What I Learned Today

Is Your Money Safe?

There are between 90 and 150 banks on the FDIC Bank Watch List. Is yours on it? Mine is.

I bank at WAMU, so I’ve been keeping watch of the headlines about the state of uncertainty that the bank is in - “Wamu credit concerns grow,” “Wamu Falls Third Day as Investors Focus on Funding,” “Will the Fed Have to Rescue Wamu?”

So what happens if my bank goes under? Should I pull my money out while I can? If I keep it in the bank and Wamu goes bankrupt, do I get my money back?

What happens if your bank fails? This depends on…
1. If your bank is FDIC insured.
Most are, but it’s good to check. The FDIC, the Federal Deposit Insurance Corporation, was set up in response to bank failures in the 1930s. It is an industry-funded, government backed reserve of about $53 billion used to insure money you deposited in your bank in the event that bank fails. It guarantees all deposit accounts like checking, savings, IRAs, CDs, money market savings accounts (your ING accounts). It does not guarantee “investment products” like stocks, bonds, annuities, or mutual funds (your e-Trade accounts).   If your bank is FDIC certified you don’t have to worry. In its 75-year history, no customer has ever lost a penny of insured deposits.

2. How much you have in your bank.
The FDIC guarantees only up to $100,000 per depositor per bank. Certain retirement accounts, like an IRA, are covered up to $250,000 per depositor per insured bank. A joint account is insured up to $200,000. Deposits in separate branches of an insured bank are not separately insured. So if you have more than $100k at a bank, even if it’s in multiple accounts, you should consider splitting your assets up into different accounts at different (FDIC insured) banks. In the case of bankruptcy, you will get your money back up to the insured limit. It may take a while, but you will get it back.

Should you take your money out now while you can?
Failures are rare, but we’ve seen seven so far this year. And bankruptcies aren’t announced. Neither the FDIC nor the bank will send you any sort of a warning or bankruptcy notice.  In fact, the FDIC doesn’t even share its watch list, though the news, other rating services, and, in the case of Indymac, public servant politicians provide customers the transparency that is needed.

That’s why we have a bank run, when some news or event triggers customers to panic panic and run to the bank to withdraw their deposits for fear of insolvency (ie, no more cash). It makes sense that you’d want your money out of a bank that may go bankrupt. However, that just contributes to the insolvency.  See, a bank only keeps a fraction of its total deposits on hand. The rest is invested in securities and loans. That’s why you get interest - because you’re basically loaning the bank your money, and they take that money and loan it out to make interest. Your bank doesn’t have enough cash on hand to accommodate everyone withdrawing their money at once.

So the more people withdraw, the less cash the bank has, the more likely it will default, the more people want to withdraw. It’s one of those vicious cycles.

Photo below from IndyMac’s July 2008 bank run looks a lot like that from 1933.

Have You Seen Tom Collins?

It’s my first summer in New York, and everyone was right – it’s hot here.  And because there’s nothing better on a hot summer afternoon than a nice cool drink, I’d like to introduce to you my favorite summer drink, the Tom Collins.

Tom Collins was first introduced in 1874 in The Great Tom Collins Hoax.  It went a little something like this:

“Have you seen Tom Collins? If you haven’t, perhaps you had better do so, and as quick as you can, for he is talking about you in a very rough manner – calling you hard names…” (Gettysburg Herald, 1874). People would go racing around town on a wild goose chase to find the fictitious character.

The hoax “belong[ed] to New York, where it was played with immense success to crowd houses until it played out.” Per the Steubenville Daily Herald in 1874, “frantic young men rushed wildly through the streets of the city on Saturday hunting for libelous Tom Collins.” They were often directed to the local bar, where Tom Collins had just left for another bar across town.

Newspapers propagated the hoax by printing sightings and urging citizens to find the slanderer. The Decatur, Illinois Daily Republican printed “Tom Collins Still Among Us,” in June 1874. “This individual kept up his nefarious business of slandering our citizens all day yesterday. But we believe that he succeeded in keeping out of the way of his pursuers. In several instances he came well nigh being caught, having left certain places but a very few moments before the arrival of those who were hunting him. His movements are watched to-day with the utmost vigilance.” Once the papers realized the hoax, they continued the propagation, reporting false sightings and projecting Collins’ next move.

So how did the Hoax turn Drink? Per cocktail historian Eric Felten, who has an ever intriguing weekly cocktail column in the Wall Street Journal, “It doesn’t take much to imagine how Tom Collins came to be a drink. How many times does someone have to barge into a saloon demanding Tom Collins before the bartender takes the opportunity to offer him a cocktail so-named?”

There’s where it gets tricky. The first Tom Collins recipe dates to the 1876 edition of Jerry Thomas’ “The Bartenders Guide.”

The Recipe is:
(use small bar-glass)
Take 5 or 6 dashes of gum syrup
Juice of a small lemon
1 large wine-glass of Gin
2 to 3 lumps of ice;
Shake up well and strain into a large bar-glass. Fill up the glass with plain soda water and imbibe while it is lively.

However, there’s an old “John Collins Limerick”

My name is John Collins,
head waiter at Limmer’s,
Corner of Conduit Street,
Hanover Square,
My chief occupation is filling brimmers
For all the young gentlemen frequenters there.

which is cited as evidence that the John Collins drink (the recipe above, but with oude genever gin, which had a whiskey–like body and juniper notes) was created in England by John Collins, a waiter at Limmer’s Old House in London.  The Tom Collins was just an adaptation that substituted a sweeter gin for the whiskey-ish gin and was named “Tom” Collins because the brand of gin was Old Tom.

