Up Front: November 2008

Born to run

After my haircut, Hamp Dowdy would strop his razor — punctuated by a harrumph and spit of tobacco juice into his coffee can — and shave around my ears. Then he’d shake talc on a horsehair brush and swab my neck as if beating out a brushfire. My dad would squeeze his thick wallet out of his bib overalls and give the old barber a dollar. All of which helps explain why I just took part in a bank run.

Hamp’s one-room barbershop next to the train tracks in the village of Huddleston, Va., had been a bank until the Great Depression. It was a little brick building, and they kept the safe in back, where Hamp stored his broom and supplies. My granddaddy had lost his money when the bank failed. Hence my dad’s thick wallet. We were poor, but he trusted bib overalls more than banks.

I banked at Wachovia starting before First Union bought it, when it was really Wachovia, conservative and based in Winston-Salem. Through laziness — direct deposit, CD rollovers and such — I was several times over the insured limit. So what? The newspaper I used to write for sent me to college to study Wall Street. I knew the mantra — depositors insured to $100,000. But what did that really mean?

I found that the Glass-Steagall Act of 1933 created the Federal Deposit Insurance Corp. at a time when most banks counted their deposits in thousands, not billions. Today, the FDIC reserve can cover 1.22 cents on the dollar of deposits. Brokerages have gone belly-up with 1-to-40 leverage ratios. There were loopholes in the FDIC, too. Depositors would get their money back “as soon as possible.” A year? Ten years? I wouldn’t panic. I’d just withdraw a good-sized chunk, not everything.

On Friday, Sept. 26, I told David Kinney and Frank Maley — Frank was working on the banking story that begins on page 60 — that I’d be back in a minute. But when I walked into my branch, I knew it would be longer. The weary manager whispered something to a teller. On the bank’s internal TV channel, Carlos Evans, head of wholesale banking, was waxing about how well the bank was capitalized.

The teller leaned closer. “I’m sorry,” she said. “We’re having to phone these in for approval today.” She lowered her voice. “It may take 45 minutes. They’re trying to slow down withdrawals.” My stomach sank. This must be how my granddaddy felt in 1930. This was a bank run, 2008.

The next week, I learned that if the FDIC hadn’t jawboned Citigroup into that since-annulled shotgun wedding over the weekend, Wachovia couldn’t have opened Monday. That would have posed what Treasury Secretary Henry Paulson and FDIC chief Sheila Bair both called a “systemic risk” to the American banking system. On Friday, Wachovia depositors like me had withdrawn $5 billion. Our banking system, I feared, had gotten like my dad’s overstuffed wallet — too big for its britches, and the FDIC.