Human nature is a curious thing to watch when you stand back, remove yourself from the situation, and just observe. If you have ever practiced the art of “people watching” sitting at a park bench or having lunch in a food court, you know exactly what I’m talking about. This morning, as I watch Lehman Brothers go bankrupt and Merrill Lynch get bought out (to potentially avoid the same fate), I’m intrigued to find a few emails from friends asking if they should be worried about their own personal bank accounts. I have paraphrased one of these emails from Friend XYZ’s below:
Matt – What the hell? I get back from vacation and find Wall Street in a mess? What gives? Do I need to put my money under a mattress or what?
The short answer for his situation is: NO!
Friend XYZ does not need to pull money out of his account because he has less than $100,000 in this online savings account, as well as an adequately funded checking account with a local brick and mortar bank. If he had over $100,000, I would suggest opening a new account with a different bank to deposit any remaining funds over $100,000 so that every dollar is FDIC insured. Most of us don’t have this problem, but if you did, you probably have your finances in order to prevent such a problem from arising in the first place.
What I find so intriguing was his reaction to this emotional contagion, or how the emotions of everyone around him swayed his almost stoic personality to near panic levels. For this reason, I often suggest that most people should avoid the daily financial news because it’s so overly dramatized and causes even the most resolute people to get caught up in the “Doom & Gloom” headlines.
Taking this one step further, my big question is…
Would you participate in an old fashioned bank run?
When I think of making a run on a bank, I immediately flashback to It’s a Wonderful Life with Jimmy Stewart. One of the more famous scenes involved poor George Bailey when he has a storefront full of panicked patrons who wanted THEIR money back before THEIR hard earned cash disappeared.
Given recent bank failures, such as IndyMac’s failure earlier this summer, one is suddenly confronted with the realization their bank could potentially fail.
So what would you do?
As I said, human nature is a curious thing so I am interested in your thoughts.