Feb. 23, 2008--Banks are the spoiled rich kids of the financial world, causing periodic crises that end up with taxpayers having to bail them out. It's happening again, yet people still cling to the fiction that banks are the safest place to park their cash. Nothing could be further from the truth.
The back of our currency bears the noble statement, “In God We Trust,”
but it is actually banks we most trust with our money, buying into the
notion that they are the safest places to park our hard-earned wealth.
Banks have played on this over the years by plugging the word “trust”
into their names.
That’s fiction.
The fact is that dark-suited,
“conservative” bankers have been the main culprits behind all the
financial meltdowns our country has ever faced: the bank failures of
the Great Depression; the international debt crisis of 1982; the
savings and loan crisis at the end of the 1980s; the collapse in 1998
of hedge fund Long Term Capital; and now the sub-prime mortgage
meltdown.
This crisis may be costing some people their homes, but
let’s remember that most of them bought during the bubble with
no-documentation loans (called liar’s loans) and they have very little
if any equity at stake. In fact, there is now the phenomenon that many
people are simple walking away from their homes, leaving the keys in
the mailbox for the bank.
The real loser in this current financial
bank crisis is the everyday American who has lost real value not only
in their real estate but also in their 401-K’s due to the effect this
crisis has had on the stock market.
Worst yet is that the
culprits—banks--are benefiting from their crimes because when the stock
market tanks, where do people instinctively put their money? In the
very banks that caused the problem to begin with!
Banks in our
society are like the spoiled rich kid: no matter what the kid does
wrong, Daddy--the federal government or the Federal Reserve--will
always bail him out. They screw things up and are rewarded by deposits
of funds drawn out of real investments and put into low-paying savings
accounts and CDs. The more cash banks have on deposit, the more money
they can make lending that money out, many times over.
The bankers
we blindly trust with our cash are the same ones that, in one day in
1982, lost all their past earnings (cumulatively) when the developing
world couldn’t pay back their international loans. The bankers we
blindly trusted caused the savings and loan scandals almost a decade
later that cost taxpayers $500 billion in bailouts and ruined the real
estate markets.
In spite of all this spoiled-rich-kid behavior, many
people still think that banks’ FDIC insurance will protect their wealth
while they distrust the insurance companies, an industry that survived
every financial disaster, including the Great Depression, and kept its
promises while banks were closing by the thousands.
People have a
knee-jerk reaction during scary times to pull their money out of stocks
(an ownership vehicle) and buy bank CDs (a lending transaction). This
is financial suicide. Bank CDs and savings accounts pay a pittance in
interest, a money loser when you factor in inflation and taxes. So the
banks create panic, people sell stocks out of fear, and then hand their
money over to the banks, which turn around and make money on it by
lending it to others at a higher interest rate.
Bankers never put their own money at risk. But they will be happy to take your savings and put it at risk to make them money.
So
where does one put their money during scary times? Do what the banks
do. They put their own precious funds into insurance companies in the
form of old-fashioned participating life insurance policies where the
policy-holder is both owner and beneficiary.
These mutual insurance
companies (New York Life, Northwestern Mutual, and others) are in the
business of managing money for their owners—you, the policyholder--and
no one else. These policies pay about 6 percent interest, the interest
is untaxed, your premiums build cash value that you can borrow against
(thereby becoming your own bank), and if the insurance company does a
really good job and earns a the surplus, they give it back to you as
the “owner” of the company. These mutual insurance companies have been
doing this steadily for hundreds of years.
Mutual life insurance
policies are the safest place to put your money and the companies never
act like spoiled rich kids: the insurance industry has never caused a
financial crisis and never required a taxpayer bailout.
It’s time people got back to basics, and stop rewarding the bad behavior of our “conservative” banking establishment.
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