The U.S. banking industry could now be facing some of its greatest systemic risks in 90 years — since the nationwide closing of all banks declared by President Roosevelt on March 6, 1933.
In addition to the failure risk among individual institutions that are particularly weak …
We also face a potential system-wide danger that could hurt nearly all institutions …
That could impact nearly all of us across the entire spectrum of economic and financial activity in America.
What are these risks?
There are many. But let me focus on just one today …
The banking system as a whole received a big shot in the arm with the Fed’s dramatic and abrupt interest rate cuts to zero after the Great Financial Crisis, and then …
The banking system as a whole got a punch in the gut with the Fed’s equally abrupt interest rate hikes — 10 times in quick succession.
Nearly all the nation’s 9,500 banks and credit unions, 33 million businesses and 110 million bank customers were whipsawed …
First, with the nirvana of crazy-low interest rates year after year …
Then with the nightmare of some of the steepest rate hikes in modern history.
As a result, bankers and investors first piled into long-term bonds and loans that surged in market value like never before, and then …
Were left high and dry, as the bonds plunged like never before.
That’s a big reason one of the world’s largest banks, Credit Suisse, just failed.
It’s also a big reason one of America’s largest, First Republic Bank, just went under.
And it’s the main reason others could soon follow.
Also thanks to the Fed’s interest rate whipsaw …
Regional banks poured money into startups with virtually no capital or earnings, and then …
Were left with huge losses when new capital suddenly dried up like never before.
That’s the main reason Silicon Valley Bank failed. It’s also why several others went under and so many more are on the chopping block.
Investors in soon-to-fail banks have lost more than four-fifths of their money.
Investors in already failed banks have lost more than 98% of their money.
So, where do the systemic risks come from and how might they impact you?
You guessed it! The primary source of systemic risks today is, ironically, the same source of systemic support that the banking system has increasingly relied on over the decades:
The U.S. government.
That’s right. The same government that everyone has relied upon for rescues and bailouts is now the greatest source of risk and danger.
The government itself is the primary cause of the big vulnerabilities we face today.
Time after time …
The government has swept toxic assets under the rug.
The government has painted lipstick on 1,000 pigs.
The government has created a phantasy world seemingly devoid of risk — a fake world that encouraged bankers and borrowers to take ever more risk.
It was a concerted effort …
The U.S. Treasury department repeatedly saved banks that should have failed.
The U.S. Federal Reserve persistently ran money printing presses, enriching the very same institutions that should have paid the price for their follies.
And now, to make matters even worse, the U.S. Federal Deposit Insurance Corporation, the FDIC, has irresponsibly guaranteed trillions of dollars in deposits that can never be insured with reserves they don’t have.
Why did the government do all these crazy things?
Because no one of importance in the banking world wanted to lose money. Everyone wanted to make more and more money.
Because no one of importance in Washington wanted to lose their job. Everyone wanted more and more power.
So, one by one and in unison, all three of them — the Treasury, the Fed, the FDIC — sacrificed the stability and health of our nation’s banking system on the altar of greed and power …
While along the way …
Bankers and investment bankers willy-nilly took on more and more risk with our money — with your money and mine.
“What, me worry?!” They said. “It’s other people’s money. And all those guys in Washington say I can bet all the money I want ...
“If my big bets go sour, I’ve got the U.S. Treasury department behind me, the biggest single spender in the world ...
“I’ve got the U.S. Federal Reserve behind me, the most powerful lender of last resort in the world ...
“And now even the FDIC has got my back, and it’s the largest insurance organization on the planet.
“If I stumble and fall, those guys will pick me up. If I fly and soar, they’ll cheer me on. So, how and when do I lose?” they ask.
Well, I’ll tell you how and when they lose.
They lose when the truth comes out.
They lose when their big bets go sour and the U.S. Treasury runs out of money — when Treasury Secretary Janet Yellen must decide either to save the U.S. government itself or save everyone else. She can’t do both.
They lose when their big bets go sour and the Federal Reserve runs of money printing power — when Fed Chair Jerome Powell must decide either to save the U.S. dollar or save the U.S. economy. He can’t do both.
They lose when their big bets go sour and the FDIC exhausts its sparce reserves — when its chair must decide either to save the FDIC from bankruptcy or reimburse all depositors lining up to pull their money out from their failing banks. He can’t do both.
They lose and their depositors lose. They lose and their investors lose. They lose and their borrowers lose.
They lose and we lose. You and me.
We lose when the truth comes out that trillions of dollars in wealth have been destroyed.
We lose when the truth comes out that not even the king and all the king’s horsemen can fool Mother Nature.
Not even the mighty U.S. government can abolish the law of supply and demand.
No one can stop the tides of capital that ebb and flow.
No one can freeze the cycles of history that rise and fall.
But you can take concrete steps to protect your wealth and your legacy.
And we’re here to help make sure you’ll be successful.
Stand by for our best strategies.
Good luck and God bless!
Martin
