My experience in recent days is a perfect example of the follow-on effects of bank failures. And my experience isn’t even related to a complete failure, in the traditional sense.
The story: I had been keeping my investments in a brokerage account at Lehman. I was relieved to learn that Lehman’s brokerage business had been sold to Barclay’s. However, the process of switching over to Barclay’s led to a delay in getting outgoing wire transfers. I had scheduled a wire transfer to my checking account last week so that I could pay my NYU tuition payment, which was already scheduled. The wire didn’t go through in time, so my checking account became overdrawn to the tune of twelve thousand dollars.
Barclays promised me that they would have the transfer out to me by today. Today they didn’t transfer it, and promised to get it out tomorrow. Of course if it isn’t out tomorrow then I will have to call my landlord and tell him that I will not be able to pay my rent on Wednesday. There is also the question of my mortgage. I theoretically have tenants who will pay me rent on Wednesday to cover my mortgage. However they may also be hit by this issue. If I am unable to pay my landlord my rent, will he be able to pay his mortgage? It is not clear.
The rep at Barclays tried to make the excuse that today the highest priority wires went out, which were companies who had to make payroll. Clearly that is a huge issue, bigger than my little concerns with my own rent and mortgage. Entire companies would not be able to make payroll before all their employees owe money on their rents and mortgages on Wednesday. What a disaster that would be.
All of this is of course merely a taste of what we may be in for with a widespread bank panic. In this situation, at least I know that the funds are in my account, accessible eventually. If there were a complete failure, there would be no hope of getting money to my landlord and my mortgage lender. There would be no way these various firms would be able to pay their employees, and then these employees would not be able to pay their landlords and lenders. They wouldn’t just be late, they would be unable to pay.
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