Friday, September 19, 2008


Do all of the recent scary headlines rattle you?

Hurricanes strike the Gulf Coast. Real estate markets implode, driving a crisis in subprime lending. Large investment banks and insurance companies collapse. And gasoline jumps back to over $4 per gallon in the wake of Ike.

There’s a smartass saying that says, “If you can keep your head when all those around you are losing theirs...then you probably don’t understand the seriousness of the situation.”

No, I’m not panicking. This is probably a good time to buy stock, and in a few months, it’ll be a great time to buy real estate...because you won’t be paying the inflated prices of the last few years. It’s called “readjustment,” folks, and we’d best get used to it - scary though it may be.

The Missus and I, we’ve been through a few Scary Times of our own. We know what it’s like to have bought a new house before disposing of the old one, balancing the load of two mortgages plus a bridge loan and praying for a buyer who will meet your price. That’s scary...but there are things that are even scarier.

Rewind your mental clock to January 1991.

We’re living in Trumbull, Connecticut and are in the process of moving to Houston, Texas. There’s a lot going on in a short timespan. Eli (hizzownself) will be getting married on Sunday, January 6 on Long Island...and the next morning, the movers will swoop in and begin packing up our house. A couple of days later they will load the truck in the midst of a howling ice storm, building an extension on to the back of the truck to cram everything in. We’ll fly down to Texas the next morning, along with Elder Daughter, the Mistress of Sarcasm, Stripes the cat, and Leona Hamsley the hamster, in plenty of time to close on our Texas house on the eleventh.

It was scary enough to watch the movers slipping and sliding on the ice with our possessions, but by that time we were almost immune to excitement...because the really scary shit came down that Sunday, January 6.

The wedding? That went off without a hitch...or, better put, with only the Expected Hitch. But that night, the Feds swooped in and seized Connecticut Bank and Trust Company, AKA CBT. The bank, not incidentally, wherein resided our checking and savings accounts. But thanks to the Federal Deposit Insurance Corporation - the FDIC - the seizure would be no cause for concern for most of the bank’s customers.

When the FDIC takes over a bank, depositors are protected by federal deposit insurance to the tune of $100,000. Way more than enough protection for us...except under an extremely rare set of circumstances. The perfect storm, you could say.

Because we had well more than $100,000 in the bank just then. It was only for the interval between our receiving the equity payout on our Connecticut house and our handing most of it over to the sellers of our Houston house...only three days out of all the years we had lived in Connecticut. But, thanks to a perverse alignment of the stars, every nickel of our home equity was sitting in CBT when the Feds shut it down. What timing!

The worst case scenario? We lose everything in excess of $100,000.

The second worst case scenario? We get paid off at pennies on the dollar for the excess amount over $100,000.

Either way, we’re suddenly short on funds to pay for our Texas house...insult to injury, considering that we’ve lost a nice chunk of change on the Connecticut house. The market was not good in the closing days of 1990, alas.

If you think that She Who Must Be Obeyed and I are trying hard not to shit blood clots right about now, you’re right. But the Feds decided that the economic impact of allowing CBT to default on its depositors would have a devastating effect on the New England, not to mention the national, economy. And so we were able to extract every penny of our money, bright and early that Monday morning. Lines of nervous depositors stretched into the bank’s parking lot, and We Were There.

We tend to think of bank failures as a product of the Great Depression...something of historical interest only. But that frantic day, the day when we had no idea how much of our family’s net worth would be washed away by the nebulous, arcane financial misdeeds of Big Banking, brought it all back home to us. And today, whatever philosophical issues I may have with the concept of the Federal Bailout are necessarily colored by the fact that one such bailout kept our family’s little financial ship afloat, once upon a time. If that makes me a potential hypocrite, so be it.

Postscript: The FDIC, after taking over CBT, operated it as a “bridge bank” called the New Connecticut Bank and Trust Company, N.A. from January 6 through July 13, 1991. On July 13, Fleet Bank of Connecticut converted to a national bank and assumed New Connecticut Bank and Trust Co., N.A., changing its name to Fleet Bank, N.A., Hartford.

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