by Matthew Pilling, Guest Author 

SALT LAKE CITY, UT | 16 July 2008 | In a move that stirs up images of the Great Depression, people are lining up outside of IndyMac Bank branches to see that they “get theirs” before there is nothing left to get.  Because of the number of people waiting to close their accounts and withdraw their funds, the bank has had to limit the number allowed in the bank at any time to five (those seeking to deposit funds are bumped to the head of the line).  So, the rest are left to sit outside and stew in each other’s sob stories.  And the scarcity abounds. 

Each of these customers felt that the high interest rates offered by IndyMac, combined with FDIC’s guarantees, were sufficient reason to deposit their money at one point.  But, today, as the FDIC makes moves to fulfill their part of the bargain, panic-driven people are proving that they don’t trust the guarantees that made them feel so secure in the first place. 

What has changed to cause these people to panic?  Certainly, the general economic conditions of the day aren’t favorable, and the bank has shown a lack solvency, neither of which would muster much confidence in the average consumer.  Even so, weren’t these distinct possibilities when accounts were opened and monies were deposited?  No one likes to lose out and good stewardship demands that we do what we can to protect and increase our resources.  But, when things do go differently than we hoped or planned, what should we do as good stewards to rectify the situation?

Key Points

• Faith begins with self interest.  Fear is the enemy of faith, and therefore, acting out of fear is never an act of faith and can never produce the needed or desired result.  Fear is an emotion that is meant to warn us of potential dangers and help us determine how to handle those dangers.  It is meant to help us consider the options before us and navigate our course rationally.  But, most people allow fear to lead to panic and irrationality.  In the name of protecting their prosperity, people make moves that will almost certainly lock them into a life without prosperity. 
• Panic and irrationality lead people to forget where real value lies.  If the bank fails, if the dollar fails, if the entire system fails, each of us will still have the talents and knowledge that we have always had.  We may have to adapt how we apply our talents and knowledge in our new situation, but we will still have the ability to create value, exchange it with others, and find value in the ensuing relationships. 
• People standing in line will likely get their money back, but will either cling to it and not put it to good productive use (the hoarding mentality of so many of the Depression Era), or they will put the money at continued  risk, speculating in other areas in hopes of recouping lost profits.  Neither option has the power to create prosperity for these people.  Both options place value in the physical reality of dollars—an option which leaves these people as slaves.  They have no ability to control the market value of those dollars, and are therefore captive to the market swings of those dollars.  If the dollar becomes completely devalued, they will be left with worthless papers and the big question of who is to blame for their bitter situation.

Conclusion

Loss hurts.  But the amount that it hurts is entirely up to us.  We can choose to be victims of bad situations and be tossed about by them.  Or, we can take stock of that which we still have and determine how to produce with it.  Money, the great distracter, has nothing to do with that decision.  Which kind of makes sitting in line at a bank seem a little silly.

Action Items

1. Learn to eliminate fear and apply true faith to your financial decisions.  (This DOES NOT MEAN hoping really hard that an investment will work the way you want it to.)
2. As best possible, know the potential positive and negative outcomes of an investment before you choose to make it. 
3. Determine if the worst case scenario is something that you could live with and learn from. 
4. Determine how you will recognize if the investment is faltering.  What leading indicators should warn you that things are heading south?
5. Determine what your exit strategy would be if leading indicators showed the likelihood of the worst case scenario coming to fruition.
6. Recognize from the get-go that whether you recoup all of your money and expected profits or not, the risk of the investment was something that you chose to assume.  In similar fashion to John Galt’s refusal to accept unearned guilt or profits, vow to never blame others for your gains or your losses on any investment.

MRFC Principles:  (2, 3, 4, 5, 6, 7, 8 )

Source: Hundreds Demand Money From Failed California Bank, Associated Press, as seen on FoxNews.com, July 15, 2008 http://www.foxnews.com/story/0,2933,383341,00.html

(Matthew Pilling is a member of the FreeCapitalist movement known as the Canadian Capitalist. Despite his time in the Great White North, Matthew loves America and all that it stands for. He lives with his wife and two children in Taylorsville and works in finance.)