That story has been disputed, however. The limerick may have actually read “Jim” and was mistranslated, and the drink that the Limmer House was claiming may have been the Gin Punch.  Beverage historians have yet to agree on a common story.

Either way, it’s a delightful summer drink, referred to as “the king of cooling drinks.” It used to be the official drink of the summer. In my book, it still is.

I’m making it with: 1½-2 oz gin, juice of ½ lemon, ½ oz simple syrup (boil 2 parts sugar, 1 part water until syrupy), 4 oz soda water. Build it on the rocks in a Collins glass. Garnish with cherry. Note – don’t order at a bar. They’ll use lemon-lime mix. Yuck.

Want a 100 billion dollar bill?

And this isn’t even even the most outrageous banknote in history. The Economist lists the highest-denomination national banknotes since 1900. They are:

1,000,000,000,000,000,000    Hungary Pengo, 1946
100,000,000,000,000    Germany Papiermark, 1923
500,000,000,000    Former Yugoslavia Dinar, 1993
100,000,000,000    Zimbabwe Dollar, 2008
100,000,000,000    Greece Drachma, 1944
50,000,000    Poland Marka, 1923

Zimbabwe ranks fourth, though its status may soon change. The central bank governor announced the Reserve Bank of Zimbabwe will remove “more zeros” from the country’s currency - 10 to be exact. And it will resuscitate the use of coins that were earlier abandoned due to hyperinflation.

What’s hyperinflation? It’s when inflation is out of control. Prices increase rapidly and currency loses value. A classic trigger is extremely rapid growth in the supply of paper money. A nation issues large quantities of money, often to pay for a large stream of government expenditures. The more money issued the less valuable it is.  Inflation in Zimbabwe is officially pegged at 2.2million percent, with the value of goods doubling every 21 to 25 days.

In further efforts to curb cash shortages, the RBZ will also increase the withdrawal allowance to $200b. Before now, despite outrageous inflation, the RBZ limited cash withdrawals for individuals and corporations to $100 billion daily. That’s barely enough to buy a single candle in a country where power outages are frequent. Uniformed forces, however, were able to withdraw $1trillion daily.

The new currency will be issued August 1, per the RBZ. But how will they print the new currency?  Earlier this month, the Germany company Giesecke and Devrient that has been Zimbabwe’s banknote paper supplier for 40 years halted its supply in protest of Zimbabwe’s deteriorating political and social-economic situation.

Using Math to Find Mr. Right

1. The Mathematics of Marriage: In their book, The Mathematics of Marriage, mathematician James D. Murray and psychologist John Gottman describe their use of calculus to study interactions between couples. Using a model Gottman developed in 1979, the pair surveyed 700 newly married couples in King County, Washington in 1992. They analyzed the couples’ 15 minute conversations using a scoring system that assigned a number based on each statement, expression, even pulse rates. The model quantified the ratio of positive to negative interactions during the conversation. They found the magic ratio was 5:1; when the ratio of positive to negative interactions falls below this, a relationship may be in trouble.

These numbers were plotted as a function of time and were used to make predictions as to whether the couple would i) divorce, or ii) stay married a) happily, or b) unhappily. They called this the “Dow Jones for Marital Conversation.” Every 1-2 years until 2004 the couples were asked to complete a questionnaire assessing their marriage and these were compared with the predictions. The prediction of which couples would get divorced was 94% accurate, and typically divorce occurred after 4 years.

2. The 37% Rule: In 1997, Dr. Peter Todd of the Max Planck Institute in Munich described his 37% rule, also known as the secretary rule.  Imagine you have to fill 1 secretarial position and have n # of applicants, ranked from best to worst. Assuming you skip the worst ones (n/e of the applicants where e is the base of the natural logarithm), and you only interview applicants who are better than those you have already interviewed (n/e + 1 is better than all previous n/e interviews), the probability of selecting the best applicant form the pool rounds to 1/e, or around 37%. Hence, you should be able to pick the best secretary after interviewing 37% of the applicants.

If there are about 100 potential “mates” you don’t have to date 37 people to finally meet Mr. Right, #37. Instead, Dr. Todd advises you set your “aspiration level,” what you are looking for in a partner, to a range. Then date only those who are in the top 25% of that range. Your sample size, therefore, is reduced to only 10 dates. One of those should make the cut.

3. The “What are the Chances My Marriage Will Last?” Equation: Garth Sundem, author of GeekLogic created his own equations to determine 1. What are the Chances My Marriage Will Last? 2. Should We Get Married? and 3. How Many Kids Should we Have?

The “What are the Chances my Marriage Will Last? is based on an 11,000 person study by the CDC that explored factors that help and hurt a marriage’s chances of working.

Here’s the equation:

where
A= Her age at time of marriage
E=Current combined years of post-high-school education
K= Number of kids from this marriage
R= How religious is the couple (1-10 with 10 being “the Pope”)
D= Combined number of divorces of couple’s parents
P= Combined previous marriages
T= Years at which you are computing the chances
H._E.A. = % chance of Happily Ever After

But don’t worry about calculating it out yourself. Over at Political Calculations, you can type in your personal data and it spits out the probability you and your partner will still be married at a given year of anniversary.