Dirty (not so) Little Secrets

I just learned a huge, dirty secret about how bank failures work that we should all know about. Due to a massive gap in banking policy, the FDIC cannot legally prevent a bank from failing but instead, only covers that bank's losses once it has already failed - even when it's obvious.

This gap has created a perverse system of incentives and a huge opportunity for potential buyers of a troubled bank to have every reason to wait until it fails before intervening to save it.

For example, JPMorgan could have bought First Republic weeks before its failure, which would have meant taking on First Republic's debts and keeping its shareholders whole.

Instead, JPMorgan waited until First Republic went bankrupt for several reasons:

• The FDIC would first absorb First Republic's losses;
• The FDIC would then pay JPMorgan $13 billion (of taxpayer money) to acquire First Republic;
• Granting $92 billion in new clean assets to JPMorgan!

Never mind the cost to taxpayers, the economic impact, or the fact that First Republic shareholders were just wiped out.

This is just one example of how our system is designed to foster failure and instability with massive loopholes for Wall Street that none of us have access to unless we are shareholders of JP Morgan, of course!

And it's still ongoing; we must understand that Wall Street is very busy preparing to acquire a few hundred more regional banks in a massive event that will rock the US markets this summer.

You won't hear this on the news.

So what should you do to prepare?

It's always a good idea to be prepared for financial emergencies and take steps to protect your personal finances. Here are some basic suggestions that may help you prepare:

1. Diversify your assets: Avoid putting all your eggs in one basket. Diversify your investments across different asset classes, such as stocks, bonds, real estate, and commodities. This can help mitigate potential losses if one sector faces difficulties.
2. Maintain an emergency fund: Save money in an easily accessible account to cover several months' worth of living expenses. An emergency fund provides a financial cushion during unexpected events like job loss or medical emergencies.
3. Understand deposit insurance: Familiarize yourself with the deposit insurance limits in your country. Many countries have deposit insurance programs that protect a certain amount of money held in banks in case of bank failures. Knowing the coverage limits can help you make informed decisions about your deposits. If you have more than $250,000 USD in the US (limit the FDIC covers in account holdings) in any one account, split the money up by opening more accounts and even spread them across several banks as well.
4. Maintain a healthy credit score: A good credit score is essential during uncertain times. It enables you to access credit if needed and obtain favorable interest rates on loans.
5. Seek professional advice: Since I am not a licensed expert, make sure you consult with a financial advisor or planner who can provide personalized guidance based on your specific situation.
6. Stay informed: Keep up with financial news and monitor the banking sector's stability. Pay attention to any significant economic or regulatory changes that could impact banks.

As my disclaimer, remember these suggestions are specific to the continuation of more bank failures but they are also good general financial preparedness tips at any time.

Let me know how you are doing!

As a regular reader, you can imagine that I have a portion of my personal assets held as digital assets in a cold storage device for safekeeping!