.Is Your Bank Actually Safe
Is Your Bank Actually Safe
Notes From The Field By Simon Black
Here’s an easy way to tell if Your Bank Is Actually Safe
March 15, 2013 was a pretty normal day in Cyprus. It was a Friday, and most people were looking forward to a relaxing weekend.
The next morning the entire nation woke up in horror. Their politicians had been up all night, negotiating with international lenders to provide an emergency loan to the country, and its banks.
It turned out that the banks in Cyprus were all insolvent; just like banks in the United States during the 2008 sub-prime crisis, banks in Cyprus had been making idiotic decisions with their customers’ hard-earned savings.
And by 2013, the banks’ losses were too great to ignore.
Unfortunately for depositors, the government of Cyprus was also broke, and they were unable to bail out the banks.
So they came up with a new idea. Instead of a bail-out, they had a bail-IN.
First, they closed all the banks. ATM machines quickly ran dry and ceased functioning altogether. Then they just started confiscating deposits. They called it a ‘tax’, but it was theft, plain and simple.
The government just came in and grabbed money from people’s bank accounts... then gave it right back to the banks to bail them out.
It was an incredibly important lesson about banking: most people simply assume that their bank is in good financial condition… that, since the bank is regulated and insured by the government, our money must be safe.
Sometimes that’s an incredibly dangerous assumption to make.
Even in the US, we’ve seen how quickly banks’ idiotic decisions can unravel. Back in September 2008, the entire US financial system came crashing down, practically overnight, just like in Cyprus.
A big part of the reason is that banks have very little incentive to act conservatively and responsibly with your money.
Think about it-- you walk into a bank and hand them your paycheck, and in exchange they offer you a ‘free checking account’.
Really? Free? If it’s free, then how does the bank pay for all of those fancy buildings and huge bonuses?
Simple. By taking RISKS with your money. They make loans and other investments-- bonds, auto loans, home mortgages, etc. And each of those carries some kind of risk.
To pretend otherwise is foolish. There’s risk in everything you can possibly do with money… whether buying a government bond, stuffing cash under your mattress, or owning Apple stock. There’s always risk.
And they take these risks with upwards of 97% of their deposits.
Current US banking regulations, in fact, require as little as ZERO PERCENT of customer deposits to be held on reserve, meaning almost all of your money can be gambled away on whatever investment fad makes the bank the most money.
And that’s the problem: the incentives are all wrong.
Banks make money by putting YOUR money at risk. But they don’t share the reward. They pay you some pitiful interest rate like 0.02%. And then keep all the rest for themselves.
To continue reading, please go to the original article here:
To your freedom & prosperity, Simon Black, Founder, SovereignMan.com