Nope, it's not me, it's those guys - the infamous 'they' in the basement.
Since putting up my post about the bond funds being gated the other day, I've continued to read and if I had any investments at all I would be worried.
You know those "safe" money market funds I mentioned? Those least-return-on-investment-but-safest-bet-if-the-bank-has-your-money funds that are allegedly the most stable of the stable in a 401k.
Well, I've got bad news for you. Governments, banks and fund managers are casting a longing eye over your nest egg. If they have their way, you might just get gated there, too.
Back on November 24, 2015 the Financial Times had this article:
http://www.ft.com/intl/cms/s/0/3ff3dcce-928e-11e5-bd82-c1fb87bef7af.html#axzz3uMDzeC9z
Bond Market Seeks Repo Clearing Solution
The short course here, Econ 101:
A "repo" is a repurchase. A repurchase is when a bank wants something but it doesn't have the money it needs for that something. It looks in the sofa. It digs around in the cushions - the accounts of the bank's depositors. Without asking your permission it uses your money as collateral to fund the loan that it needs for the something it wants. After all, your money is just numbers in a computer, not piles of bills in a lock-box. So if you show up at the teller's cage but your money isn't at home, the teller takes money from someone else's account to fulfill your request. At some point the bank is supposed to put that money back.
This process keeps the liquidity of the bank liquid - they don't have to wait until some future date when their earnings and profits meet up with their want or need - they can have it now.
However, since the financial meltdown of 2007-2008 there have been a plethora of regulations and restrictions put in place to help stabilize the too-big-to-fails. The intent was to prevent a future crisis like that one. One regulation is Stress Testing - a form of "means testing" - if a crisis hit, would the bank be able to survive on its own? This means that banks can't use most of the funds available to invest in things. They have to keep enough money on hand that if there is a crisis, they'll be in a position to weather it.
That's irritating, almost galling, to the banks. They don't want to be restricted. They're like a spoiled three-year old who hasn't the first foggiest clue what the word "no" means. All that three-year old knows is that he's not getting what he wants, so he tries to figure out how to get it. In this case, the three-year olds are eyeing your savings - the nest egg in a money market account.
This is the key excerpt from the Financial Times article I linked above:
"At
an annual private meeting between industry participants and the US
Treasury Department last week, discussion focused on a proposed solution
of placing repo trades between banks and investors, such as money
market funds, into a clearing house."
Now the only thing I added there is the bold text. The words are not mine - they're from the Financial Times article - but what's highlighted is key.
There has been a meeting between the bankers, the Federal Reserve and the US Treasury in which they discussed putting your money into a clearing house. A single basket from which the bankers can borrow for their somethings.
That might not seem like a bad idea, until you think about the potential of gating.
What if that fund gets dipped into so often that it's depleted when investors need or want their money? What if there's another massive rumble through the financial markets and people want to get their money out to make sure they know where it is when they need it? What if, and this is the big one, it comes down to a tug-of-war between you and the bank - who do you think will win that battle? What if you have $100,000 of your $300,000 savings in that money market account that's in that single clearing-house basket and what if that basket is suddenly, without warning, 'gated'? Well, golly, sorry but you just lost 1/3 of your savings. 33.3333...% of your money is gone, just like that and you have no recourse.
In the years since 2007-2008 there have been a lot of changes in the financial markets and financial regulations. Unfortunately, these new regulations have had zero effect on the morals, ethics, characters and downright greed of the people who run our financial institutions. It's power and control and greed in its worst possible form.
Someone a whole lot smarter than me once said: "Power Tends to Corrupt, and Absolute Power Corrupts Absolutely" (he was John Dalberg-Acton, 1st Duke of Acton, and a pretty smart guy).
When the banks have as much power as they have, in collusion with the World-wide Central Banking system aiding and abetting their every unsavory move, and the Treasury Department standing by to do their bidding (printprintprintprintprint), there is little hope for the individual investor.
Personally, I have minimal exposure to cash in any form. I own no stocks, no bonds, no investment vehicles. When I started at my new job last January and was offered a 401k I immediately, and with zero regret or hesitation, opted out.
I prefer it this way. I have what I need and I know where it is. Do you?
I hope so. In the meantime, have a lovely financially secure day. There is more coming: the Baltic Dry Index and a potential bail-out for these junk bond funds. Tomorrow, though, tomorrow because I think I've given you enough food for thought for today.
Best~
Philippa
Follow me on Twitter: https://twitter.com/PhilippaStories
No comments:
Post a Comment