Chris Rowe

Another Reason to Trade Options

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NO HAPPY ENDING IN SIGHT

Fast-forward to a beautiful summer morning in late August 2008. While you were probably eating breakfast, Bob O'Shea was sleeping in. Finally, after 30 years of working, he'd sure earned it.

He woke up and turned on the TV. As he was starting his day, he loved closing his eyes while he listed to his favorite news anchor, Maria Bartiromo, as she'd talk about the markets.

Eyes closed, he listened to her talk until he heard the words that sent shivers down his spine:

"ShmindyShmac Bank, which once employed 10,000 employees, fell prey to a classic run on the bank. This institution failed today due to a liquidity crisis. Although this institution was already in distress, the deposit run pushed ShmindyShmac Bank over the edge. ShmindyShmac Bank is now the third-largest financial institution failure in U.S. history!"

He fell out of bed, heart racing. Bob's anxiety level skyrocketed as Maria went on:

"Regulators said deposits were safe and insured by the FDIC ..."

So, Bob started thanking his stars.

Then Maria continued, "...up to $100,000. So again, as long as your deposits are $100,000 or less, they are fully insured by the FDIC and you have nothing to worry about."

You can imagine the expletives that came out of Bob's mouth.

The epilogue to this story is that the FDIC took the bank over, retained the assets and sold them. So Bob has to wait for the FDIC to find out how much the bank's assets are really worth, and then sell off the bank's assets, if possible. Then, with any luck, they'll return part of his deposits depending upon what they were able to recover.