Mattress Savings

We are not in a depression! We are in fact very far off being in a depression and it’s important not to panic. Even though you’re hearing Wall Street is in frenzy, stuffing all your cash in your mattress will not help anything. It will actually make things worse. (If you think you can link today’s economic climate to depression indicators...I wholly welcome the debate and comments.) Otherwise, take my word for it…squirrel soup is a long way off yet.
About two weeks ago a co-worker of mine was bragging about how he had actually stashed all his cash under his mattress!! Yes, it might have been really cool that he had a mafioso-like amount of cash hidden under his mattress, but it doesn’t validate the kink he probably had in his neck or the kink he helped put in the banking system.
In my last post I gave the example of Washington Mutual who had given bad loans to people who couldn’t afford them. Well, in the 6 days that WaMu went from troubled to failed many a mattresses were filled. As WaMu was struggling to keep its books balanced, news on the street was causing panicky depositors (i.e. customers) to pull their money from WaMu, depleting what little capital was keeping them afloat. In the last few weeks of WaMu, depositors pulled out $16 billion just to throw it under their mattress or invest it into other banks like JP Morgan who eventually bought the failing giant from the FDIC. The irony in all of this was probably that the $16 billion was safer left in the bank at Washington Mutual then anywhere else and furthermore that $16 billion was almost 10% of the banks assets that quarter. Now, had those depositors all kept their money in the bank there is a possibility the bank might have been able save its self. Without looking at the books it’s hard to really know, but when WaMu CEO’s started speculating over the straw that broke the camels back…they publicly blamed the market while pointing fingers towards deserting depositors. Meanwhile, those who left their money in the FDIC insured WaMu lost nothing because every cent up to $250,000 (for every individual account) & $500,000 (per joint account) was guaranteed by the FDIC & US government (a company that has never minded running in the red). Not only did these savvy savers save themselves the time & trouble of transferring money, but most of them also got upgrades in services with JP Morgan’s free workplace checking and on-line banking. What a deal!
So, even if three banks you had money in failed you wouldn’t lose a cent as long as you weren’t letting any more than $250,000 or $500,000 sit in any one bank account. (If you have any more than that in one bank you should seriously consider spreading out your money or investing in IRAs, trust funds, and/or my student loans.)
In conclusion, feel free to pull your money out of the bank, but don’t expect to sleep any better at night on a lumpy mattress.