• Sharebar

A couple weeks ago I wrote a post in response to the nascent "Move Your Money" movement spearheaded by Arianna Huffington. To refresh your memory, her plan was to have people move their money out of the major Wall Street banks and into local community banks. The targeted banks would be Bank of America, Citi, JP Morgan Chase, and Wells Fargo.

I opined at the time that a more effective approach would be to target one of the four banks and completely destroy it, rather than try to inflict the death of a thousand cuts that depository drawdowns might cause (and probably wouldn't). Putting one of the banks out of business would send a message.

To that end, I engaged in a strictly academic exercise by figuring out how I would go about destroying one of the four above banks. I spent many hours, and thought out many contingencies, and finally arrived at a 10-step plan that would not only drive one of the banks out of business, it would also hamstring the Federal Reserve from being able to come to the bank's aid, and it also had provisions for eliminating the threat of government intervention to save the bank.

I actually published the plan for about a half hour on WSO a couple days after I wrote the first post. The response to the plan was immediate, and visceral. The first comment asked if I was an economist for al Queda. I started getting emails and PMs. I got the sense that it might not have been the best idea to put such a comprehensive plan out there, so I pulled it down.

Patrick and I talked about it, and he compared it to my publishing detailed plans for how to build a bomb and then telling people, "But you really shouldn't build it." Since then, however, the emails and messages haven't stopped. Obviously, a few people read it and wondered where it went, and others who didn't read it have been wondering when we were going to publish it.

The answer is: we're not.

However, it is obviously a subject of much interest, and the more Patrick and I discussed it, the more we thought it would make an interesting debate about whether something like that should or should not be available out there, whether it qualified as economic terrorism, what the effect on the overall economy would be if one of the banks was forced out of business by consumers, etc...

So, in broad strokes, the plan consisted of a precisely timed and coordinated run on one of the four banks, the decision on which bank being made at the last moment to disable the Fed's ability to backstop the run, and timed to coincide with November elections so politicians would face immediate sanction if they dared ignore the will of the people and stepped in to save the victim bank.

Assuming that the plan would work (and almost everyone who has actually read it agrees that it would), I have the following questions for you:

  1. What effect on the overall economy would the sudden closure of one of the four major consumer banks have?
  2. Is is economic terrorism for consumers to exert their power to shut down a major bank?
  3. What message would it send to the rest of the world? Would it make other countries more hesitant to buy Treasuries knowing the sentiment of the American people?
  4. What unintended consequences would occur?

I'm really interested to hear your thoughts on this. Is it the dumbest idea ever? Or is it the rank-and-file American's only hope of dealing a death blow to the ruling class?

Comments (34)

  • Edmundo Braverman's picture

    I feel you, Mezz. It was a decision I struggled with.

    Ultimately, where does the responsibility lie if I were to publish it and people were to act upon it? Of course I fully disclaimed that I had no intention of enticing people to do it, but once something goes viral there's no stopping it.

    Would you be willing to put your family at the risk of a potentially severe backlash by exposing the very weaknesses that could be exploited in our banking system? In the final analysis, I wasn't.

    The elegance of the plan was its simplicity, and if you make destroying something too simple people feel compelled to do it. Especially if it represents an opportunity for the poor to cause pain to the rich.

  • Ruby Rhod's picture

    You have way too much faith in people and collective action. Even if the plan was as simple as everyone go to the ATM and withdraw $200 at the same time - no one would do it, too much effort.

    Freeze those knees, my chickadees!

  • tandaradei's picture

    It seems to me that you are a bit overestimating yourself. Too easy? This is a massive coordination effort. Have you thought about how to target and reach the depositors of the bank? How you would convince them to act? How much all this would cost? Did you check how many deposits would need to be withdrawn? Do you take into account the FEDs discount window, corporate deposits (can you convince corporations to your plan?), overseas deposits (can you reach the depositors?), logistics of the whole thing (i.e. - what if they turn ATM machines offline, what if they close down branches in time to liquify assets, what if the president announces bank holiday - it did happen in the past)? Really, declaring your plan so perfect and simple that the whole issue boils down to the moral dillema at its heart - strikes me as either naive or arrogant.

    But, apart from that, this is a damn interesting 'what if' scenario. Personally I lack the imagination, but for someone more creative - there is a book in there somewhere.

  • Slacker23's picture

    What about a pseudonym and an internet cafe?

    It's hard to give feedback on the plan without actually understanding it. Maybe a negative advertising blitz, or something that would hurt the credibility of the bank could spur depositors to withdraw. If only there was some scandal to uncover on one of these badboys...

  • coffeebateman's picture

    No one would do this. People are just too lazy to do this and nobody REALLY cares that much to try and overthrow a bank.

    It's like those facebook groups where people ask for numbers.....people barely even respond to those just because they're too lazy.

    "I do not think there is any other quality so essential to success of any kind as the quality of perseverance. It overcom

  • Uncle_C's picture


    You said, "The elegance of the plan was its simplicity, and if you make destroying something too simple people feel compelled to do it. Especially if it represents an opportunity for the poor to cause pain to the rich."

