By Evelyn Black, on July 23rd, 2008
Recently, in an attempt to generate some calm in the wake of the IndyMac Bank failure, I published an article (on another website) about FDIC insurance and how it works. My intent was to settle some of the rampant fear that kicked off the week of July 15, 2008. I work in a bank, and trust me, people all across America were freaking out, worried about their money and whether or not it was safe.
Almost immediately after publishing (what I thought was) a very basic, purely informational piece, I began to receive e-mails advising me that I was ‘misinformed’ about the history behind FDIC insurance and the Great Depression, and that specifically, the Great Depression was intentionally created by a worldwide banking cartel so that this selfsame cartel could buy up smaller banks and entire corporations at discount rates and eventually run the whole world. FDIC, I was told, was created by this cartel to give the ordinary people the illusion of deposit security so the cartels could control their money unmolested.
Oh. Really?
Well, no, not really. I mean, I really did get the e-mails. But no, the corrections the e-mailers made to my piece were themselves incorrect. These ideas are the brainchild of filmmaker Peter Joseph, who released the ideas (and so many others) in the form of a 2007 film entitled Zeitgeist. After circulating on the internet for the past year (it is also one of the most popular YouTube videos) the film has earned a degree of respect and credibility that it in no way deserves.
Zeitgeist doesn’t restrict itself to a single conspiracy theory involving bank presidents, world wide banking cartels, and the Federal Reserve, nor does it limit its historical rewrites to America in the 20th century. If you watch the film, you will also learn that the historical Jesus was a myth, that our own government planned and staged the 9/11 World Trade Center attacks, and that income taxes are unconstitutional and you don’t have to pay them. This argument, you will be told, holds up perfectly in a court of law, but most Americans are too stupid to know this, so we just keep paying.
Wow.
How can a person with an interest in finance and economics not love a movie that right off the bat explains not-so-patiently that the viewer is stupid and gullible? Usually it takes a conversation a few minutes of give and take to get around to name calling, but in this case, we get the abuse right up front: “Listen up: First of all, you’re stupid. Secondly, Jesus never existed and last but not least, a worldwide banking cartel controls your life. Stop paying your taxes right now you moron you. Any by the way your Mom made up that whole tooth fairy thing. Gimme that cookie.”
If you take the time to watch this movie, it becomes immediately apparent that the loosely constructed, wide-ranging premise is wacko to the n-th degree, but what really bothers me is the credibility that this particular piece of sludge has gained with otherwise sane, intelligent people who, in most other cases, are able to read books and do their own thinking. It’s kind of like the notion that Eskimos have 100 different words for snow. That idea was repeated in a few academic papers fifteen years back with no reliable documentation to back it up, and soon it became accepted fact even though Eskimos do NOT have 100 words for snow. Seriously, they don’t.
To this day people still repeat that ‘fact’ without thinking twice. Eskimos have a couple words for snow instead of the single word snow with modifiers, like we have (wet snow, dry snow, and so forth) but factually speaking, for Eskimos and most other people in the world, snow is snow.
The idea of snow jobs does apply here though.
Something about Zeitgeist’s outrageous revisionism seems to appeal to the worst in all of us; our darkest fears and suspicions, and most of all our very visceral need to that believe someone, anyone, is in control during chaotic times, even if that controlling entity is itself dark and menacing. Better the Devil writ large than some kind of amorphous, hard-to-grasp chaos created by ordinary human folly and greed. A well-defined, coherent Devil is easier to understand and thus, to fight. That’s the idea anyway.
A popular quotation exhorts:
“No good of himself does a listener hear,
Speak of the devil he’s sure to appear”
[Stevens Point Journal, Wisconsin, February 1892]
Invoke the Devil and you will always see him forthwith, but among all his more romantic titles (Prince of Darkness, etc and so forth) is one we would do well to remember: “Prince of Lies.” Some would go so far as to say that the Devil himself is a lie, a human invention, a device whereby human weakness and deceit is projected outside the self and personified. The Devil is nothing other than our own weakness, writ large and reflected back to us in the magic mirror of fear, hatred, and blame.
