We learn today that the government had asked the five biggest U.S. banks to make plans for preventing a collapse if they faced serious problems, emphasizing that the banks could not count on government help. (Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), Goldman Sachs Group Inc (GS.N), Citigroup Inc, (C.N), Morgan Stanley (MS.N). Let me ask you this, how often in the past have you ever heard a request like this? Well….let me make it easy on you, you haven’t. So lets take this down the road further. Why would the government be asking banks to do this? While your thinking about that one, let me ask you another question. What does the government know about the current financial situation that would prompt them, to contact the five largest banks in the USA and make this request. The article also stated that these big banks could not count on the governments help. By the way the Five biggest USA banks are all Walking Zombies to begin with but I digress. http://www.reuters.com/article/2012/08/10/us-banks-recoveryplans-idUSBRE87905N20120810
Okay…so let me speculate and make a couple of comments. First, I am not going to live my life under the Kitchen table waiting for the roof to fall in. In other words, while this news is concerning, you still have to live your life and living with constant fear is not living. Secondly, the reason they are asking the banks to have a collapse plan is because this is a very real threat. The problem we have is, most of the big banks are kind of interconnected. For instance, most of you know that a number of countries in Europe are just about bankrupt. Greece, Spain, Ireland, all of the PIGS are on life support. What happens if one of those countries finally defaults on its debt? If they do, they will trigger what is known as a Credit Event. Yeah, I know, it sounds like some kind of a show, especially the event terminology. So actually what happens is, the debt blows up and a lot of banks and people lose a lot of money. When banks lose too much money, they become insolvent, or broke. The problem is, you could have a credit event in Europe, which causes problems here, as some of these big banks are now pretty much cooked. The reason they will be cooked is, they either are holding this Sovereign debt, or, they insured it against default using Credit Default Swaps. (CDS) Either way, they are in big trouble and suddenly, their trouble is now going to be your trouble if you are banking with them. I want to come back to this in a minute so hang with me…
Now,….the reason they mentioned to the top banks that they won’t get any help from the government is because the American people will not stand for another “Gun to Head Scam “ where, if you will recall back in 2008 during the financial crash, Henry Paulson, the Treasury Secretary, goes to the congress and said, ” give me 700 Billion dollars or there will be tanks in the streets.” What the 700 billion Tarp Fund did was bail out the big banks but these morons have learned nothing since then. That might of worked once, however, as I mentioned earlier, the American people are not going to stand for another bail out of the banks, especially when, you bailed the banks out and they kept and still have, the same clowns who were part of the problem in the first place. As Nassim Taleb (Author of Black Swan) has said a number of times, “You crash the bus, you don’t get a new bus.”
Alright, here we are, you just read the article, what are you going to do? First and foremost, I would not keep any large amounts of cash in any of the big five banks mentioned above. There are plenty of small banks or Credit Unions which have no exposure to the Sovereign debt crisis. Let me say this, If this happens, or a variation of it, there will be a bank holiday as there will probably be a run on the bank. ( See The Edge Blog, Are You Prepared?) The government is not going to come and say, hey John Q. Public, the big five banks could have problems in the event of a financial crisis. They won’t do that but you can logically conclude as I mentioned earlier, the banks problems will now be your problems especially if they go bust. You may think everything is going to be fine because a regular bank account is insured by the FDIC for 250k. Well ….maybe it will and maybe it won’t . I would suggest that if this ever blows up, the government is going to have their hands full as we will be in a full financial melt down. My personal opinion is, this is just a matter of time. Just remember this. If you think the government made this request out of the goodness of their hearts, you had better think again. Like I said earlier, WHAT DO THEY KNOW YOU DO NOT…..
Remember the Scout Motto, Be Prepared.