Tuesday, October 07, 2008

Running on confidence

The banking industry, like the value of paper money, needs public confidence to survive. My bank, WaMu, was done in a few weeks ago by a classic run on the bank after a (deserved) drop in confidence. In mid September, customers withdrew about $16.7 billion in a period of ten days. After WaMu was unable to find a buyer for itself, the FDIC (without WaMu's knowledge) secretly auctioned off the bank's major assets and liabilities to JP Morgan Chase and then seized WaMu to enact the deal. I hope Chase has a enough public confidence to not have to go looking for a new buyer, because we a running out of big banks available to swallow up "little" banks.

It reminds me of a comedy routine of Steve Martin. He pointed out that no one names their financial institution "Bob's Bank." Even small town banks have to come up with a grandiose name. So you find words used like: "first", "guarantee", "federal", "trust", "reserve", "commerce", "credit", and "summit." The irony is that these days, those small town banks (like "Bob's Bank") are the ones that are the most sound.

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