Meaningful Conversations

I thought it might be helpful following the extensive FDIC post last week to follow up with a conversation I just had with one of our customers. I was explaining to him a bit about how the FDIC works and why the government bailout was actually the "least costly" approach to saving the Financial World. Here's a snippet:

Him: "You know, if the government just keeps handing money over to banks that do nothing but hoarde it and lose more money, we're never going to get out of this..."

Me: "Well, believe it or not, banks are making a ton of loans still, and the bailout was necessary because of the huge amount of money that it would have taken for the FDIC to make good on its insurance promise."

Him: "It wouldn't have cost nearly as much for the FDIC to just shut down all the bad ones and let the good ones survive!"

Me: "Well, let's just pretend that this bank went out of business, ok? You have a few CD's with us that total about $50,000... and you're fully FDIC insured. Sound right so far?

Him: "Yep"

Me: "Alright, so we have about 6,000 customers who are in a similar position as you...and we're a very small bank, Agreed?"

Him: "Yep"

Me: "If we went out of business today, the FDIC would lose anywhere from 50 to 100 million dollars because of just us going out of business."

Him: "That's a lot of money!"

Me: "Right. Now if you think about a Bank of America or Citibank, they do business with something like 100 million people just like you... and are each about 100 times as big as we are. Can you imagine what the loss would be if they went under?"

Him: "Holy hell!"

Me: "And if they went out of business, do you think people would think their money was safe ANYwhere?"

Him: "No, I'd probably pull my money out and hide it under my mattress..."

Me: "That's exactly why they had to bailout the system. To make sure you, and 100 million other people, didn't do that exact thing."

Him: "Oh... well i guess that makes a lot of sense."