Using this sort of familiar conjuring, the fact that people are by nature sometimes greedy and short-sighted becomes a worldwide banking cartel. The reality that ordinary people on the other side of the globe have reason to want to blow us up because of their own beliefs and frustrations becomes a vast conspiracy created by a worldwide banking cartel. And should you feel inclined to think this through a bit more carefully and be cautious and kind, remember that all of your religion is the invention of a worldwide banking cartel and you keep believing it because you are stupid.
I did watch the movie. I’m (obviously) not impressed. It takes more than insults and pumped-up rhetoric to persuade me that nonsense is reality, and I hope it takes more than that to convince Amateur Economists’ readers too. But I’ll tell you what does scare me.
The title.
Zeitgeist?
Does anyone recall another time in history when a Western nation, once respected and powerful, but by and by battered by war and economically damaged, saw its currency plummet in value so rapidly that people became afraid and angry and many of them, especially the youth, backed a tyrannical, radical political sect as a way to re-empower themselves?
Most of the young people today who buy into the ideas in Zeitgeist probably don’t remember much about Nazi Germany. They weren’t born yet. The internet didn’t even exist. So why should they care about it?
The Great Depression was brought about by greed and unbridled speculative trading on Wall Street, the same kind of greed and unbridled speculative trading that went on during the housing bubble that preceded our current economic problems.
Pure unfettered Capitalism will always create this drama. Karl Marx knew that, but so did our own government for much of our country’s history. That’s why we regulate banks and financial institutions. We don’t regulate them to just to be irritating, we do it to put some brakes on a train that has a known tendency to run off the tracks. Over the course of the past 25 years we’ve witnessed the removal of those brakes by two major Republican administrations, and now its deja vu all over again.
Are some people way too rich right now? Definitely. Do they collectively comprise a worldwide banking cartel that goes back centuries?
No. Sadly, they are not nearly that smart.
So keep let’s them away from YouTube, OK?
By Evelyn Black, on July 17th, 2008
As I write this, Treasury Secretary Henry M. Paulson’s announcement that the Bush administration will indeed shore up Fannie Mae and Freddie Mac is all over the news and still sinking in. After opening slightly higher Monday morning, Wall Street dipped back into negative territory as analysts attempted to digest the bail-out news.
What can it mean for the average person?
If you’ve been listening to the news, you’ve probably heard that it means that the American taxpayer can expect at some point to carry the brunt of the subprime lending debacle losses. That is, if the Bush Administration is able to ram their plan through Congress (and they almost certainly will be able to do this), at some point the money to back the bad loans currently bundled into Fannie Mae and Freddie Mac securities will literally come from our own individual pockets in the form of tax dollars.
That price tag could be as high as 5.5 trillion dollars. In fact, the price tag could end up being so high, that along with Congressional approval for the bail-out itself, the Bush administration will also need permission to bump up the ceiling on the federal debt by as much as 50%. The national debt is already so large that at the current rate of spending we will not be able to pay even the interest portion on it by 2050, and at that point it will actually exceed our gross national product.
So how can we possibly bump it up 50%? As the title of this website points out, I’m an amateur economist, so maybe I am missing something here, but didn’t we just borrow a load of money from China so we could send out economic stimulus checks that were refunds on the taxes most of us paid last year? We borrowed that money, the money for our tax refunds, so again, I have to ask, where is this money for these bail-outs coming from? Are we just going to print some more up?
I have looked all through my bank accounts and I confess, I can’t pick up even a few pennies of Fannie Mae and Freddie Mac’s problems, and it gets worse every day here in Michigan, where I live, where the unemployment rate is over 10% and growing and gas is currently about $4.30 a gallon.
