Dave Naffziger's Blog

In a 10 day span, $16.7 Billion was withdrawn in deposits from Washington Mutual (5% of $307 Billion in assets). In 11 days, depositors withdrew $1.3B of IndyMac’s $18.9B in deposits (~7%). Both bank runs were stimulated by (correct) concerns about the financial conditions of the banks. Both banks were FDIC insured.

FDIC Purpose

In my limited understanding of the FDIC, it fulfills two main purposes:

1. Provides federal insurance for depositors with less than $100K in any single account at any FDIC-insured institution.
2. Prevent bank failure. There are essentially two components of its efforts to prevent failure:
   1. Require adequate reserves: All FDIC insured institutions are required to maintain certain levels of capital reserves. If an institution falls below certain thresholds, the FDIC can change management or take over the bank entirely.
   2. Prevent bank runs: The federal insurance and reserve requirements provide depositors with comfort knowing that they cannot lose their money. This comfort should prevent rumors from becoming reality and depositors from simultaneously making withdrawals.

How the FDIC Failed

With both failures, the FDIC served one of its two purposes - it ensured that depositors didn’t lose money. However, it failed to prevent the bank runs that actually triggered the failures.

So, why the failure? I’ve got three theories:

• The effort required to move money between institutions is trivial. The FDIC was created in 1933. Most consumers today can move money between banks with less than five minutes of effort.
• Consumers don’t understand the FDIC. Bank failure means you lose your money. To the mattresses!
• Consumers don’t trust the government. They simply don’t believe that their money is protected.

I’d love to see polling data on this, but I’d be willing to bet that the second reason is the likely answer. A common notion that I see/hear popping up is that some believe that Fed has 99 years to repay their insurance. Here is FDIC’s take on that myth:

Misconception Number 3: If a bank fails, the FDIC could take up to 99 years to pay depositors for their insured accounts.

This is a completely false notion that many bank customers have told us they heard from someone attempting to sell them another kind of financial product.

The truth is that federal law requires the FDIC to pay the insured deposits “as soon as possible” after an insured bank fails. Historically, the FDIC pays insured deposits within a few days after a bank closes, usually the next business day. In most cases, the FDIC will provide each depositor with a new account at another insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.

I can understand liquidity concerns, but I’d hope that most of us can survive a day or two of illiquidity. In fact, WaMu debit cards continued to work as normal the day after the failure.

I thrilled that the government retained Suze Orman on Sep 22 to launch an ad campaign informing the public. They need to think bigger with more advertising. I’d love to see the candidates incorporate some of this messaging into their ubiquitous advertising.

However, technology is beginning to antiquate some of the FDIC legislation. Bank runs are far easier to trigger now than they were during the S&L crisis and certainly back in 1933. Some of this legislation needs to be rethought to provide mechanisms to account for the sheer speed with which a run can occur. And the FDIC limit set in 1980 needs to be raised.

Then again, I may be the last person with my money still in a bank…

Not that I needed any more reasons to love Scott Adams, but this is truly an undertaking after my own heart.

Scott Adams recently funded his own study to see what economists really thought about the economic policies of the two presidential candidates. He introduces the study with these lines:

I found myself wishing someone would give voters useful and unbiased information about which candidate has the best plans for the economy. Then I realized that I am someone, which is both inconvenient and expensive.

The full summary is here: http://dilbert.com/dyn/ppt/Draft-report—9-3-08.ppt

The data leans towards Obama, but isn’t incredibly conclusive. The declared Democrats heavily favor Obama and the Republicans McCain. Independents leaned towards Obama. I personally find the data on how independent economists reacted to be the most interesting. On the top three issues (as determined by the economists):

1. Education: 50% Obama, 18% McCain
2. Health Care: 56% Obama, 25% McCain
3. International Trade: 16% Obama, 63% McCain

I had a bug land in my eye while running yesterday. I thought I had taken it out, but I woke up in the middle of the night with my eye sealed shut by eye goo. I flushed out the bug, but by the end of the day, my eye was still irritable and very red.

My doctor looked at my eye and said that it looked infected and said she would prescribe a topical antibiotic. She then told me that they don’t see eye infections all that often and pulled out a PDA and confirmed the proper dilution of the antibiotic prescription.

I don’t think I’ve ever seen this, but it is such an obvious thing for caregivers to use. Maybe its because doctors are slightly technophobic or perhaps they don’t like admitting they are uncertain but this seems like a far superior model than prescribing drugs on memory. I’ve got to imagine that there are some compelling statistics to be found on lives saved or reduced prescription error rates, etc.

She used a database from epocrates. I love the concept. I of course want it networked, databased and analyzed but this is a great start.

I’m so immersed in the the high-tech world that I assume the implementation of obvious ideas has penetrated most other industries.

I was surprised to learn recently that air traffic controllers have to form a mental picture of weather patterns and flight paths in order to decide which flights to ground and which to allow to take off. From this Wired Article:

… the current system, in which an air traffic controller must take weather information from multiple sources and create a mental picture to determine how it will impact different flight paths.

Fortunately, a few researchers from MIT are taking the obvious step and putting weather systems, forecasts and flight paths into an easy to use interface (ok, so the interface isn’t exactly easy to use, but it sure beats a mental picture):

It is being tested in NYC and in ~3 months it has already saved 2300 hrs of delays ($7.5M in operational cost savings).

The Django community just released the 1.0 version of Django.

I’ve been incredibly impressed by the tireless efforts of the core contributors. I’m also thrilled to get to a stable platform (No more checking BackwardsIncompatibleChanges!). I even have a few ‘very’ small contributions in the release - in fact, half the code was contributed by someone other than a core developer (although it seems many of these contributions are relatively simple - the challenging work is still largely done by the core devs).