How To Kill a Bank (Part 2 of 3)ST
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:
- What effect on the overall economy would the sudden closure of one of the four major consumer banks have?
- Is is economic terrorism for consumers to exert their power to shut down a major bank?
- 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?
- 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?
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