Buffett's concerns with the banking industry
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?Warren Buffett started acquiring shares of Berkshire Hathaway (a textile company based in Omaha) in the sixties for $7.50 a share. He liked the balance sheet. Today, the shares sell for $700,000 a piece and Berkshire has a capital value of a trillion dollars.
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So, it’s no surprise that Buffett is widely regarded as one of the most brilliant financial and investment minds in the world. And when Buffett speaks, it’s worth taking a listen.
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A few months ago, Buffett was interviewed on CNBC about the banking system in the U.S. It was entitled “Warren Buffett: A "Storm is Brewing in the Banking Industry.”
The interview was about coming losses banks would take in the commercial real estate sector. In the interview he said “We're not through with bank failures…”
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Buffett is not alone in this concern.? This is a recent article from a real estate site.
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“The past year has seen a shakeup in the financial world, with several prominent bank failures raising concerns about the stability of the banking sector in 2024. There were 567 bank failures from 2001 through 2024.?While predicting specific institutions in danger of collapse is difficult…?(not for a pro)”
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At any rate, in the interview, Buffett went on to assure the interviewer that even with bank real estate losses there was always FDIC.
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I’m not sure if even the “Oracle of Omaha” knows that the FDIC’s deposit insurance fund only holds 1.2% of the total of insured deposits.
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This is fine for the occasional bank failure, or a few, but what would happen in a real banking crisis? That fund would be wiped out in a heartbeat.
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It is to the current banking environment that I offer the following.
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There are aspects of your relationship with your bank of which you are likely unaware.
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For example, did you know that once you make a deposit in a bank, the funds no longer legally belong to you? That’s right, once you make the deposit, the ownership of the funds belong to the bank. You are a creditor now. Yes, the bank owes you the money as if you laid the carpet in the bank’s lobby, You can withdraw the money, but if it’s in the bank, they own it.
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“When someone opens a bank account and makes a cast deposit, they surrender the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank.”
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Here’s another one: a troubled bank, one that is failing, can exercise a “bail in” – meaning, they can take some of your deposits (without your permission) to rescue themselves.
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“A bail-in provides relief to a financial institution on the brink of failure by requiring the cancellation of debts owed to creditors?and depositors.?
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I am not saying we are in a banking crisis. But you may recall all the press around the spate of high-profile banks that went under last year.
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The industry, especially, the commercial real estate sector ($2.2 trillion in loans from U.S. banks) has its challenges.
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I recently checked out a bank for a friend that he was considering, The bank turned out to be in terrible shape. I saved him some serious hassle, if nothing else. After which I thought that this would be valuable service to offer others.
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So, a suggestion: have your bank professionally evaluated. I haves been a senior credit officer for two banks in California – one in the San Francisco Bay Area the other, Beverly Hills and have handled the financial affairs of some of the biggest names in Hollywood.
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The cost is $250 a modest cost to ensure your bank is healthy…or not.?
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Let me know if you are interested, and we’ll work out the details.
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Best,
Bruce?
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CEO/Owner @ Goal Achievers Unlimited
4 个月Very helpful