Hey Emory, I had just sent the following to Ed Yardeni after reading info on his website. My email is about a seperate worry I have on banks & Y2K. Yardeni's site has a vast array of Y2K articles amd excerpts of testimonies from Gov. officials. The best 'synopsis' Yardeni offers is 52 pages long. Print it out at yardeni.com
I sent this email to Dr. Yardeni after I read the entire 52 page 'y2k book', which I recommend that everyone read, especially the sections on utilities:
To give a boring preface, I've seen you on PBS and various other
programs talk about Y2K. I am in full agreement with your concerns.
We need someone who's intelligent like yourself to 'rally the troops' on this event, so to speak. I printed the 52 pages from
yardeni.com yesterday. After reading about the Utilties, the situation seems especially grave. But there's one serious consequence to the whole Y2K thing that you have yet to discuss in the Y2K book or on TV in great detail: You've already discussed and analyzed the problems banks face regarding the obvious demand for cash that will occur in late December 1999. However, you give this area no greater emphasis than others. I believe that this area will cause a short but painful national catastrophe.
Let's run off three key facts:
In relation to the following, I believe that the populations' CURRENT
view on Y2K is as follows, but will probably shift increasingly towards the pessimistic side through 1999.
Optimists = 20% (those who believe its a hoax or that nothing serious
will occur).
Pesimists = 10% (those who believe we will have armageddon).
Middle of the road = 70% (those who believe we will have semi-serious
problems but nothing that will be unmanageable).
The Facts:
1. A very recent issue of IBD mentioned a Harris poll that showed that
60% - 70% of those polled plan on withdrawing more cash than normal in
late Dec. Of that 60%, 20% or so will withdraw 80% - 100% of there
savings, thus roughly 9% - 12% of the population wants ALL there cash on 12/31/99 to be in there possession.
2. Your first issue of Time or Newsweek that arrives in 1999 will
obviously have some cover story entitled 'Only 364 more days till the
end of the world' or something similar. As you already know, if the
quiantity of Y2K doomsday scenarios seems high now, just imagine what
a circus the media will conduct once 1999 arrives. Panic will build as we become overwhelmed with doomsday scenarios from journalists all over the world. There's no stopping this. My sister asked me when we were discussing this over the weekend 'Won't there be just as many articles saying that everything will be fine?' I answered 'No, because the doomsday scenrios will obviously sell more periodicals and attract more TV viewers than optimistic scenrios.'
3. You quoted Greenspan addressing the need for Banks to have extra cash on hand, and the Fed will thus increase the amount of currency in
circulation.
My main theory is this: regardless of whether the world collapses on
1/01/00 or everything is just hunky-dory, we are in deep trouble because of this demand for cash thing, thus I submit that the most awful event will happen well before the clock strikes midnite. As the public becomes bombarded with articles next year, John Q. Taxpayer (70% of the population according to my above breakout) mulls
over his course of action. Should I withdraw money? Yes, of course. How much? Well, maybe double what I usually would withdraw in a week. But wait, what if the credit card/verifone systems are down? Better make it triple. Anyway, what have I got to lose? If everything is fine on 1/02/00, I'll simply re-deposit the money on Monday. However, if computers are down, I'll obviously have the peace of mind that I withdrew enough cash to last me a few weeks (This last line of thought is the key - the citizen sees nothing negative about withdrawing his money simply because he will re-deposit it on Monday if everything is cool).
The results will obviously be some sort of semi-panic as the bank
tellers become horrified at the lines leading out the door. Even if the banks get enough cash on hand, which will have to be at least 5 times what they normally have withdrawn in a week (because 10% of the pop. will withdraw nearly everything, dont forget) the nation faces yet another problem which will result from the withdrawals- the bond market.
You wrote in the Y2K book that interest rates should approach 3% as the millenium approaches. I have a drastically different view. I believe rates will soar as the millenium approaches. If people are withdrawing such a high vol. of cash, something has to give. Money Market funds will be slaughtered due to the withdrawals. You have thousands of MMFs in the U.S. If 5% - 10% of the money in the MMFs was suddenly called for withdrawal/redemption, the bond market will obviously crash. How can it not? Some commercial paper and T-bills in the MMFs will obviously have to be sold in order to meet the demand for redemptions. Bond prices will plummet and yields will rise. You may suggest that the banks set up repos with the Gov. to meet the demand (every bank will need cash thus one could not borrow from another as usual), whereby the Gov. will supply them cash overnight while holding the MMF comm. paper & t-bills as collateral. But what if the money is not all re-deposited on monday? Not a single bank will be off the hook. This is where I'd especially like some feedback from you - am I wrong here or does my scenario have merit?
I read the analysis of world leader responsibilties on this area. I
think its a double whammy for them. If they say 'please citizens, don't withdraw all your money, everything will be fine' then they may cause a panic. If they don't say anything of the sort, then that's irresponsible of them in light of their positions.
By the way, I fall into the 70%, but maybe just a little more
pessimistic than the mean- I don't think that Y2K will be the end of the world, but I think it'll cause some seriours headaches. By the way, I personally plan to withdraw enough cash for a month. What if debit cards, ATMS, and verifones are screwy? I'll obviously be glad I did. I am also advising my friends and family to do the same.
As an analyst at a research company, I read SEC filings all day long. In the most recent ones, I am finally seeing the companies expand on the lame, 1/4 page Y2K blurbs that were given in their 10-Ks. I'm getting 10-Qs from all sorts of companies where they are now giving exact figures as to the cost of the problem to the company. Just months ago, every single one said that the cost would be immaterial. Now its $2B here, $10M there.
Thank you for your time, I and everyone appreciates your diligence,
whether we agree with you or not. |
