It’s a wonderful life: move your money

I have been largely silent about the recent populist call to arms by Arianna Huffington and Rob Johnson. The duo advise Americans to withdraw their money from bank accounts at too-big-to-fail financial institutions and deposit them in a community bank. And they present a comprehensive list of community banks vetted by star bank analyst Chris Whalen lest one worry about the soundness of community banks. They even have an associated video (embedded below), which is a mashup of scenes from “It’s a Wonderful Life.”

All in all, it is a worthy effort.

I did link to the story on Wednesday, but I haven’t voiced an opinion. Part of my silence goes to time; I simply haven’t had enough time to write something semi-coherent on the effort.  But, part of it also goes to how I would address the rather stark delineation they make between the good community banks and the big bad banks. Obviously, it’s not so stark a difference in reality. After all, reckless community bank lenders fail every week, don’t they?

And, the too-big-to-fail banks do have a government backstop. This is why they are too big to fail. Moreover, Citi and JPMorgan have traditionally focused heavily on corporate business and not on deposit-taking branches. So, to the degree this is about reducing bank size, this effort may not have enough impact on these two institutions. BofA and Wells Fargo are retail oriented institutions, however. Either way, deposits are insured up to $250,000 dollars, so I suspect there is not a lot of risk to consumers here one way or the other.

On the whole, I applaud the effort because a large part of the anger people feel stems from powerlessness in the face of the obvious crony capitalism and kleptocracy which our elected officials foster. This is a great way to both give people a sense they are empowered and to give politicians and Washington a sense that people mean business on this issue.  Maybe it will effect change.

But, this effort faces an uphill battle. Yesterday, I saw CNBC’s Larry Kudlow beating up on his invited guest Arianna Huffington in a mean-spirited way because of how starkly delineated a “good community bank versus bad too-big-to-fail bank” argument she and Rob made.  While I noted this as well, this was a very ugly piece of financial journalism.I fault Kudlow for creating the ugliness.  He was pushing a specific line of argument to the point where he was talking over his invited guest. Frankly, I found the whole thing embarrassing for CNBC and was shocked at how poorly Huffington was treated.  If I find the video I will post it.

Update: Here are the videos of Huffington and Kudlow. In the second video, James Pethoukoukis and Arianna Huffington agree that the Democrats will suffer in the mid-term elections this year – in large part because of the political capital lost on too-big-to-fail backstops. This is a theme I will discuss later.



Move Your Money: A New Year’s Resolution – Huffington Post

  1. linus says

    Ed, i found nothing mean-spirited about what Kudlow said. They were both making their arguments passionately, period. Arianna was as forceful about her argument as Larry.

  2. maynardGkeynes says

    “I found the whole thing embarrassing for CNBC”

    I didn’t think that was possible.

  3. TomOfTheNorth says

    While I’ve found Larry Kudlow to be an excellent public speaker when delivering prepared remarks, I often cringe (and more than rarely mute the sound) when he is engaging in more ‘informal discourse’ on topics where he has, um, strongish opinions. That said, I found his demeanor in the clip to be uncharacteristically laid-back following Ms. Huffington’s premptive ‘Scud’ of “I don’t know why anybody is still listening to you!”.

    In this instance, I found I was significantly more turned off by Ms. Huffington and this on a discussion where I’m in total agreement with her position.


  4. Mark Wadsworth says

    Agreed. It’s not clear cut. If people withdrew their savings en masse …

    1. Govt would merrily bail out the larger banks (with whom it is in cahoots).
    2. Smaller banks wouldn’t know what to do with the money.

    I think they’re tackling this from the wrong end – deposits do not create loans, loans create deposits. So for it to work it would be more important for borrowers to remortgage with the smaller banks (rather than for savers to move to smaller banks), that way the deposits will follow, and there would be no excuse to bail out the big banks because they would not require much finance.

    1. Kirk Kinder says


      I don’t concur with you. If people pull their assets from the big banks, it would put so much stress on their capital base that they could fold. They would have no reserves left if they lose a substantial portion of their deposits. The lending doesn’t create lending; it is the other way around. Without deposits, the fractional reserve lending process breaks down.

      Of course, you are probably right that the government would run to their defense. However, if the hole is too big, even the government would have to face the fact that they can’t be saved and bring in the FDIC to liquidate.

      At the least, this might keep these big banks from getting a huge bonus in 2010.

      1. Mark Wadsworth says

        Kirk, I suspect you didn’t understand my point.

        Please try to imagine what would happen if all the people who had mortgages with Big Bank decided to remortgage elsewhere.

        If they did so, then the government would have no excuse for bailing the bank out, as they would not have any assets that need to be financed. Big Bank would no longer be able to pay interest to depositors, so these would drift away of their own accord (without anything terrible happening).

        Remember that from a bank’s point of view, borrowers are CUSTOMERS and depositors are SUPPLIERS.

  5. Onlooker from Troy says


    Surely you’re not surprised at Kudlow’s behavior here, are you? This is just the status quo for that blowhard. His political and ideological bias colors everything he says, and he has demonstrated over and over that he has no shame. And as for CNBC in general, blech.

    As for the “Move your Money” campaign, I applaud it. I’m not sure what good it will do, but why not deprive these banks of as much retail business as possible? They are horribly predatory in their practices. Their business model is largely made up of ways to trick and trap their customers in any way possible. It’s atrocious. And they’ve gobbled up so many smaller banks over the years that many of these people are with them solely as a function of inertia.

    At minimum maybe it will get their attention and they’ll be forced to treat their customers better. I can also hope that the marginal effect of fleeing capital will bring them to their knees. And maybe finally we’ll actually let them fail as they deserve to.

  6. ukipwebmaster says

    You may want to reconfigure this campaign slightly:

    1. Edward Harrison says

      I commented on Mark’s site:


      You make a great point about borrowers. I made the same point when I mentioned that Citi and JPMorgan have not traditionally been retail banks and their business is with corporates. They are the traditional corporate lenders.

      JPMorgan is more leveraged to retail lending now via WaMu and Chase but still they are not even focused on the retail business to the degree that I believe this campaign will be successful.

      The point still holds that lending is an effective channel through which to do this. Huffington and Johnson didn’t focus on the borrowers for three reasons.

      First, this is about giving people a sense of power where they now feel powerless in the face of crony capitalism. It is also a visible way of showing ‘civil disobedience’ as a message to the political elite.

      Second, renegotiating loans is costly and many borrowers are underwater. That is a non-starter for most.

      Third and most important, bank runs usually occur on the liability side of the balance sheet. In the case of bank runs at Northern Rock and Lehman, it was ‘deposits’ in the form of the inter-bank market and in the case of WaMu, it was retail deposits. So, it does make sense to attack it from this angle. You could say Huffington is almost (but not quite) encouraging a bank run – not that it would be successful for the reasons outlined above. It might succeed at Wells or BofA.

      Deposits are overnight liabilities whereas loans are term transactions. It is the borrowing short and lending long part of banking (in addition to fractional reserve banking) which makes banks vulnerable. That’s why if you want a bank to feel stress you do it on the liability side.

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