Banking on Disaster: A Day in the Life at the End of the World

You’re probably familiar with the ancient Chinese curse: May you live in interesting times. The curse has two other parts that are progressively more dire: May you come to the attention of those in authority, and may you find what you’re looking for. Well, these are certainly interesting times, days like the one not long ago that begins with a hike in Elysian Park and ends with the biggest bank failure in the history of the world.

It’s a beautiful morning. A couple friends and I take our dogs for the 2-mile walk through the park’s gentle hills and groves. Elysian Park is one of those great L.A. spots where the urban and the near-wild crash into each other and find some sort of peaceful coexistence. The whole magnificent ­metropolis spreads out around us, but no matter how much we acknowledge the surrounding beauty, neither my friends nor I can escape the sense that there is something ominous in the air.

After the hike, I get what’s left of my hair buzzed. My barber, Tony, is a hard-working immigrant who has made good. Tony doesn’t suffer fools or take any bullshit. Once, a gangbanger tried to skip out on his bill, and Tony locked him in and threatened to call the police until the kid paid up. Tony’s old-school. And he’s old. But his liver-spotted hands are still steady and he has a great chairside manner. We discuss the financial-system bailout that was supposedly all but agreed upon by midmorning. Tony, who doesn’t take credit cards and doesn’t keep money in the bank, isn’t in favor. Like a lot of “Main Street” Americans, he doesn’t know why taxpayers should be on the hook for $700 billion to bail out Wall Street, which he thinks should be made to pay for its own sins.

I respect Tony immensely, but I tell him I disagree. Wall Street’s shenanigans have made me nauseated since Reagan’s Roaring ’80s, but, I argue, the bailout is about whether or not my neighbor can continue to draw from her bank the payroll for her small business. It’s about whether or not the savings and checking accounts and CDs and IRAs folks have in the bank have any basis in reality and are not just empty promises. It’s that fundamental.

Tony tells me he doesn’t have any money in the bank. “It’s all in property,” he says.

My situation is exactly the opposite of Tony’s. All of my money is in the bank. It’s been sitting in an interest-earning account, where I’ve basically ignored it because of my antipathy toward the nature of how it came to be — selling a house I’d rather have kept. Concerned that all I have to show for a lot of work and heartache would be gone if my bank fails, I decide to spread my money around to other banks so it’s at least covered by FDIC insurance. (This is days before Congress raises the limit on what the government will insure.) When I ask my bank for two sizable cashier’s checks, the manager nearly cries. I’m not kidding. It’s like I’m breaking up with her. We both feel bad. We both kind of understand. This is Bank of America, possibly the Bank of America if things don’t go well.

Then I walk across the street to another big bank and present them with one of the cashier’s checks. I say I’d like to open an account and make a deposit. They look at me starry-eyed, uncomprehending. What is this before them? Someone with liquid capital ... to put in a bank? A deposit? Funds? It doesn’t quite compute. They are very happy. I go to another bank with another deposit, and the place nearly shuts down to attend to me. I think they’re going to ask to film me for a training video for employees who have never seen such a thing.

Somehow I have become that rarest of customers — a person with money. And that’s the problem. Nobody has money. Everybody has debt. Collectively, our debt far outweighs our cash. And the fundamental law of physics, when it comes to finances, is that cash goes to debt. Our banks are merely the institutions that hold our cash and our debt. By the end of this day, Washington Mutual will collapse because it doesn’t have the cash to give to the customers making a run on the bank. It’s a small example of what’s to come if, as Tony and many others had been hoping, we let the market run its course.

In the days that pass, House Republicans vote down the rescue bill, despite John McCain’s buffoonish attempts to pull an Alexander Haig and pretend he’s “in charge here,” and the market crashes 777 points the next day. Wachovia gets caught in its own financial drama. Arnold Schwarzenegger announces that California may need a $7 billion loan from the federal government. And even the supposedly stable Bank of America is trying to raise capital. It would all be comical if the joke weren’t always on us.