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Wednesday, March 12, 2014

Got Savings? Maybe Not For Long

Funny how the US Mainstream Media has been quiet on this.  Yeah, funny.

The media tells us how great things are here in the US and around the world.  Just look at the stock market soar!

Then we hear of RadioShack closing a quarter of its stores.  And Staples closing 10%.  Every major mortgage originator is laying off staff.  We look at local malls and traffic is lighter than normal, and there are many more closed stores.

Sure, there are exceptions, but in general, the economy is still in decline, regardless of the Happy Talk heard in the media.

The same thing is happening around the world.  In Germany, there are renewed calls for Quantitative Easing - just like here ("Top German body calls for QE blitz to avert deflation trap in Europe").  Apparently, everything isn't all strudel and pretty little frauleins.

Here's what's got me concerned, though.  Their banks.  All across Europe.  They are cranking up the volume on that most dreaded of government confiscations:  Bail-ins.

As a reminder, when they do a bail-in (as opposed to a bail-out), when your bank goes teats-up, YOU pay the bill for the failure via confiscated deposits.  In fact, ever since the Dodd-Frank bill was passed, it is illegal for the federal government to ever bail out a bank again.

You, as a depositor, are considered a creditor to the bank, and it makes your deposits a free target for the liquidator of the bank.  Gives ya the warm-and-fuzzies, don't it?!

Anyways, it seems that Standard and Poor's is threatening Euro banks with ratings downgrades because of.... wait for it..... renewed talk of bail-in's - 
The move towards "bail-ins" and away from government "bailouts" continues to evolve and yesterday credit rating agency, Standard and Poor's  (S&P) warned that this could lead to credit ratings for European banks being slashed by one or two notches.
Following similar moves in the U.S., European banks could see ratings downgrades if regulators continue to move towards depositor and bondholder “bail-ins.” S&P signaled that it would review its ratings on banks by the end of April this year.
"BFD!" you may say.  "Let the Eurotrash rot!"  Well, yes it is a big deal.

The world is one big, interconnected marketplace.  Our banks lend to their banks.  Their banks buy bonds in our banks.  All of them buy government bonds.  All of them are infected with the same malady.

It's like having sex with someone you just met.  "You don't look like you have herpes, but did your previous partners have herpes?"  Who's your bank's been sleeping with...?

When it hits, it hits the whole economy.  It starts a trickle-down of financial hell - 
Some have warned that bail-ins could also damage the wider economy as it could mean that banks have to charge higher interest on their lending as a result. In our research, we have highlighted that bail-ins may have a very negative impact on consumer and business confidence as people’s life savings and cash balances of companies are confiscated as seen in Cyprus.
S&P said developments in the U.S. towards "bail-ins" meant that its rating outlook on eight U.S. banks had already been impacted and now they are turning their focus on European banks.

Accept The Challenge

Want to keep your money?  Consider these strategies -

>>Use small, local banks.  They are much less likely to have ties to international banks and their domestic brethren.  I personally prefer credit unions, as the people seem nicer!  Over my 30+ year banking career, I worked at Too Big To Fail banks, and small 2-branch mom-and-pops.  The smaller banks were always better run.  Always.  Shoot for something in the 4- to 20-branch range that has a good Bauer Financial (or similar service) rating of no less than 4 (out of 5) stars

>>Spread your deposits over multiple banks.  Unless the entire US banking sector crashes all at once, you're at least able to get to some of your money.  And, if as happened when Cyprus was limiting access to people's money, you can get multiples of the daily allowed amounts by making withdrawals from each of your banks.

>>Money in safe deposit boxes are no safer from being confiscated than being in a bank account.  In general, they are LESS safe overall, as they're not covered for loss in the event of a robbery of the physical branch with the box.

>>Work on getting at least a portion your savings into tangible assets like gold or silver.  If you're uncomfortable or reluctant, go slowly.  It too me over 4 years to finally convince my own mother to put some of her money in precious metals.  If you do this, remember, you now have the risk of needing to protect that precious metal hoard.

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Copyright 2014 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


Adam said...

Excellent article. I'm going to have to do more research from S&P. I also did not know about Bauer. I also didn't think about the multiple bank accounts idea.

Chief Instructor said...

Adam, sorry, not getting notified of comments.

Things are getting much more shaky - even since this article. Nothing makes any sense in any of the markets. More talk of Euro bank problems.

US big banks all just passed an interest rate stress test - BFD. If they did a mark-to-market evaluation of bank loans (pricing them at market value as opposed to outstanding loan balance value - as used to be the law) they'd all be declared insolvent. As they should be.

No other business sector in America is allowed to price their assets in this manner.

It's all smoke and mirrors...