We read that Greek banks are likely to remain closed for a month. That is said to be a result of so many Greeks, worried about bank solvency, withdrawing so much money so fast. Bank runs as these phenomena are called, are not uncommon in economic history and remain a traditional source of bank failures. Note that bank failures are a traditional cause of depositors’ loss of everything that they had deposited.
Fears of that are a prime cause of the bank runs that lead to such losses. A self-fulfilling prophecy sort of thing. The remedy is always for the government to close the banks until things calm down. Hence the bank closures in Greece.
In the US Great Depression collapse of banks, so many lost so much that the politicians had to create the Federal Deposit Insurance Corporation (FDIC) to guarantee bank savings and ultimately, some depository accounts up to at present, $250,000. That helped restore confidence in bank accounts. For those credulous.
That sort of insurance is fine in good times when bank failures are few. Such systems fail when bank collapses become general, simply because governments lack enough money to pay losses of such magnitude. Do the math!
Greeks who had little money when this began are having trouble buying food. They are most probably trading things o value on a black market; the kids have to eat, right? And last we heard, Greeks could withdraw up to $63 daily, i they had it in the bank, via ATM. Well, that’s better than what was available during the US Great Depression “Bank Holiday” declared by President Roosevelt.
Such times suggest a stash of cash under the mattress. Not too much; that draws risky attention and besides, the money will likely be devalued along the way; there’s a lot of that going on … Canada, just now.
Word to the wise: An elderly retiree o our acquaintance wished to withdraw some $12,00 from his retirement IRA at a large mutual fund. The fund refused to allow the withdrawal; informing him that he could take out no more than $10,000. If he wanted more, he would have to wait until his first withdrawal had cleared and then make additional withdrawals. Why could he not have his own money? No explanation was given. Had he been Greek, the answer would have been obvious: capital controls to protect the banks from runs. But a US retiree? That’s scary, seems to us. It suggests that much is going on that we do not know.
It is true that the incident may be a situation limited to a single mutual fund; we can’t know that. Better safe than sorry, though, seems to us.
It’s a good time, we feel, to, if you have any concern about the security of your financial future, … sleep on it.
have been obvious. But in the US?
We don’t know whether the limit came from the mutual fund or from a bank or from the US government. Wherever it source, it’s a capital control that betokens concern over cash flow on