Jul 03 2008
Get your money out now
This ain’t funny. I am going to tell you something extremely serious. Pull your money out of your bank and do one of three things:
1. Deposit it in the Bank of Sealy, that is, under your mattress.
2. Go to TreasuryDirect and buy short term treasury bills.
3. Go buy a treasury money market fund like VMPXX.
FAQ:
Q: What option did you do?
A: Option 3. I have no money under my mattress.
Q: So you don’t have a checking account?
A: I do. It is only used to pay bills. My paycheck gets direct deposited to my checking account on the last business day of the month and most of it is yanked out by the 1st or 2nd of each month and put into VMPXX. My checking account balance is rarely over $200.
Q: What’s wrong with leaving it in a bank? It’s FDIC insured up to $100k and I don’t have $100k.
A: FDIC is a joke. The FDIC has $49 billion that insures $3 trillion. If we have a banking system collapse in this country, you better hope that your bank is one of the first to fail or else you will not get your money back.
Q: But the interest paid at my bank is higher than at the Bank of Sealy, TreasuryDirect, and Vanguard.
A: You are getting more interest to fairly compensate for the risk of you losing your money. However, the extra amount you are getting is not worth the risk. You are reaching for an additional 1-2% of yield at the risk of losing your entire pot. The probability of you losing your entire pot is probably 2-3%. It’s not worth it.
Q: Are you crazy?
A: No. Go pull up stock charts of Washington Mutual (WM), Wachovia (WB), Bank of America (BAC), and Citigroup (C). Take a careful look at them. I have no inside information, but any rational person should conclude that at least one of these banks will die in the next 12-24 months.
Q: But big Ben will save us
A: No he won’t and no he can’t. It doesn’t matter what he does anymore. That fool has emboldened short sellers like me to practically short at will because we know it doesn’t matter what he does, the banking system is farked.
Q: Really, what’s all the fuss about?
A: Triple A debt is selling for 50 cents on the dollar. No joke. Move your money into a bank or some money market fund, and one day, bang, you’re dead. 10% loss. 20% loss. Maybe everything.
Q: You’re kidding me, right?
A: Nope, it already happened. Check this out:
This fund held mortgage backed trash.
Q: But this is a mutual fund. This ain’t the same as putting your money in a bank
A: Oh really? If you bought this fund, you knew exactly what you were getting: mortgage backed paper. If you stick it in a bank, your bank instantly lends 90% of it out. Gone. Poof. It ain’t there. Now you tell me which one is safer.
Q: Oh so you’re one of those guys who are distrustful of banks.
A: Yeah I used to think that people who were distrustful of banks were crazy. But once you understand how the whole banking system works, you will be terrified. FDIC insurance exists for a reason: because the whole banking system is a farce.
Q: But seriously, how bad can it be?
A: Go look at Japan in the last 20 years. And also take a look at this:
What you are looking at is the non-borrowed reserves of banks. It is negative which means the banks burned through all their reserves and are now using borrowed money as reserves.
Q: Knowing all this, how do you sleep at night?
A: I sleep well at night because I am a highly leveraged short seller. The real question is, how do you sleep at night?
[LW] is evil, he’s trying to create bank panic!
Regarding the chart of non borrowed reserves: the US banking system system is in much more trouble than the public knows; this graph is just some indication of it. The graph shows that the banks are overdrawn at the Federal Reserve, and when taken together with the on going Yahoo Finance chart of the banks, KBE, and investment bankers, KCE, it indicates that the financial institutions are capital depleted and really insolvent.
You are right on: get your money out now, like today, like immediately.
[...] And you thought I was joking. FDIC may borrow money from Treasury: report [...]