Presumably, they had at least $4,250,000 in the vault
What do I do if my bank fails?
Relax. You’re not going to lose your life’s savings. Worst case, you’ll only have a quarter-million dollars left in each of your accounts. Thanks to the Federal Deposit Insurance Corporation, which guarantees you that much when it shuts down a bank. Notwithstanding the debate of whether it’s the federal government’s business to protect depositors from insolvency, the FDIC hasn’t missed a depositor guarantee since its founding 77 years ago. Yet when a bank goes under, people panic – as opposed to panicking before the bank goes under, which would seem like a more appropriate time to lose one’s composure. Many people, for whatever reason, think that among all commercial enterprises it’s banks and banks alone that should be immutable and constant.
What distinguishes a bank from a clothing store or an oil-change place? A bank is a business like any other, selling a service (loans) while trying to do so for more than it costs to stay in business. If the bank fails, it liquidates its inventory and sells it to the highest bidder. Just like a failed sporting goods store or furniture retailer.
So you read that there were 154 bank failures in 2010?
Guess how many restaurant failures there were. You have to guess, because no one keeps a nationwide tally.
But banks are different! They have our money!
Actually, they loan most of it out, but that’s beside the point.
When a bank fails, the people who get hurt the most are the same people who suffer the hardest when any business goes under – its owners. If you’re conditioned to think of the “owner” of a business as someone who’s already rich and is now out one toy, think again. Most small businesses have one, maybe two owners, whose lives are inextricably tied to the fortunes of the business. Sure, the employees might now be jobless, but – they were never invested in the business in the first place. Lose your job, and that’s all you lose – not your life’s savings, not the active nest egg you were building. If you get laid off, your 401(k) goes with you. You do know this, right? You don’t? You really need to read Chapter IV of the book.
Homo sapiens embraces technology, but as a species. There are plenty of outliers – non-adopters who keep their money in something non-institutional. Millions of people, some of whom live a couple doors down from you and/or share your DNA, still don’t trust banks and think the internet is every bit as futuristic as interplanetary travel. Not all of those people lived through the Depression, either.
Still, 154 banks is a lot.
Really? How many banks do you think there are in the United States?
98% of which didn’t fail last year.
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Addendum! It’s like 2 posts in one today!
It’s great when people look at absolute numbers when they should look at relative ones, or vice versa. Heck, even the concept of absolute vs. relative is too much for most people to handle.
Example: Did you know that the Avocado Marketing Board estimates that Americans ate 69.6 million pounds of guacamole on Super Bowl Sunday?
Wow! 69.6 million! If that were money, it’d be more than I’d see in a lifetime! If it were people, it’s…more than would fit in any stadium I’ve ever been in, that’s for sure! 69.6 million! That’s like – the number of grains of sand on all the beaches of the world, right?
If 2/3 of the country watched the game, then that’s 5 1/2 ounces of guacamole per person. (Assuming no one ate guacamole that day and didn’t watch the game. A subset that might include just Tim Ferriss and Rosie O’Donnell, perhaps.) Furthermore, has any bowl of guacamole ever been worn down to the nubbin? Of course not. Any party you’ve ever been to, or held, the guacamole goes mostly uneaten. So it’s probably closer to 2 ounces consumed per person. But OH MY GOD 69.6 MILLION! I FEEL FAINT makes for a ostensibly remarkable superlative. Why? Because the moment a number becomes hard to visualize, people start losing control. You’ve never seen 69.6 million of anything, so it stands to reason that 69.6 million pounds of guacamole is a number sufficiently large to cover the entire contiguous United States 4 miles deep in viscous and tangy chartreuse goodness.*
So 69.6 million pounds (or as we say in Largest-Convenient-Unit Land, 34,800 tons) isn’t a big deal. It’s a very workaday deal. Just like 154 bank failures in a country with more banks than it knows what to do with.
*At least 4 people reading this, all of them female, are unsure if this is sarcasm. They’re wondering if that’s indeed enough guacamole to fill that big a volume, but see it as a math problem and have decided not to get involved. “If McFarlane’s playing with our minds, it’s probably to compensate for his deficiencies in other areas.”
**This article is featured in the Carnival of Personal Finance #313**
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