First Republic Bank Seized by the FDIC?

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… ”

How is that working out for everyone
so far?