What You Need to Know About the Next Banking Crisis

[The Disciplined Trader Newsletter] This email is from TheDisciplinedTrader.com on behalf of our partner Lear Capital, which makes it possible for us to allow the free content you can access on TheDisciplinedTrader.com. The Truth about Big Banks, Bail-outs, and Bail-ins The term “bail-out” took on a new connotation in 2008 when outraged Americans watched as their government handed over $23 trillion to the “too big to fail” banks in the aftermath of the housing crisis. That was the punishment reward for instituting reckless lending practices that caused: • $7 trillion in real estate losses, • $11 trillion in stock market losses, and • $3 trillion in retirement account losses.* Since that wildly unpopular decision by Congress, Americans have made it clear that we have no tolerance for another bail-out. Then, Something Even Worse Happened… Cyprus shocked the world in 2013 when the island nation pioneered the “bail-in”—during which—banks abruptly declared a holiday, closed their doors, and helped themselves to as much of their depositors’ money as they deemed appropriate. Without warning or consent, the banks transformed their customers into “investors” and forced these new “investors” to shoulder the burden of the banks’ failures. [Learn how to hedge your wealth against a banking collapse with physical gold and silver.] Well, not all of the depositors…those with modest bank accounts emerged relatively unscathed. Rather, the banks focused their confiscation efforts on the bigger fish, taking as much as 60% in the case of some six-figure accounts! What Would You Do if You Woke up Tomorrow and Your Bank Balance Was Cut in Half? Could this happen in the United States? Unfortunately, that’s the scariest part… The International Monetary Fund (IMF), headquartered in Washington D. C., publishes its staff discussion notes and, if you dig around enough, you can find a little-talked about report called “From Bail-out to Bail-in: Mandatory Debt Restructuring of Systematic Financial Institutions.” As the title suggests, this document endorses the use of a bail-in to prevent the collapse of large financial institutions. It also lays out the framework for instituting such a shift in policy. Think of it as a blueprint for taking Cyprus’ prototype worldwide. What you won’t find in this document (or others like it) is an effective plan for policing big banks and financial institutions–perhaps passing legislation that would temper the risk tolerance of bank executives. Of course, this could be because the Dodd-Frank regulations (precipitated from the 2008 meltdown) have already resolved that issue…or have they? While it’s true: banks have more stringent regulations they must adhere to in certain situations, it’s naïve to think that the next crisis will be avoided as a result. In fact, all indicators suggest otherwise… Derivatives and Collateralized Debt Obligations (CDOs)–slightly different iterations of the “bets banks have made in the Wall Street casino”^ that were so instrumental in the housing crisis–have reared their heads once again. However, instead of residential real estate loans, it’s commercial real estate loans that the banks are now gambling on–not that this nuance will matter to anyone who loses money in the next crisis. Here’s the Big Loophole: These derivatives and CDOs are not counted as assets on a bank’s balance sheet and are, therefore, exempt from the stress tests that measure a bank’s stability! In other words, regulators have either negligently or incompetently turned a blind eye to a phenomenon that bears remarkable resemblance to one that caused tens of trillions of dollars in losses less than a decade ago. Instead of correcting this oversight, efforts seem to be focused on quietly preparing for the next catastrophe. The U. S. may just be one step closer to a bail-in.As of October of 2016, “redemption gates” are legal, allowing banks to lock you out of your account for up to 10 business days.+ The intention is to prevent a run on the banks, who operate on a fractional reserves system, only holding a percentage of its deposits while the majority of the money is loaned out for profit. You’re essentially loaning your money to the bank, which is why they used to pay you interest on your money. However those days are long gone. These days, big banks are doing you a favor by taking your money, risking your money in the Wall Street casino, and then potentially freezing your money for 10 days when they aren’t able to collect enough money to cover their bets. Is a Big Bank Really the Place Where You Want to Store All of Your Wealth? It might make sense to keep some cash on hand, because if you’re counting on SIPC or FDIC insurance to rescue your deposits from your bank’s indiscretions, think again. Like most government programs, these institutions are grossly underfunded. In the event of a widespread collapse, there won’t be enough money to go around. Of course, it might be even more advantageous to keep an asset on hand that is highly liquid and actually has a track record of growing in value when a financial crisis strikes. That asset is precious metals. While real estate and stocks were crashing during the housing crisis, gold rose a staggering 85% and silver grew 66% between August of 2007 and December of 2009. So, in the event of a future collapse, not only are precious metals assets that can be stored beyond the grasp of big banks, but they also have the potential to increase in value. You Don’t Have to Be a Slave to Big Banks. You don’t have to let them gamble with all your money while you bear all of the risk.Take control and get the facts about owning gold and silver. [Request a free gold and silver investing kit] and learn how even a small stake in physical precious metals could prove to be fortuitous during the next financial blunder. Act today, because, by the time you catch wind of the next crisis or quietly-passed legislation, it will likely be too late. * estimates by Better Markets, a non-profit for regulatory reform; bettermarkets.com ^ The Bail-in: How You and Your Money Will Be Parted during the Next Banking Crisis by John Lawrence, January 2, 2015; sandiegofreepress.org + SEC Press Release: 2016 [The Disciplined Trader]. All rights reserved [Click here to unsubscribe]