    Okay, so you're not going to watch Robin Hood at the cinemas. I get it, but explain what your basis is for the need for destruction. And simplicity? I try to explain basic commercial banking products to the populace and they have great difficulty in comprehending.

    If it is really that simple, pitch it to a competing institution and see if you can land a job. Or for experimental purposes, hand it to a bum begging for change. I think you'll find it can double as an ass-wipe.

    I still don't think you could pull it off. You've had terrible initial responses to it, so why do you think there will be a great following?

    I say you post it again. Especially if you have it saved somewhere. Fear is no reason to keep it secret. I thought this site was all about providing information. We get gossip articles on who-raped-who in federal prisons, but when it comes to entertaining creative imagination... "The answer is: we're not."

    Entertain us. I have a feeling we're the only ones who will listen anyway.

  • investin925's picture

    Very interesting, I wish I could have read the 10-step plan.

    However, I have a question: Do you think if consumers were able to pull their money from the Big Banks and utilize local community banks, wouldn't that give the community banks opportunities to rise, merge, and replace the Big Banks?

    I do think there will be an intial reaction; however, ten years later another bank will rise and we will be caught up in this perpetual cycle of Big Banks/Business.

    We already have economic separation: the rich getting richer; the middle class; and the poor (working poor).
    There has to be enough people in the 2 out of 3 pools to shut down a major bank. The Panic of 2008 was a domino effect with banks closing, mergers, collapse of Lehman, Madoff, etc. I think if a bank was to shut down credit will be tight and rates lowered. I do think countries would be hesitant to buy Treasuries; i think the major banks are a brand to American economy. It may lead to another panic.

  • Beef's picture

    Since when is the spreading of knowledge considered "terrorism"?

    I say publish it. If you publish it, the information gets out there, and there is a chance that banks can actually prevent something like this from happening. It would obviously take a lot of effort, and Al Qaeda doesn't have the power to pull this off anytime soon. This is exactly like that guy who published an academic paper on how to take down the U.S. power grid...

    Wall Street leaders now understand that they made a mistake, one born of their innocent and trusting nature. They trusted ordinary Americans to behave more responsibly than they themselves ever would, and these ordinary Americans betrayed their trust.

  • physconomist's picture

    Econ 101,
    Name one good reason why any single person would engage in this behavior, if they knew 39,999,999 people could do the same damage as 40,000,000? Tragedy of the Commons methodology. I can sit back without doing a thing and conceptually I can still reap the benefits of the actions of me peers. Rational consumers will do the exact same thing. Ergo, an insignificant number of people actually do it. Not to mention, if the plan did work, you would screw over anyone who simply didn't feel like participating as their money would not be out of the banks yet.

  • Ruby Rhod's picture

    it would never get to that point though.

    Freeze those knees, my chickadees!

  • SCLID's picture

    The effect of FDIC insurance is that 'Rank & File' Americans would have no incentive to join a run on one of the banks, since most people don't have $250,000+ in the bank, meaning it would take much more organization at the small depositor level and/or participation from large corporations to execute this strategy.

    If it were successful, I think the consequences would be a combination of those of the collapse of Wachovia and the Lehman bankruptcy. The commercial banking business would fall into FDIC receivership, the remaining businesses under the umbrella of the larger bank holding company would file for bankruptcy protection, and you would see a dramatic freeze in liquidity, with banks unwilling to lend to each other until the panic passed and we knew there would not be runs on the rest of the banks. And again, the run would have to be on the part of high net worth investors and corporations, since the average depositor would be protected by the FDIC.

    One of the effects of the recent crisis in my opinion is that the mystique of a major financial institution going out of existence has been lost to some extent, so I don't think the panic would be beyond what we've seen. One interesting question in the aftermath would be what the FDIC would do with the commercial banking business. Historically it has been a sale to a competitor for the assumption of the deposit liabilities, ala Wachovia and many other smaller banks. Would the FDIC sell BofA to Citi? Would it sell the bank off piecemeal? It would be interesting to see and somewhat unprecedented.

  • Edmundo Braverman's picture

    Agreed, SCLID. That's kinda what I thought the consequences would be.

    Obviously, no depositors would lose money in the deal because of FDIC insurance (those with $250,000+ would cash out well beforehand - if they haven't already), but one of the four majors would be gone. Credit would tighten for awhile, the bank would be sold off, but I think an important message would be sent and received.

    If the government doesn't have the backbone to solve the "Too Big To Fail" conundrum, the people are well within their rights to do it for them.

  • Frabjous's picture

    As you said, depositors wouldn't be harmed (directly and immediately). The laws that protect them from bank runs will see to that.

    Indirectly, the fall of a major bank has the potential to create a major disruption of liquidity because of the infinity of contracts that ends up in default. Of course, the powers that be will try to strong-arm or sweet-talk some other bank into acquiring the falling one. (It remains to be seen whether there's ANY bank right now with the capital necessary to do so - I have no data on this, but one of my professors recently mentioned that at least in Europe most banks are just slightly above their minimum regulatory capital, so they cannot lend more without raising more equity. Something that at least our buffoon of a prime minister would hate to see, because it would burst the "everything is going a-ok" bubble).

