Friday: not quite independent and also FDIC rambling

I’ve gotten to sleep in a couple days this week, because I was not needed for hair. Woot! However, today, I had to get up to do Things. I did hair. I helped with clasps (one bracelet, 2 necklaces). I filled a peri bottle. While I was up, I dealt with some stains.

At that point, I was awake enough to be hungry, so I stayed up. I’d been up a little past midnight, so that means I’m a little punchy and may take a nap later, but I have to get up early to drive over to Albany tomorrow for a birthday party AND I intend to stay up a little late to do zoom cocktail hour. Getting up early-ish and taking a nap is probably the correct decision.

In the meantime, I’m reading news and there are a lot of people (last week on zoom cocktail hour and just everywhere in the news and also on podcasts like Odd Lots that I listen to) talking about banking regulations. The last gasp of we-shouldn’t-have-gotten-rid-of-Glass-Steagall is circulating. People are however finally talking about getting rid of the limit on deposit insurance.

A really long time ago — basically, when we finally got rid of the last remnants of Glass-Steagall — I was a lot younger and setting up my first Not Just a Checking Or Savings Account type of account. I kicked the tires on these kinds of accounts, because first of all, I was trusting them with a lot more than I had ever had in a Checking Account or Savings Account and also, it was very clear that these things were NOT FDIC insured. There was SIPC, but if you read the details on that, that’s not super inspiring. And money market funds “breaking the buck” was a thing that people had been worried about in the news for long enough for me to notice even back then, when I wasn’t that big a consumer of news. Also a thing in the news: celebrities whose financial advisor stole all the money and ran away to Mexico or whatever.

I resolved my fears by setting up accounts with two different banks (amazingly, they are _still_ two different banks), and then making sure the advisors on both sides understood that there was another team and they would never be in touch with each other and the reason I was doing this was so that if anything really criminal happened with my money on one side, I would still have a bunch of money to come track them down and do even worse things to them, independent of whether that would get me the money back or not. I felt like this created a Strong Enough disincentive; if I was inadvertently doing business with someone less than honest, they were much less likely to pick on me to be less than honest with. Also, I was not that rich, and the banks involved are massive, so I figured if there was shenanigans, the bank itself would be motivated to replenish so that no one outside would ever find out.

This is NOT how everyone with more money than the amount the FDIC will insure should have to think about things. The original team I worked with offered the option of setting up and managing ordinary bank accounts up to the deposit limit in a string of _other banks_, so that if I wanted to be all in insured cash, they could do that. They said they _did_ do that for at least some customers. The current version of that team and the bank they are at has two separate banks to offer more broadly and in a less labor intensive way a lesser version of the same service.

I mention this because if you have more than $250000 and you want it safe in cash in a bank, you have to have it in _two different banks_. Two accounts for the same person will not accomplish the goal. There are around 5K banks that are FDIC insured, so the maximum amount of FDIC insured cash deposits you can have is something like a billion and a quarter. I don’t know if any of the accounts at SVB had more than that amount of money, but certainly there was news coverage of Roku having a half a billion dollars in an account or accounts at SVB. It was common over the last several days for people to poke fun at the N00Bs who had accounts at SVB, because they didn’t have Sophisticated cash management. I, personally, was hugely entertained to learn that there was a chicken shop chain in Nashville called Fry the Coop. Great name! They used Patriot Software for payroll (I’m probably not gonna like the people who named a company Patriot Software) and — this part is sad — payroll was delayed for some of the employees of Fry the Coop as a result of Patriot Software having their customer accounts at Patriot’s bank, SVB. People were like, ha ha ha why didn’t you diversify your banking partners, Patriot. Obviously, Patriot did work on that problem after. But why should they have to?

A _lot_ of people have also been pointing out that if _banking_ regulators fail to notice problems, and if _bankers_ can’t avoid problems, it seems a little unfair to mock individuals and companies for failing to spot problems with a bank. I knew that I could pick very large (this was in the era before TBTF, but in the same spirit) institutions, and make sure the people I interacted with had appropriate credentialing, but I also knew that Bad Shit Had Happened to people who were better at doing this kind of assessment than I was. My only solution was, okay, have two, so I have something to commit revenge with, and then tell everyone that’s my plan, and hope they take that seriously.

