Bank runs, inflation, and other desperate memes in the Internet age

[FRED]

Bank runs, inflation, and other desperate memes in the Internet age

The front page of yesterday's Wall Street Journal reads:

Bank Fears Spread After Seizure of IndyMac

The federal government's seizure of IndyMac Bank is deepening worries among executives, regulators and consumers about the U.S. banking industry, which is in a tightening bind following a long run of prosperity.

Banks and thrifts are struggling against a rising tide of bad loans, and it is becoming increasingly clear that some lenders won't be able to escape. While fewer banks are expected to fail than the 834 that went under from 1990 to 1992, it will likely take several years for battered financial institutions to work through their bad loans and replenish their depleted capital.

Those gloomy scenarios could be avoided, however, if the U.S. economy and housing market rebound soon, which would help consumers and businesses that have fallen behind on their loan payments. (See

Even signs that the worst is over could bolster the confidence of healthier banks enough to spark a flurry of takeovers that would rid the industry of some of its weakest performers.

But at least for now, as the turmoil worsens, signs are emerging that consumers, who generally thought little about the safety of their deposits when times were good, are having some second thoughts. More likely than the kind of exodus of depositors that quickly sank IndyMac is what some bankers are describing as a slow-motion "walk on the bank," which could cripple financial institutions already weakened by credit problems.

iTulip member GRG55 dug up this item from the NY Times in 1974:

Drivers Warned of Accident Liability in Carrying Gasoline Cans; Garages' Liability
January 13, 1974, Sunday
Section: General, Page 47, 318 words
Motorists who carry gasoline cans or spare gasoline tanks in their cars may be held liable in accidents that result in fires or explosions, Leonard Ring, president of the Association of Trial Lawyers, has warned. Mr. Ring said that even garages that installed the spare containers in automobiles might be held accountable...

And this one from 1979:

Storing Gas: Commonly Done, but Dangerous and Sometimes Illegal...
By SHAWN G. KENNEDY
July 10, 1979, Tuesday
Section: Metropolitan Report, Page B4, 750 words
Warnings about the danger of storing cans of gasoline in automobile trunks or at home seem to have had little effect over the last few weeks. Motorists who feared a worsening of the fuel shortage...

What do these have to do with bank runs? At the time, Americans believed that they might not have enough gasoline to get to work or for other needs.

Hoarding behavior is interesting, isn't it? No meme spreads faster or causes more desperate and irrational mass behavior than a "we're running out" meme. Running out of gas, out of food, running out of cash at the bank.

Consider your reaction if you went to the local supermarket and you noticed first the quality of the food was declining, then a few weeks later the quantity, with some shelves partially empty, and then a few weeks later whole empty shelves, then half empty isles. Some part of your brain will note the progression and say, "Wait a minute, what if this keeps up? Hundreds of thousands of people live around here. Maybe next week I come here and the shelves are empty, like before a hurricane, and there is nothing to eat. Where will I go? What will I do? I'd better get more food now."

And so it begins.

Inflation leads to hoarding, too, such as the gold bubble of the late 1970s. No one is thinking, "I'll buy gold and get rich" then. Everyone is thinking, "The purchasing power of my money is evaporating. At this rate, I won't have enough money to buy the things I need. Better convert my cash to gold now."

This has not yet occurred to most Americans, but at this rate eventually it will.

This is why the Bureau of Labored Statistics (BLS) manages the inflation data as they do: there was no Internet in the 1970s. In the Internet age the inflation meme will spread like wildfire driving precious metals hoarding behavior like nothing before. Keep 'em guessing is better than that making the true inflation rate official. Meanwhile, use interest rate derivatives to suppress interest rates so there is no confirmation there. Is the guessing game over?

Shadow of 1970s inflation starting to worry bondholders
July 15, 2008 (Reuters)

Surging energy and food prices are likely to underpin a further rise in U.S. bond yields in the near future, even if yields do not rise to the extent they did in the 1970s and 1980s.

U.S. Treasury bond yields rose above 15 percent in 1981, after U.S. consumer prices rose at more than 14 percent a year, in the wake of the inflationary effects of 1970s oil price shocks when crude oil prices tripled to over $9.00 a barrel.