    So yeah, the key point really is the action of the FED. I didn't read your plan of attack, so I don't know how much pressure it would actually put on the polititians, but seeing how litigious the US senators are right now, I suspect that the bank would be left to fail.

    A pattern of independant actions is certainly fine. A collective, guided plan to kill a institution with a vital role of the economy (no matter how bloated and badly managed banks are, they are still the main providers of liquidity - not that they are doing a great job at it, anyway, but they are the only ones who can do that), is harder to defend.

    Honestly, the chaotic side of me would like to see this happen because it would set a precedent, and who knows what could happen. Besides, it's the only way to out-game the embarassingly subdued polititians and regulators

    Honestly, the restige of American government bonds couldn't be any lower. The only reason for the Chinese to kee buying them en masse is that they own too many already and they are trapped. As for other securities: meh. The share price of banks will certainly drop a lot, perhaps for a lot, but I can't see this having a long-term effect on the stock market.

    A lot of imitators will try to do something similar, even if the banks take steps to protect themselves. There is so much banking hate that if they were to see someone succeed with one bank, and they were told that the other banks are protected against similar attacks, they will try anyway. Repeatedly. As you have the plans for attack and protection, you are the only one who can say what would that mean.

    Anyway, this was just an opinion coming from a MSc student. While I like using pretentious words, I may or may have not got most of these, if not all of them, wrong. Cheers.

  • Barboone's picture

    Good luck trying to do that the big 4 do not strictly do business in America....
    Duh! There is also something else called loyalty. There is still some of that around.

    You can kill a community bank that way.

    "The higher up the mountain, the more treacherous the path"
    -Frank Underwood

  • Banker88's picture

    I haven't read the article, but I don't think it is easier to destroy one bank than to weaken all four. Think about it- the average American only banks with one of those four banks. For example, I use Chase. Now if you decide to take down Citi, I can't help you. So it really makes no sense to target just one of the four.

    I don't think this can be called terrorism at all, as each person is acting independently. I say let it go viral. Post that shit and try to get it on the front page of Digg (which is not the #1 news app on smartphones I believe). I think if this got on the news, Americans would join in as most people are fed up with the big banks and bailouts.

    So what are you afraid of Braverman? Post it front page. And if you're gonna choose just 1 bank, I vote JPMorgan cause of the "prestige" it carries. Citi, BofA, and Wells are just bloated companies.

  • In reply to Edmundo Braverman
    fhurricane's picture

    Edmundo Braverman wrote:
    When the government stepped in, we all got fucked.

    Do you really want to win a rigged game? Wall Street has become one big tee-ball league for 5-year olds, where no one keeps score and everyone gets a trophy at the end of the season. There are no consequences for piss poor management and bad business practices any more.

    I think a better question is, why don't you have a problem with the banks?

    It seems as though no one on the Street has an even passing interest in a free market any longer.

    I don't see how "we all got fucked"

  • Abu's picture

    Assuming that it would work, I don't understand why we would want this public.

    Scenario 1: It doesn't work and everyone gets their curiousity satiated, but since it doesn't work, it wasn't useful knowledge anyway.

    Scenario 2: It does work and it fucks the U.S. and Global economy.

    If the cost of protecting the free market is hamstringing the U.S. recovery and punishing a large part of the population by creating more turmoil, anxiety, unemployment, and a worse quality of life, then any benefit resulting from this would not be worth the costs. Again, operating under the assumption that it works, a large number of people will be worse off, not just the financial professionals it is designed to target.

    I also think it would have a huge negative impact on young college students looking to start careers in finance and young professionals working in finance, two demographics this website was created to help.

    I'm all for intellectual curiousity and fake debates. But if you actually think it would work, then I vote it doesn't go public. Really, the only way you should publish your idea is if you have faith its actually a bad idea and won't work. Also, you potentially face some serious negative effects if it did work, from either the people it hurts or the law.

    Since the original post asked for answers to four questions, I will answer below. I do not think my answers will be particularly unique or insightful. Enjoy.

    What effect on the overall economy would the sudden closure of one of the four major consumer banks have?

    Very negative.

    Is is economic terrorism for consumers to exert their power to shut down a major bank?

    No, but it is most likely illegal to instigate the shut down by publishing the plan online and implicitly causing it (probably doubly so if you have any positions that profit from it. Even if its not illegal, that jury of peers that get hurt by the plan aren't going to care).

    What message would it send to the rest of the world? Would it make other countries more hesitant to buy Treasuries knowing the sentiment of the American people?

    Message: America is weak and in a lot of trouble.
    Hesitant to buy Treasuries: Yes.

    What unintended consequences would occur?

    I guess that depends on what your intended consequences are.

  • roar19's picture

    what makes people honestly believe that they would get their money back from the FDIC (

    Smokey, this is not 'Nam, this is bowling. There are rules.

  • In reply to roar19
    CaptK's picture

    - Capt K -
    "Prestige is like a powerful magnet that warps even your beliefs about what you enjoy. If you want to make ambitious people waste their time on errands, bait the hook with prestige." - Paul Graham