My question is simple: what _regulatory_ purpose is served by having a deposit limit for FDIC insurance? I understand that once you have unlimited insurance for deposits, an immediate question is raised in many people’s minds about But Then Why Have Private Banks At All. There’s been talk of letting people have bank accounts directly with the Fed for a while now (“The Narrow Bank”) and boy, does the Fed not want that. Who can blame them? If someone writes a bad check, either on their own account or criminally on someone else’s account, the bank has to deal with that — it’s a customer service problem, it’s a legal problem, it’s just a hassle. But also, there’s going to be just random crap like, oh I lost my debit card and how do I get a new one. A lot of people want single payer and point out all the savings to be had by doing so, over in health insurance. We don’t do that, and everyone bemoans all the capitalists getting rich. And also, this is a way for the government to not become mired in every single customer service complaint. Imagine all the people escalating to their Representative or Senator, every time they were not happy about a charge at the doctor … or a fee that wasn’t reimbursed on the ATM … or a charge they don’t recognize but will after they harangue some poor schmuck on the phone for an hour. We’re not going to have ordinary folks banking at the Fed now or ever, because nobody over there has any desire to run a customer service operation for the entire planet.

But as long as people could get around the limit by banking in multiple banks, it seems a little ridiculous to have the limit in the first place. Especially if the FDIC is going to cover some or maybe even all deposits way past the limit, and with lapses in access that are measured in a single weekend. Does it make sense to have more than one credit card in case something happens to one and you have to wait for a replacement card? Sure! That does NOT mean you should have to have a different credit card for every additional N dollars you might want to charge in a billing cycle. If you have a bunch of cards, you can generally close several, and get the dollar limit on the ones you closed added to whichever one(s) you kept. I just don’t fully understand why it doesn’t work this way for bank accounts. I mean, other than the obvious path dependency issue. Historic reasons to not work this way, but we’re here, we should change it.

TL;DR I can understand having two email accounts, in case one is unavailable. I can understand having two credit cards, in case something happens to one of them. I can understand having two bank accounts, ditto. But I don’t understand why there _from a regulatory perspective_ there should be a deposit limit that people can get around by having N accounts (up to a very large multiple of the deposit limit). Just because it _seems_ like you might as well let people have a checking account at the Fed if there’s no deposit limit doesn’t mean there are not really important services being provided by private banks. We can go to no deposit limit on insurance without immediately stepping to banking at the Fed.

Malls?

I was reading an article (opinion piece) about malls over at Bloomberg (sorry probably behind paywall):

“It negotiated a three-year extension on a $300 million loan on its prized Santa Monica Place in California, giving it time to fill in empty anchor stores with experiential art exhibition company Arte Museum and the popular Taiwanese dumpling chain Din Tai Fung.”

That is such an amazing sentence. It can be very hard to tell when people are sincere in the financial press, and when they are knowingly saying something they know is absolutely absurd, but with a completely straight face because if they don’t acknowledge the absurdity, it’ll get published, but if they snark, they’ll never get it out there. I’m leaning on the second option in this case, but I get it wrong more often than I get it right.

There was a recent Odd Lots podcast about commercial real estate, and there were some brief remarks about LTV for mall loans being much higher than the rest of the commercial real estate space.

A recurring theme for me has been trying to identify where we can just sort of get rid of a labor-intensive component of our economy without too much hardship. You have to be careful what you get rid of, because a lot of labor-intensive things replace uncounted home labor. If you get rid of childcare, and one person from each household has to stay out of the paid workforce, or if the adults in the household have to collectively reduce their hours to provide the childcare, or if you redirect children to care for other children, you’ll have workforce losses now or in the near future that more than wipeout any savings from getting rid of childcare.

You also can’t get rid of labor-intensive components of our economy in which the workers are essentially choosing between not engaging in compensated labor at all or engaging in whatever it is they are doing in the labor-intensive component of our economy. There are a variety of examples, ranging from people who _can_ be a greeter at Wal-Mart but who it is otherwise difficult to find appropriate employment for. They either work as a greeter at Wal-Mart or they don’t work. Also, someone who does not need the compensation for their labor and is doing it for the love of the work probably isn’t going to respond to Sorry You Can’t Make Crappy Sculptures Any More by going to work as a cashier at Wal-Mart. They’ll just keep sculpting and not sell it. Finally, there are people who are nearing retirement anyway, and by the time they are retrained, they will really be retired (or dead), so removing them from the workforce isn’t going to gain you anything either.

