@the Wild Thing.are), September 17, 1999.
Fascinating! This article on what happened validates what Andy, "a", etc., have said all along -- that if one bank fails, any other bank that it borrowed money from might fail. And that does not even scratch the surface, when you factor in risky foreign investments, a non-Y2K compliant bank simply passing bad data to a compliant bank, etc., etc.
-- King of Spain (firstname.lastname@example.org), September 17, 1999.
Federal Reserve, mercantile law -- got us all by the short hairs. Come on Y2K 9 or 10.
-- A (A@AisA.com), September 17, 1999.
This is why forum readers were advised to start removing funds from the banks starting late last year. I've been out since late '98 and only keep my checking account to pay bills.
If things get nasty, I'm already out.
If there is a bank run, I'm already out.
If there are bank failures, I'm already out.
If the bank/lawyers try to get the money back - going back 14 days, 3 months, or even 6 months from the bank failure date, I'm already out.
Sure, this has cost me some interest (at 1.5% - wow!) but at least I am not stressing out about my money (or my preps :) )!
A BIG thanks to all of you old-time forum regulars for great preparation advice over the last 1-1/2 years. Because of you I am not stressing out today!
-- Forum Regular (Lurking Mostly) (Here@y2k.com), September 17, 1999.
"As it turns out bankrupcy laws consider a bank to be nothing more than a creditor for anyone who has funds there. Bankrupcy laws make it illegal to remove any funds from an institution in which you have information that it is in, or may be headed toward financial trouble. (Think about that! That could be interpreted to mean that it is illegal to remove any funds from any bank due to Y2K worries!) But the laws go further than that. Anyone who had money and removed it from SIBC in the preceeding 6 months had to return the money to the bank, to pay the creditors (but in reality ended up paying the lawyers with virtually nothing left for the creditors). "
But, um, we can't have any information that the institutions are going to fail since every credible source is telling us that there will be no problems. The FDIC< Alan Greenspan, the President (Oops! Sorry. I did say credible), the countries Y2K Czar, every major news network and 98% of the people around us. So how can they say we had information that the banks will fail?
And I would like to hear this debunked. I really would. So, any one with contrary information please step up and enlighten us.
Watch six and keep your...
-- eyes_open (email@example.com), September 17, 1999.
I won't debunk it for you, eyes. But I will confirm that this is the way that things are done in some bankruptcies. Several years ago, my son had money invsted in a California gold bullion storage firm. This company was supposed to keep bullion deposits physically segregated, but instead it mixed customers gold stocks with others and did a few other nasty things. In the end it got into financial trouble and went bankrupt. My son got suspicious and withdrew his funds about four months before bankruptcy was declared. The bankruptcy court, under California law, ruled that all participants (account holders) who had withdrawn money within six months of the efective date of bankruptcy must RE-DEPOSIT THE WITHDRAWN FUNDS. In this case the money involved only amounted to a few thousand dollars, and because of the distance involved (we live on the east coast), the court finally gave up on their direct collection efforts and ceased sending nasty letters. Finally they sold the remaining uncollected fuds to a collection agency who honded my son for another six months or so before finally giving up.
But the prevailing principle seems to be that, if you get out in time, you can be compelled lto get back in to ease the suffering of those not so lucky, and to feed the lawyers.
-- notmy (firstname.lastname@example.org), September 17, 1999.
Would this also apply to someone who cashed in their 90 day CD when it matured,within that 6 month period?Just IMO,the CD would be like a contract-I give you x amount of my money and in 90 days,you give it back to me.
-- concerned (email@example.com), September 17, 1999.