"Even though I can't imagine our economy going to the same situation as in the 1970s, some form of stagflation may crop up," said Jonathan Lin, senior analyst with Louise Yamada Technical Research Advisors LLC in New York.

On to the topic at hand, bank failures. Last time we had bank failures there was no Internet. Now we shall see if a bank failure meme spreads and panic spreads.

Multiply this kind of coverage by 1,000 and what do you get?

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[Sapiens]

Re: Bank runs, inflation, and other desperate memes in the Internet age

[
Last time we had bank failures there was no Internet. Now we shall see if a bank failure meme spreads and panic spreads.

Credit Crunch Watch (Sapiens' Bunker Central) -- All systems go, fully stocked and ready for whatever may come. Hmm, maybe need some more scotch, wine and beer... :cool: and what the hell, maybe some Rosary beads too... can't hurt methinks...;)

[zoog]

Re: Bank runs, inflation, and other desperate memes in the Internet age

...Consider your reaction if you went to the local supermarket and you noticed first that the quality of the food was declining, then a few weeks later the quantity, with some shelves partially empty, and then a few weeks later whole empty shelves, then half empty isles. Some part of your brain will note the progression and say, "Wait a minute, what if this keeps up? Hundreds of thousands of people live around here. Maybe next week I come here and the shelves are empty, like before a hurricane, and there is nothing to eat. Where will I go? What will I do? I'd better get more food now."....

Actually had this happen to me a few years ago, when my usual source of food, a fairly small grocery store of a regional chain was quietly wound down and then shuttered. Well, the first part happened to me, anyway; I didn't panic about sources of food since there were plenty of other options. But it was an eerie feeling nonetheless.

[ax]

Re: Bank runs, inflation, and other desperate memes in the Internet age

Actually had this happen to me a few years ago, when my usual source of food, a fairly small grocery store of a regional chain was quietly wound down and then shuttered. Well, the first part happened to me, anyway; I didn't panic about sources of food since there were plenty of other options. But it was an eerie feeling nonetheless.

Changes are not so subtle these days. Bananas up 40%, local gas station started charging for soft drink refills, Tropicana OJ now 89 oz, not 96, for the same price. Eerie indeed.

[World Traveler]

My experience with a bank failure

I banked at a regional bank located in the lobby of a major oil company's headquarters building in downtown Houston. It failed in early 1987. Suprised the h*ll out of me, I went to withdraw some cash and it was closed!

In some ways, it was a non-event. Over weekend, FDIC arranged for another regional bank with a downtown office to buy it, and money in checking and savings accounts were quickly available again.

So many banks failed in Houston at that time. The one that shocked me was the 1st City National, one of the biggest and most prestigious Houston banks at that time.

The real problem in failure of all the savings and loans, and banks, was their impact on housing foreclosures.

These institutions were a mess, and so a lot of houses sat vacant but not yet foreslosed for a long time, due to their paperwork problems. It also encouraged some people to do "walk away" from houses whose value was now below their outstanding mortage. They figured they could get away with it (and many did, no impact on their credit). I knew neighbors and others who bragged about walking away from their homes.

In some ways, I feel like I can predict how this is all going to turn out, having lived though a local but very severe version.

This time round, problem is national and not local. But in many ways it's the same playbook.

Houston and Texas eventually did stabilize in the mid 1990's, but at a much lower level of economic activity. We weren't bust any more, but things were slow... that's what I think happens in U.S.

[Guest]

Re: Bank runs, inflation, and other desperate memes in the Internet age

... Meanwhile, use interest rate derivatives to suppress interest rates so there is no confirmation there.

Fred - this observation is delivered with all the finality of a long ascertained explanation. Yet I have the distinct impression it's being quoted here specifically for the first time in the iTulip lexicon, right after I posted two references to it yesterday and this morning? What's curious, is that when I posted a direct reference to it, you did not deign to reply, although two consecutive posts about it were addressed to you directly?

Then I go elsewhere and see this pithy and tidily wrapped up explanation of the bond conundrum posted by you on other topics as a self evident truth. Of course it's not at all remarkable, other than that it elicited a "no comment" from you mere hours ago, when I addressed it to your attention? I must have a way of serving these things up to your attention in such a stultifying manner as to summarily squelch any interest in the ideas put forward, as they seem to elicit little acknowledgement.