NONE of these examples are clearcut. If the sculptor sees that her efforts are really needed in some paid position, she might dial back the hours she devotes to sculpting, and go do That Thing for a while instead. If you automated a position out of existence that was a great place for a certain kind of person to work, you may be able to find some alternative work that is also accessible to them. And there are going to be some retired people who come out of retirement, if you structure it so they can earn some money while keeping their retirement benefits.

Companies used to have typing pools. Even after word processors entered the workplace, some still did, but they stopped growing, shrank by attrition or retraining, and eventually withered into non-existence. You can kinda tell that a labor-intensive component of the economy is headed into its twilight when there is a much more highly automated way of doing the thing, and a much more labor-intensive way of doing the thing. However, it can be surprisingly difficult to tell whether something truly is more automated or not. If you could send a runner down to a restaurant to pick up a meal, and then you installed phones and so now you could call to the restaurant to order a meal, you still had to somehow have the meal delivered. One way or another, there’s a round trip between the person who ordered the meal and the restaurant. If the restaurant can combine lots of deliveries, it can stack round trips, but rarely with anything more than a single digit improvement in efficiency. Letting people place that order on the web probably improves communication and accuracy, but again, still gotta do that round trip. And for all that Mark Rober’s video about Zipline’s drone delivery service is super cool, and for all that there are robots driving meals around in some California towns, it’s just not clear that we’ve meaningfully reduced the labor _of the delivery_ of the meal. And anyone who has been in any commercial kitchen anywhere can tell you that we still haven’t really reduced the labor-intensiveness of meal production.

OK, we totally _could have_ reduced the labor-intensiveness of meal production, but in much the same way that escalating housekeeping standards mean that for decades, women spent roughly the same amount of time caring for their homes despite “labor-saving products”, restaurant meals have also compensated for reduction in labor in producing meals by producing more complicated meals.

Ignoring meals, however, there are packaged goods, whether that is a box of toothpaste or a box of pasta or tennis balls. We discovered during the last few years that we had separate supply chains for commercial vs residential use and ordering; at the same time, we’ve been creating duplicate supply chains for e-commerce vs. ?-commerce.

(A digression:

Once upon a time, diapers were cloth diapers. Then there were paper diapers, and diapers and diapers were cloth diapers unless they were paper diapers. Then there were paper diapers and cloth diapers and if someone said diapers, people would ask which one they meant. Finally, there are cloth diapers and diapers, and diapers are NOT cloth. You can see roughly the same thing with mail: mail vs. e-mail, snail mail and e-mail, finally mail is increasingly e-mail and people act like snail mail doesn’t even exist anymore.)

Where are we on the transition from a default understanding of “retail” as occurring in person to a default understanding of “retail” as occurring online? I think we are roughly at the specify both stage: brick-and-mortar retail / online retail. However, the fact that the entire invisible logistics industry is recreating itself to support e-commerce suggests that once that process is complete, we’ll probably see big changes rapidly in in-person shopping. We won’t _necessarily_ get a ton of workers back with the dramatic reduction in in-person shopping _from the stores themselves_. However, maintaining duplicate logistics is A Lot, so we’ll probably get something from automating that industry in the direction of e-commerce. But even if there are not that many jobs “working retail” doesn’t mean there are not a lot of jobs connected to supporting the built environment of retail, and the financial infrastructure of retail. Finally, the transition to e-commerce in logistics is forcing logistics to automate _at all_ which it has resisted quite strenuously.

Will malls go away entirely? *shrug* Will malls as a central focus of suburban living continue to atrophy? Almost certainly. Destination malls are obviously an entirely different animal.

Anyway. None of that was really worth writing or reading, but now that you’re hear, didn’t that sentence from the Bloomberg article make you snort laugh? A third of a billion dollars so that they could have projected Arte and street food. Love it!

Not really about malls

I obviously need to go to Din Tai Fung, because in addition to appearing in the opinion piece I mentioned in the previous post, it _also_ appears in this article about malls at the Richmond Fed:

https://www.richmondfed.org/publications/research/econ_focus/2022/q3_economic_history