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Back in January I wrote about the FDIC
gearing up to handle massive bank failures. On October 24, 2008 the
Alpha Bank & Trust failed. This is the 16th US bank to fail this
year. The increased guarantee limit from $100,000 to $250,000 of
irredeemable bytes but has probably placated some depositors.
Another bank ‘failed’ today but did not
make the FDIC list. National City had about $4.5B in deposits and was
purchased by PNC. PNC now has about $180B in deposits and is the 5th
largest bank in the United States.
This surreptitious manner of having failing banks
like Wachovia and National City being bought out by other failing banks is
extremely good for minimizing the public’s perception. More
importantly for the remaining banks the power is greatly consolidated.
This is a bad idea because it engenders even greater degrees of moral hazard
stemming from the false idea that the institutions are ‘too big to
fail.’
But what expectations could one possibly have
because all bankers are liars and frauds. So far the public
has been largely insulated from the effects of this financial crisis.
Sometimes I wonder if the first time they will really feel its effects is
when the supermarket shelves start going empty on a regular basis.
Now would be a good time to evaluate the status of
your bank accounts. You may decide it is better to stuff the cash under
the mattress. Why bear counter-party risk with the bank in exchange for
such an extremely low interest rate? The Fed may even be preparing to
slash interest rates again. T-Bills are already in negative real return
territory. By taking physical possession of the irredeemable paper
currency your safety and liquidity is increased. It also starves the
bank which is on life support of critical capital.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from Brigham Young
University, a law degree from California Western School of Law and studies
the Austrian school of economics. He works as an entrepreneur, investor,
journalist and monetary scientist. He is a strong advocate of the freedom of
speech, a member of the Society of Professional Journalists and the San Diego
County Bar Association. He has appeared on ABC, NBC, BNN, many radio shows
and presented at many investment conferences throughout the world.
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