Mod Note (Andy): Best of Eddie, this was originally posted in 2010.
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?
I am actually very disappointed Ed. Dead serious.
No.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.
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.
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.
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...
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.
Braverman,
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.
"we dont believe u, u need more people"
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.
I'd like to hear the plan first before passing judgement.
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...
Banks could prevent it, and I lay out exactly how it can be prevented in Part 3.
In order to prevent it, though, banks have to stop fucking people over, and that just doesn't seem to be a part of the current business model.
Guys, please don't get hung up on the plan and miss the point of this post. I'm merely wondering what you think the effects would be if there were a plan that would work and people decided to crush one of the major banks.
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.
Unfortunately, that's exactly why the plan would work. No one would want to be the last one out turning out the lights. The ensuing panic would be the nail in the coffin. No one would take a chance at leaving their money in the target bank once the target bank was identified.
What is youe problem with the banks? From what i've read of your posts, it seems as if you were betting on banks' demise, and when the govt stepped in you got fucked.
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.
It's late. Somebody else care to field this one?
it would never get to that point though.
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.
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.
1) 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.
2) 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
3) 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.
4) 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.
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.
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.
I'd like to read your plan, although I doubt it could be efficiently and effectively executed. But again, part of me does love destruction...
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.
what makes people honestly believe that they would get their money back from the FDIC (
[quote=roar19]what makes people honestly believe that they would get their money back from the FDIC (
[quote=roar19]what makes people honestly believe that they would get their money back from the FDIC (
I am severely disappointed that I could not have seen your post before it was taken down. I understand your logic for not posting it, but I think the comparison to instructions on how to build a bomb is way off.
A bomb destroys private property and is violent. Again I did not see your 10 steps, but you hinted that it was a well coordinated action against a bank. I highly doubt you would have instructed anyone to do anything illegal. I may not be a lawyer, but I would think a massive cooridnated effort of legal economic transactions against a single institution is legal and may even be covered by First Amendment.
I'll play ball though and answer your questions.
1) Short-term this would be disastrous. Liquidity markets would freeze. Markets would collapse. Unemployment would sky rocket. Gold would shoot up 50%. T-bills would pay negative yields. A +5 year depression would likely occur.
Long term, real financial regulation would be instilled. You would probably see massive decentralization in the finance sector. Institutions would develop proper risk management techniques and
2) I don't think I believe in "economic terrorism". If I did, I would ask you this, has Wall Street committed economic terrorism on the global economy? I would like an answer on that.
3) It would be hard for me to speculate the effects on treasuries in the short term, but I guess investors would flock to them for risk aversion. Medium to longer term, yes other countries would be more hesitant to buy Treasuries.
4) I think it may have serious long term psychological effects on the US population kind of like the Depression did. People who lived through that view money and wealth in a totally different way then people born after. You would see personal savings rates skyrocket.
There would be some really nasty short term side effects (see answer to #1), but long term I think the US economy would be infinitely better off. I don't think the US has learned its lesson from this recession like they did in the Great Depression. There has not been significant changes. A lot of the risky behavior has resumed and the current regulation on the table won't do a thing to prevent a similar crisis from happening again.
"I believe that banking institutions are more dangerous to our liberties than standing armies" -Thomas Jefferson
I'll admit I'm not enough of an expert on the banking system to field a qualified opinion on the subject and whether it is feasible at all, but I'll give it my best shot using common sense. I don't think this would ever really work. Your average American is very apathetic. Joe six pack might take pot shots at bankers from time to time, but when push comes to shove he either A) doesn't give enough of a shit to do anything about it or B) is reasonable enough to realize the extreme negative economic and societal consequences of a widespread failure of the banking system. Most people don't give a fuck. They want to raise their family, save for retirement, send their kids to college, and enjoy a few beers while watching the game on Sunday. They aren't going to gamble with their life savings and destroy the economy, thus threatening their jobs in order to carry out a symbolic gesture and stick it to the man. You would never be able to mobilize enough of a widespread effort to create anything more than a minuscule ripple.
To echo what many of the other posters have said, I think that this whole thing has been blown entirely out of proportion.
As superzeus said, the average American is extremely apathetic. Almost 50% of our country is too lazy/doesn't care enough to get off their asses one day every four years to go vote for their future president. Also, remember when gas prices were $4+ a gallon in NY? There were pleas springing up everywhere to boycott one of the big oil firms. Did it make any impact? Did people exert the minimal effort necessary to simply AVOID one brand of service station? No. What makes you think that if people don't have the willpower to AVOID doing something incredibly easy, that they'd go out, withdraw all their money from a bank at the same time as everyone else, and then go open up an account elsewhere? You're giving the American public way too much credit Edmundo.
Let's say you posted a manual of how to build a bomb on WSO or on some other site... how many people do you think would actually go out and build one? How many would have the motives to use it? With some basic googling (http://www.google.com/search?rlz=1C1DVCB_enUS350US350&sourceid=chrome&i…), I found a number of ways to make explosive devices; it's information that's readily available on the internet, yet how many bombings happen in the United States on a daily basis? Weekly? Monthly? Annually?
At the crux of the financial crisis, bankers and other financiers alike were receiving death threats. There were bus tours of financier homes in Connecticut (not sure about the exact state). The social outrage was there. The catalyst for action was there. The means for action were there. The identities and residences of many high level finance executives were readily available and yet no one acted. I didn't hear of a single murder or assault (could be wrong again). The whole country was going up in smoke and yet people did nothing more than protest (not many did that even).
Where's the motivation? Yes, some people are angry at Wall Street, but I don't know of many who would want to take down an entire firm and re-spark another crisis. Most people in this country aren't radicals. The select few that are simply don't have the capital and influence necessary to execute such a massive undertaking.
With that... I say repost it.
silly, immature plan. If you even got to a point where this 'plan' would be read by a larger audience than this site then you're assuming you can exactly target a large majority of account holders for each and every of your listed banks. I mean, just silly. Then, you'd tell them to take all their money out when you say 'go'. What are you in high school???? How about putting more work into getting Glass-Steagall enacted again... that's a better way to reduce the size of the banks. Not to mention that collectively these community banks are all paying for lobbyists to pass legislation to help them out.
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