I don’t even know how we are going to pay for fuel oil this winter. I ordered it early, hoping to head off whatever ungodly price will be charged come September or October, but so many people had the same idea that the oil company still hasn’t delivered it. They can’t keep up with the phone calls let alone the oil deliveries in the dead heat of summer, and now I hear all of us red-blooded, can-do types are going to bail out the fat cats at Fannie Mae and Freddie Mac too.
Wow, talk about piling on the pressure.
After 9/11, the President urged the American people to go shopping and go on vacation as if nothing had happened; to spend money and keep spending, or the terrorists win. So people did that. We spent money. We spent money we didn’t have. We spent money that didn’t exist in any universe, not even in the alternate Bizzaro Universe at Bear Stearns. Now, having spent up all the money, we are supposed to come up with some more money to help out giant lending institutions.
Like I said, I’m still waiting on my fuel oil: I’m a little light in the wallet this week.
Talking heads universally agree that the federal government almost has to bail out these giant institutions or risk destabilizing not just U.S. markets but the markets of the entire world. And yet, as we lurch from one economic disaster to the next in this country, each one bigger and scarier than the last one, we are bleeding credibility. Does anyone seriously think that anybody is at the wheel anymore? I don’t think so. And as that sinks in, things will begin to fall apart in a very big way.
OPEC is about a hair away from changing over to euros instead of dollars because of our instability and waffling, and once that happens, the dollar will fall harder than a fruitcake on December 26th.
Here are a few other implications of the “solution” to the latest catastrophe on Wall Street:
More Bank Failures. The FDIC is out reassuring the world that just because it shut down IndyMac Bank Saturday and just because it expects up to 150 more bank failures in the coming year, this is really nothing to be concerned about since during the savings and loan fiasco in 1994 its list of troubled institutions topped 575. In 1994 I made quite a bit more money than I do now, and so did most of the people who work for a living in the U.S. Not a good way to make me feel better, FDIC, try again.
Loss of Confidence in the U.S. We are living on borrowed money, literally. We borrow from China and Japan and the Mideast just to pay the basic costs of running our government. So far, these countries continue to loan us money because we are a major market for their products. But as we continue to not manage our own finances in any kind of sane or coherent way, they will begin to rethink their lending. No law exists that says they have to keep lending us cash. In fact, as developing nations buy more and more of their own products (as in China, where a consumer middle class is now emerging), these nations will have less and less reason to lend to us.
Higher Mortgage Rates. It is going to get more expensive and more difficult now to get a mortgage anywhere in the U.S., and it will be nearly impossible in some places. This will only make the housing crisis worse, which will only terrify Wall Street even more.
More Assets Sold. On the other hand, our current situation makes commercial real estate in the U.S a fabulous bargain for overseas investors. As more U.S. corporations resort to selling off their assets to raise cash, this will result in more cash flowing out of the U.S. and into the already deep pockets of foreign bargain hunters.
Violence. Seriously, at some point it will get ugly here. Working people in the U.S. are already stretched to the limit, and more and more people are not working. In a city close to where I live, a bicyclist was recently stopped by a motorist who was frustrated with having to suddenly share the road with so many non-motorized vehicles. The motorist beat the bicyclist within an inch of his life. Biking accidents that involve bikes being struck by cars are up 80% in some parts of the state this year alone.
When my kids were little, they used to complain about having to clean up the kitchen when they didn’t make the mess. I’d point out to them that I spent the better part of most days cleaning up after them, and I was glad to do it; that part of being a family means you clean up after each other and you don’t gripe about it.
OK, but in this case, I guess I want to know, when are the big guys going to cut us little guys some slack? When do I get to borrow the family Mercedes?
When do I get my multi-million dollar golden parachute?
I’m not greedy. A single million would be plenty, that’s all I really want or need. Send it in care of www.amateureconomists.com. And Quatar? Stop calling me.
I don’t answer my phone anymore.
By Evelyn Black, on July 16th, 2008
The recent failure of IndyMac bank came after a week of constant reassurance from its corporate handlers that everything was fine, really, just fine. Then, on Monday, July 14, after a harrowing weekend spent scrambling for solutions to the Fannie Mae and Freddie Mac mess, George Bush went before press conference cameras to reassure the American people that everything is fine, really, just fine.
