Someone please explain this to me. Is this still a law?

Bank Failures and Y2K

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 it's 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 bankruptcy 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 bankruptcy 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 bankruptcy 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 bankruptcy 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.

-- Carol (glear@usa.net), September 26, 1999

Answers

Carol, this is a mind blowing post you just put there. It gives Infomagic's "Charlotte's Web" a new light.

I'm still trying to absorb the meaning of this. We don't own the money we earned. We're truly slaves.

-- Chris (#$%^&@pond.com), September 26, 1999.

Carol:

Your post reminds me of another that I read recently elsewhere. I've heard some on this forum state that they would take their money from the banks because it's MY money. I've heard nothing from these same folks regarding their mortgages, except once Robert Mangus stating that he was grateful that this was one of few payments he found himself still making. Is everyone aware that if folks take their money out of the banks [getting THEIR money] the banks in turn can call in those mortgages [thereby regaining THEIR money]?

-- Anita (spoonera@msn.com), September 26, 1999.

Okay...so, if I withdraw $10,000 from my bank in July, and they go bankrupt in January, 6 months later, the bankruptcy lawyers can sue me for $10,000?? How can this be? Can any of our banker-types confirm, deny, or explain this?

-- RUOK (RUOK@yesiam.com), September 26, 1999.

No, banks can't make you repay money. They can't make anybody do anything. Bankers have no more authority than bakers or candlestick makers. Anybody can sue you for anything, but it doesn't mean they'll win. Winning doesn't mean they'll get any money. If the courts are working at all next year they will be completely flooded. A case like this likely wouldn't be processed quickly. I'd liquidate and disappear before I'd let the courts decide anything about my money.

-- Gus (y2kk@usa.net), September 26, 1999.

Carol

great post! Right on!

however, that anyone on THIS BB should STILL be discussing the general subject of "money in banks" is surprising...VERY surprising...

Perry

-- Perry Arnett (pjarnett@pdqnet.net), September 26, 1999.

Anita, very few mortgage notes are callable. As long as you are making your payments and otherwise within the terms spelled out in the mortgage, the bank/mortgage company can't call the note due.

* Above guarantee probably void in the case of any ELE(s) including but not limited to asteroids strikes, TEOTW, nuclear war, etc.; and any new terms and conditions will be determined at the sole discretion of the survivors and or the largest army.

-- DaveW (dwood@southwind.net), September 26, 1999.

They can't call my loan in because it is backed by the VA! The government guarantees repayment in case of a default and the mortgage company cannot call the loan in. If you have a variable rate mortgage or a balloon payment type mortgage, I think it would be prudent for you to refinance NOW. However, many can't refinance because they have no equity! This is what happened to thousands here in California several years ago. People simply called the bank and told them to come get the keys because they could not sell and could not refinance because the home was not worth the market price and no equity. It will happen again, this is a certainty with me.

If you have money in the bank, take it out now until the dust settle. What do you have to lose but to lose it to the bank? And if you don't know what to do with the money, buy a motor home, at least you can live in it if you should become homeless.

-- bardou (bardou@baloney.com), September 26, 1999.

Yet another time we're glad wheez jes po folks. It IS our money, we WITHDRAW it when WE feel like it, and the banks are CRAZY to sue for it back! Completely whacko world. No way Jose. Just have enough to pay monthly bills, planning to pay January's in December with receipts *signed in blood* ;^). Won't put up with no shenanigans re our money, what pitiful pennies that amounts to. And they can't have our TP either.

-- Ashton & Leska in Cascadia (allaha@earthlink.net), September 26, 1999.

bardou - after the Calif real estate crash a lot of finagleing happened. With values less than purchase price, and the people caught in the vice, or (vise) (you figure) :-) , mortgage holders had to bite the big one. The very people they would normally have foreclosed upon were the very people who were the most "credit worthy". Few foreclosures and a lot of write-off's too place. At the time there was even a RE/Mortgage industry term for the action. Saved a lot of people's asses. And what the hay - the mortgage industry probably used the re-evaluation as a Fed Tax Writeoff (yet another hidden socialist action!).

-- Mitchell Barnes (spanda@inreach.com), September 26, 1999.

* * * 19990927 Monday

Hmmm... Fortunately--it would appear--I'm outside of that 6 month "window."

However, must read the fine print on all those bankster documents.

[BTW: The article above seems to be quite a jumble to figure out what happened. Under those circumstances, it might be understandable for anyone of sane mind to have difficulty following the fiat money trail.]

... Still making mortgage payments. ;-)

Regards, Bob Mangus

* * *

-- Robert Mangus (rmangus1@yahoo.com), September 27, 1999.

We've set our cash aside to continue making the mortgage payment, providing the US Postal service remains functional........Dallas is a hard ride from here, even for Kevin Costner.

-- Will continue (farming@home.com), September 27, 1999.

Previous thread discussion on this topic:

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=001QEC

Sept 17, 1999

-- .. (..@....), September 27, 1999.