I guess I'll just have to content myself with dropping post-it's into the "general suggestions" mail-slot in order to watch them get regurgitated later as adopted positions. Just like all that other (peak cheap oil) "stuff" that worked it's way through the iTulip plumbing so mysteriously. :rolleyes:

"Using interest rate derivatives to suppress interest rates". You know, that's funny ... of course we all had this notion readily at hand, but I can rummage around all over this website, even in prior threads devoted to the "bond yield conundrum" and find no specific reference summarising this point quite this succinctly. This explanation seems to have popped up suddenly like a rabbit out of the hat, as the key explanation of the bond yield condundrum, while only 24 hours ago it was phrased as an "unsolved mystery? What came up in the past 24 hours to bring a focus to bear on it with such alacrity?

The sudden clarity on this point leaves me bewildered, as just yesterday you wrote:

Once we have established a position we have to move on to the unsolved mysteries, such as: When will long term interest rates increase to price in the true rate of inflation?

Here's another plebe's post-it for the "suggestions box" : Maybe we should offer Prof. Antal Fekete a nod here, like we should have offered a nod to those hard working guys over at the OIL DRUM? Or will I now read that iTulip had long since identified this as the primary reason for the "bond conundrum (a long time before Prof. Fekete ever got an inkling about it)? If that's the case, it sure is notable that it's never been phrased quite so explicitly before.

[FRED]

Re: Bank runs, inflation, and other desperate memes in the Internet age

Relax. I'm posing metalman's stuff. Yell at him for poaching :p

[GRG55]

Re: Bank runs, inflation, and other desperate memes in the Internet age

Credit Crunch Watch (Sapiens' Bunker Central) -- All systems go, fully stocked and ready for whatever may come. Hmm, maybe need some more scotch, wine and beer... :cool: and what the hell, maybe some Rosary beads too... can't hurt methinks...;)

Would you like us to send Holy Water? Or will Evian do? With the scotch and Rosary I mean...

[Guest]

Re: Bank runs, inflation, and other desperate memes in the Internet age

Relax. I'm posing metalman's stuff. Yell at him for poaching :p

Yeah, well ... IIRC I've been around that turnstile with iTulip editors before.

[krakknisse]

Re: Bank runs, inflation, and other desperate memes in the Internet age

FWIW, I posted the GOSBANK meme a few days before EJ did. I think it was a case of simultaneous invention.
And Lukester, thanks for keeping up the peak oil flag. I distinctly remember comments like "oh no, another lukester peak oil thread". Now, it is everywhere. The only question is in details, like when, how fast, repercussions etc. I think it goes to show that EJ is not an all-seeing eye - EJ, Fred and the ITulip users are in a symbiotic relationship. So kudos to you. Remember - to us it is more fun, to them it is actually business. The opportunity cost of following every meme is significant to them from a business standpoint. Even to me, the opportunity cost is significant. Hope to get repaid when TSHTF, as is increasingly likely.
I definitely like the idea of following memes. Try Google Trends for "bank failure" searches from the US. It's up a lot. I'd post the link and chart but buttons don't work for me now.
Lukester: what's your take on the LATOC self-sufficiency thing, back to the agricultural roots? I mean, it is probably safe, but very hard work and a U-turn career-wise for me (though I could relocate rurally and actually get a pretty big pay rise, while still farming). ITulip-style, I'm assessing and making small moves. My peas and carrots are coming along fine, but moving from a kitchen garden to self-sufficiency is a whole other game. On the other hand, if the peak process really sets in in 5-10 years, I'm going to be priced out of the agricultural market pretty soon. I think it is significant that China is out buying a whole lot of agricultural land in other countries. A whole other lot of starving ITulipers would feel silly eating our paper and malleable metal (though not me, I'm a regular debtladen wage slave like everyone else).

BTW - it's been great fun watching the crash unfold. Watched the Shrub and the Helicopter Pilot live on Bloomberg. The nerve of those people. What - me worry? Everything is A-OK. The only exception was Jim Bunning. It was very emphatically and emotionally angry (BBcode isn't working): http://bunning.senate.gov/public/ind...8-66fa83d52a00

[metalman]

Re: Bank runs, inflation, and other desperate memes in the Internet age

you didn't ask me, but... i want to 2nd your kudos for the lukester. i've learned loads from him.

