Tuesday, December 08, 2009

Having an FDR Christmas

crossposted at http://dagblog.com

Exactly three weeks before Christmas, my bank failed.

Everything's fine, at least for humble depositors like me. The FDIC seized my bank and sold it to another, presumably more stable and reliable, bank. My deposits were very, very comfortably under the $250,000 insurance limit. My checks and ATM card still work, and I don't even need to change them for new ones with the new bank's name. The new, out-of-town bank is keeping the old bank's name and running it as a division of the new bank. I can still buy groceries. I had to find out about the bank failure reading Atrios.

Things aren't so good for my local economy of course, or for my city. That my bank failed is both a symptom of how hard times are for Cleveland, and a sign that they'll get better very slowly. The new bank is going to be prudent making loans on its new turf, I'm sure, and the local bank's failure doesn't make us look like the best place to bet. And there shouldn't be much doubt that the whole country is still in a very large recession, or to drop the euphemisms, a depression. I know, the 1930s were much worse. That's why the 1930s are called The Depression and this is just a depression. But believe me, this town is depressed. My local bank went down with five others last Friday, making that 130 bank failures in the U.S. so far this year. Even if no more banks fail for the rest of the year, that's two and a half bank failures a week. Forget what's going on with the too-big-to-fail leviathans; while we were watching them beach themselves and thrash, the rest of the fish that make up the ecosystem were dying.

Still, despite the grim news, I can pay my rent, bake cookies for my students, and do some Christmas shopping. I can fly for the holidays, and for the major annual conference in my field, which takes place at the end of December. When I get to town for that conference, I can pay for my hotel and my meals. And then I can celebrate the first of the year by paying my rent again. So I'm doing pretty well for a guy who had his savings in a bank that just went under. But there's no question that my Christmas comes benefit of the FDIC. If it weren't for the New Deal I'd be enjoying a really old-fashioned holiday, the kind Bob Cratchit and John Boy Walton used to have. And by "enjoy" here, I mean "not even remotely enjoy."

When you hear conservatives talking about the evils of liberalism, government regulation and imminent socialism, this is what they're talking about: the kind of basic common-sense protections and regulations that the New Deal instituted seventy-five years ago. Even during this economic crisis, when it should be clear to everyone that the financial sector long ago abdicated any sense of responsibility or reality, it's still fashionable to talk about the New Deal as old-fashioned excess, the kind of forgivable error that our silly old grandparents made because they had not yet learned better, as we have. Of course, such creaky old socialist programs don't really work, and they impede the magically efficient forces of the market.

The next time you hear someone talk like that, just remember: they're drunk.

If it weren't for the New Deal and its stifling, market-inhibiting FDIC insurance, this is the Christmas I would have. My savings (and my checking account) would have disappeared Friday evening, taking my most recent paycheck with it. (I get paid twice a month; my bank failed on the fourth of the month, only a couple of days after my last direct deposit.) I wouldn't be paid again until the fifteenth.

My checks would have bounced, including my rent check if the landlord hadn't cashed it yet (again, the bank failed just after the beginning of the month), or if it hadn't cleared. Since it usually takes a day or two to clear a check, let's say that my rent would certainly have bounced. My phone bill, student loan payment and credit card bill would almost certainly have resulted in more bounced checks. I would have only the money in my wallet, which I would be hoarding very carefully, until my next paycheck. And when the fifteenth rolled around, I'd have to find a new bank, deposit my money, wait for my deposit to clear, and wait for the new bank to issue me checks and an ATM card. That would pretty much keep me from having any money I could use until nearly the end of the month. (There is, ahem, a national holiday in there somewhere, when the banks are closed.) Otherwise, I could get my checks cashed at the usurious check-cashing rates, and pay the premiums for money orders to pay bills. In any case, I'd be starting in the hole. Credit cards would not be an option; I would certainly have missed payments, not only stalling the credit line but earning myself some fees and penalties. If they were an option, they'd be a horrible one, since I'd be faced with the task of building back some savings to replace my lost money. Christmas presents would be out of the question. So would airplanes, let alone professional travel with its hotel expenses.

That would all stink for me, but it wouldn't be a big help for the rest of the economy either. The thrift forced upon me by the loss of my savings would take money out of the rest of the economy: the Christmas shopping I didn't do, the groceries I didn't buy at my local supermarket, the gas I didn't buy and the hotel reservation I didn't keep and the airport sandwich I couldn't afford. My landlord would be out rent, at least until I managed to scrape the arrears together. How's that for market efficiency? Now multiply it by every depositor my bank had, and then consider the customers of the other five banks that failed last Friday. The New Year starts to look pretty grim for whole communities.

That is what a deregulated, laissez-faire economy looks like. An economy free to lay itself waste every so often, in irrational spasms. And if it doesn't remind you of the smooth rational graphs in Econ 101 textbooks, that's because it doesn't resemble them. Market efficiency is no more natural than a navel orange is. It results from grafting and gardening.

So let me say a few kind words for old-fashioned 1930s liberalism, the parts that have yet to be dismantled or "modernized" away. Those vestiges of our big-government past are what's keeping the wheels on the wagon today. Without them, we'd be much deeper in the mud, and further from the shovel. And I don't see how many of the modern, what's the phrase?, "innovations" of the past thirty years have helped much. So while our leaders in Washington debate timid half-measures in timid tones, afraid that half of half a loaf might be going too far, they would do well to remember who got us out of the last mess like this, and how. We need to face a basic reality: this Christmas has been brought to you by the Ghost of Liberalism Past, FDR.

God bless us, every one. We're going to need it.


Real estate Toronto said...

Hi. I absolutely agree with you. The situation with your bank is I think very good evidence that the crisis is not over and we should be very careful with too optimistic predictions. Fortunately, you are one of those who has not lost everything. Moreover, I think that it's always good to have some extra insurance even if the prices of it are higher than they used to be.


Wendy said...

So beautifully put. Bringing it out of abstractions and playing out the consequences on an individual scale really brings it home. I am clipping and saving this post to show to others. -Wendy

P.S. My captcha word was "vartu," which really tickles me.