Bail Out vs Bail In: Something You Should Know

After 2008 we were all accustomed to the word “bail out”.  Between AIG, Fannie Mae, Freddie Mac, the auto industry, big banks, and dozens of other entities, it was almost a daily thing back then.  That whole fiasco that was fueled by low interest rates and corporate greed cost the American taxpayer over 4.5 trillion in bail outs and stimulus to keep the system from crashing.  There’s a new phrase in town however, and this one is worse than “bail out”.  That phrase is “bail in”.

There’s a very good reason why few people have heard of the phrase “bail in”. That’s because it used to only apply to things like hedge funds.  With a hedge fund you can’t always get your money back out when you want it.  If things are bad and they need it to stay liquid they can hold it (Remember the movie the Big Short?).   The bad news for all of us is that this now no longer just applies to hedge funds.  It applies to banks.

When did all of this happen?

Some of the ground work for bail in laws first started in 2005, but they really came into existence in November of 2014.   It wasn’t the United States Government that did it either.   Since the banking system ties into the whole world the G20, the world’s 20 largest central banks and governments, decided on it.  You may be thinking “this sounds kind of bad but how do it apply to me?”

What this essentially means is that if a big bank is struggling for cash they can loot pension funds, money market accounts, bank deposits and anything else they want to keep themselves afloat.  Essentially, your money in the bank is listed as a liability, because they owe it to you, but the bank can convert it to equity.  That’s fancy talk for they can take your money if they need it. They might give you some worthless bank stock in return, or then again, they might not.  That includes 401Ks.

What about the FDIC you say?   It’s painfully underfunded at not even 1% of the deposits in America according to some studies.  When things get rough in the banking systems and millions of Americans are filing claims how fast do you think you’ll see your money? Probably not very fast and it could drag out for years.

I don’t mean for this to be doomsday post, but you really should be educated on what can happen to the money that you think is yours.  That money just sits in a digital banking world and laws now exist that say they don’t have to give it back to you when you want it or need it.  Few heeded the warnings of 2008 or saw it coming.  Those that did made a bunch of money and were able to save themselves the pain of it all.  That could be you too.

At the very least, I would get a safe and store some of my money outside of the banking system.  It’s not really earning interest anyways.

See below for some good links on this topic.

A woman named Ellen Brown did a lot of research on this topic and has produced some good articles and interviews.


Nate Olds

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