Are about to watch as yet another bank goes down?
Likely Yes, but we cant do anything about it anyway right?
Probably not much except that we can and should discuss what is going on and what is likely happening that is creating these issues in the first place?
As is normal in these type of situations news that a bank has failed often happen after “Stock Market” hours on a Friday…
This happens mostly because they do not want to disrupt the Stockmarket with bad news on a week day trading session.
But this time it looks like First Republic Bank (yet another California bank) is about to be seized by the same type of people that have recklessly raised interest rates over and over and over again.
So, who is at fault in the current Banking Crisis?
Is it the FED?
Is it Jerome Powell?
Is it the people for removing all their money from these banks because they are afraid?
Well, it could be a lot of things.
The biggest reason is that many of these banks made risky decisions about long term investments (with depositor money) basically if you have 1000.00 dollars in a bank and that bank takes that $1000 and buys a long term investment with your money, then later the bank will redeem that investment and make some money from it.
Of course they keep enough money on hand that if you decided to take out half or all of your money the bank could do that without much difficulty.
The real problem comes when people start taking out everything all at once.
But shouldn’t the banks keep enough money on hand to prevent this from becoming a problem?
Well, Yes, but they never see far enough into the future to be able to see that problem before it becomes a problem.
Add to that several other strange situations, like the Fed raising the interest rates so high that those same long term investments are worth less money than you have a huge problem.
But this is not all there are other things that also happened.
There are some reports that the FED actually encouraged banks to buy these long term investments…
So did the FED just forget that all of these banks had all of these bonds that depended on lower interest rates or did the FED just forget all about that?
Either way its a big mess and yes the banks should have fixed these problems and yes the FED should have realised that by raising the interest rates over and over and over and over and over again would eventually bring about a financial crisis.
The FED made a big mistake.
They forgot that they really cannot bring inflation down by raising the interest rates.
Yes, in theory raising the interest rates can help when the inflation rate is low and so you have to begin to take action early before inflation get too high to bring down by raising the interest rates.
The FED really made a big mess on this one and you might wonder how it is that they may be about to raise the interest rates again even after all of these problems that they caused, minus the banks responsibility to monitor the issue of investments versus cash on hand…
All that is required to prevent this from happening again is to simply make the banks hold dollar for dollar in cash for cash deposits.
For every dollar in a bank account the bank must have one dollar in cash on the books or in a vault to prevent these things from happening in the first place.
Banks are quick to tell us that we may or many not meet with its loan guidelines, with things like finance reports, tax filings, liquidity, collateral and a host of other financial indications that they will or will not loan you money.
It seems strange that those same banks that have 100 different reasons why they will not lend you money at a fair rate and then they fail to live up to the same rules they have for you.
Honestly speaking most banks want way too much interest the average is around 14 percent for the average loan and some may even have a somewhat lower rate for a brand new automobile but its still around 7 to 8 percent so most people are not really interested in even applying for a loan because the rates are so much higher than they used to be.
Of course banks need to make a profit how else can they afford to pay for those expensive brick buildings that often house many offices but few employees.
In fact there are so many banks in most US towns that you might wonder how it is that they can even afford to build more and more bank buildings.
They make money from your deposits, which often they will charge you for if your account goes below a certain value they will charge you for keeping your money for you.
They charge you a fee to access your own money at an ATM machine.
They even charge you a fee to have a savings account unless you deposit a certain amount of money every few days or you have to have a certain amount of money in that account or they will take away some of the money you are trying to save.
Amazing right, it is estimated that more than 87 percent of all US citizens would not qualify for a loan at the banks that they deposit their money into.
It should come as no surprise that most people do not trust banks and that is at the heart of the real problem here when people are not treated well by a bank and then that bank gets into trouble is it any wonder that people want to take their money out of the bank?
That is the real problem, banks are not really fair to the customer.
Which is one reason why the FDIC came along to help the average person from being taken advantage of by the bank…
But who keeps an Eye on the FDIC?
What if the FDIC cant be trusted?
Naturally you really cannot prevent all problems and you really have to either trust someone with your money or keep it well hidden, (not really a good option these days) so where is the biggest issue?
Let’s think about the one thing in this discussion that has so far not been covered.
Yes, the spending that is going on in Congress.
Right now they want to spend more than 1.2 Trillion dollars, (some want to spend even more than that)
No wonder so much has gone wrong over the last two years…
We have an out of control congress that is spending more money that a drunk sailor on leave.
The FED is out of control and worse than congress they do not even realise that they cannot actually stop inflation by increasing the cost of living for everyone all that really does is to increase the cost for everything else and so inflation continues to rise and lets not forget the banks themselves who often want your money so they can invest it and make even more money from you as a customer.
Increasing the cost of living by increasing the interest rate is really a ridiculous method of trying to fix a problem.
Inflation is usually a temporary higher cost of living so inflation costs people money because they have to pay more money for things they used to get at a lower cost.
How does anyone come to the conclusion that increasing interest rates (which increases the cost of everything from houses to cars and even food) helps in any meaningful way?
In fact it really hurts more than it helps but I guess when you have no imagination and even less actual intelligence then you start to think “hey well just keep on raising the interest rates until inflation comes down… “