I don’t know about you, but my immediate response to that was, “Oh God, we’re all screwed!”
I did calm down though. (At least for now I did, check with me later this week and that may change.) All of that news footage of people lined up outside IndyMac to get their money helped me remember that, hey, we do have a bit of help here: the Federal Deposit Insurance Corporation, created after the Great Depression to prevent bank runs by insuring depositors’ money up to $100,000 per customer.
Can you really get your money back if your bank fails? What if you have more that 100K? What about your investments? How can you tell if your bank is on the list of 90 that may be in trouble this year? What follows are some basic precautionary measures you can take right now, along with information that may help:
Know Your FDIC insurance limits.
Deposits at retail banks include products like checking accounts, savings accounts, and CDs. You are insured through FDIC for up to $100,000 at each retail bank where you have these deposits. If you are married and your accounts are held jointly, you have $100,000 each, so you are actually covered for up to $200,000 on all of your jointly held deposits at one bank. IRA accounts are insured for up to $250,000, and that is in addition to the $100,000 each for ordinary deposits.
What if you have more than $100,000 on deposit? You can move anything in excess of that $100,000 to another financial institution, where you will get another $100,000 in FDIC coverage. Should you do this? Probably not, unless you are currently keeping that money in a shaky regional bank. Even then, you want to think twice about it, then think again. Don’t act out of fear. That’s what starts a bank run.
If you have more than the $100,000 limit on deposit and the bank is seized by FDIC, you will get a percentage of the amount over the limit if your bank is shut down. Right now at IndyMac the FDIC is projecting 50-75% refunded on everything over $100,000 depending on how much cash the bank can raise when assets are sold off. So, say you had $150,000 on deposit. You’ll get your $100,000 back no problem. On the $50,000 over the limit you’ll get between $25,00 and $38,000.
So if you have lots more than $100,000 in a single bank and that bank is a smallish regional bank, you may want to review your strategy. Keep in mind that most CDs carry a penalty for early withdrawal, so you will have to factor that into your decision.
Keep Some Cash On Hand.
I advise people to do this even in ordinary times. You never what will happen: a storm blows out the electricity for your city and you can’t get to your money for a day or two. An emergency arises such that even a trip to an ATM is too much wasted time. You never know. It doesn’t hurt to have a couple hundred tucked away at home, in a box in the freezer, under your mattress, anywhere you feel safe keeping it. Most homeowners insurance policies will cover up to $200 in cash if you experience a break-in, so I wouldn’t keep much over $200, but do keep some money at home. That way, whatever happens, you won’t panic, and you have some milk and gas money to carry you through.
Research Your Financial Institution.
I read the New York Times daily, but any paper that carries stock prices and financial information will do, and lots of information can be found online. Do a news search under your bank’s name and see what comes up. Compare your bank’s stock performance with the performance of comparable banks. Read the press releases sent out by the bank itself. They are usually listed right on the stock page under the description of the bank. Do you see any red flags?
Red flags include a rapid drop in stock prices since November of 2007, heavy investment in home equity lines and mortgages, recent CEO turnover, and press releases stating that everything is fine, just fine, and all rumors are false. Banks don’t issue press releases saying everything is fine unless something is wrong.
However, even if your money really is in one of the stressed regional banks, you should still think twice before pulling all of it and moving it somewhere else. The reason IndyMac failed as fast as it did was that people panicked and started to pull all their money all at once.
Most of the depositors will in fact get every penny of their money back in the event of a bank failure. Bank runs are self-fulfilling prophecies: A few people get scared, that spreads, and pretty soon it’s a not so wonderful life all over again. I personally work for a regional bank on the short list for big trouble, and I have all my money there. Am I going to pull it? No. How can I advise other customers to stay with us if I pull my own money out of fear? I can’t do it, and besides, I’m not very rich anyway.
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