[ Ben's thoughts on bank runs seem even more relevant now than they did when he wrote this post almost a year ago, so I thought I would bump this post back to the front. Is yesterday's market bounce another example of the refusal to panic that he describes below? He also has some pretty unique ideas about the nature of money which are worth a read. -- Phil ]

Thousands lined up in front of bank branches all over the UK - driven by the gut wrenching feeling that only decisive personal action could protect their life savings from this now failing bank. Such was the scene over a period of weeks as for the first time since 1866, depositors in the United Kingdom decided en mass that their money was not safe - precipitating a run on Northern Rock, a major British bank. Bank runs make for the quintessential TV drama, featuring palpable fear, paranoia, mass and even mob action, little guy against "the man" and the potential of seeing normal people in business suits and postgraduate educations storming the now disputably impregnable bastions of finance and stability.

But, what if they held a bank run and nobody showed up? How could this happen? Indeed, has it ALREADY happened but nobody noticed?

About three months ago there was this lead from an AP story:
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E-Trade shares plummet on credit writedown, analyst says bankruptcy a possibility
Associated Press
Article Launched: 11/12/2007 12:27:25 PM PST

NEW YORK - Shares of online brokerage E-Trade Financial Corp. lost more than half their value Monday, with a Citigroup analyst saying customers were poised to flee and the company was at risk of bankruptcy. Other analysts said the pictures was not as bleak, though, and the company said assets actually improved in October. It also moved to reassure customers that it could withstand a substantial writedown of assets and remain in business. Shares of E-Trade tumbled 58.7 percent, to $3.55. Earlier in the session, shares fell as low as $3.50. Shares had traded between $8.02 and $26.08 during the past year. The online brokerage firm said Friday afternoon it would take an undisclosed writedown on a portfolio of securities and collateralized debt obligations, known as CDOs, backed by mortgages.
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After reading this and similar articles, an EtradeBank customer I was with instantly decided to take her money out via her laptop to transfer it to another bank using Etrade's online banking capability. In that moment I saw her transfer $100,000 to a decidedly less scary bank. It occured to me then that her action was without doubt being repeated by who-knows-how many myriads of depositors from all over the US in real time, perhaps - causing a "Flash Run" on Etrade. So, if this really did happen, why didn't we hear about it? Why didn't Etrade suffer the same reality show as Northern Rock? Because there was nothing suitable to show on CNN and the evening news...no drama, no lines at branches going around the corner, no man on the street interviews railing against the Man. Nothing except the sudden and vast flows of capital in the form of keystrokes and electrons from one institution to others. When there are physical runs on banks, the fear feeds on itself causing otherwise unaware depositors to become terrified and then vote with their feet to assail the doors of that bank. However, in the case of an online Flash Bank Run, this secondary effect does not occur. In the lack of TV news, most people ended up hearing about Etrade's woes, staying home in droves.

Now the interesting question is - is this a good thing? Probably and to a degree, it is a very good thing. Without going into the prudence of bank loan practices of the last several years, on a macro level it is almost always a bad thing for people to lose trust in their currency, leading as it does to horrific human consequences. Once again, our emerging "solid state" society is making profound changes in the way civilization works. But can we really see it anymore?