FWIW, I posted the GOSBANK meme a few days before EJ did. I think it was a case of simultaneous invention.
And Lukester, thanks for keeping up the peak oil flag. I distinctly remember comments like "oh no, another lukester peak oil thread". Now, it is everywhere.

if ej got it from a member, usually he gives a 'hat tip to'.

The only question is in details, like when, how fast, repercussions etc. I think it goes to show that EJ is not an all-seeing eye

don't forget the may 2006 http://www.itulip.com/energyandmoney.htm

'We have plenty of oil. But we're running out of cheap oil and there are no cheap alternatives.'

- EJ, Fred and the ITulip users are in a symbiotic relationship. So kudos to you. Remember - to us it is more fun, to them it is actually business. The opportunity cost of following every meme is significant to them from a business standpoint. Even to me, the opportunity cost is significant. Hope to get repaid when TSHTF, as is increasingly likely.

it's the only site i know of where ideas are developed between the guys running it and the subscribers.

I definitely like the idea of following memes. Try Google Trends for "bank failure" searches from the US. It's up a lot. I'd post the link and chart but buttons don't work for me now.

maybe my forum doesn't have the necessary permissions? fred?

Lukester: what's your take on the LATOC self-sufficiency thing, back to the agricultural roots? I mean, it is probably safe, but very hard work and a U-turn career-wise for me (though I could relocate rurally and actually get a pretty big pay rise, while still farming). ITulip-style, I'm assessing and making small moves. My peas and carrots are coming along fine, but moving from a kitchen garden to self-sufficiency is a whole other game. On the other hand, if the peak process really sets in in 5-10 years, I'm going to be priced out of the agricultural market pretty soon. I think it is significant that China is out buying a whole lot of agricultural land in other countries. A whole other lot of starving ITulipers would feel silly eating our paper and malleable metal (though not me, I'm a regular debtladen wage slave like everyone else).

shit happens, but slowly. we got a looooong way to go from 40 kinds of sausage at the whole foods and eating our own pigs... like 10 years of constant economic depression.

BTW - it's been great fun watching the crash unfold. Watched the Shrub and the Helicopter Pilot live on Bloomberg. The nerve of those people. What - me worry? Everything is A-OK. The only exception was Jim Bunning. It was very emphatically and emotionally angry (BBcode isn't working): http://bunning.senate.gov/public/ind...8-66fa83d52a00

pack of ******* idiots and liars... all of them. throw the bums out. time for some new idiots and liars.

[Guest]

Re: Bank runs, inflation, and other desperate memes in the Internet age

you didn't ask me, but... i want to 2nd your kudos for the lukester. i've learned loads from him.

My head is swelling up like a balloon here Metalman. Seriously, I like being permanently at odds with that F.R.E.D. character. It suits me just fine, becoz I've got this permanently alienated sort of personality ... I just don't ever feel quite myself unless I'm either needling someone about an oversight or a conceit, or someone is actively evidencing dislike for me in return. Whenever I can get back to that state, I feel great, sort of all perked up again.

[Slimprofits]

Re: Bank runs, inflation, and other desperate memes in the Internet age

Police show up at IndyMac Branches in Encino, Northridge as waiting customers clash

.. and not far down Ventura in Encino are Downey S&L, First Federal Bank, and Imperial Capital Bank (their current stock prices speak volumes). Perhaps Encino hasn't seen the last of this...

[Slimprofits]

Re: Bank runs, inflation, and other desperate memes in the Internet age

Here you go Fred:

July 15, 2008

Bank Run on the Beach?

Posted by Lew Rockwell at July 15, 2008 11:52 AM

Eric Garris's mother Sesame reports that there are long lines at ING Bank in Santa Monica, California.

Mr. Mortgage has a run down of long lines, people apparently shifting money out of WaMu and BOA branches.

[hoodoo]

Re: Bank runs, inflation, and other desperate memes in the Internet age

This one showed up on the front page of the LA Times this morning

http://www.latimes.com/news/nationwo...,1516735.story

The article itself is completely pithy and full of contradictions. It does a wonderful job of invoking all of the bogeymen of the crumbling economy (speculators, unethical lenders, bankers, energy) and then makes the suggestion that government regulation will be our savior.

It's not the article that interests me though, its the front page meme that what we really need is more government oversight of our economy...

Hoo