{"id":23147,"date":"2022-07-04T04:15:15","date_gmt":"2022-07-04T11:15:15","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=23147"},"modified":"2022-07-10T11:31:21","modified_gmt":"2022-07-10T18:31:21","slug":"what-everyone-should-know-before-depositing-money-in-a-bank-2","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id23147-what-everyone-should-know-before-depositing-money-in-a-bank-2.html","title":{"rendered":"What Everyone Should Know Before Depositing Their Money In a Bank"},"content":{"rendered":"

\"\"<\/a>In case you’re wondering, only 10% of all humans have an “outie” belly button. At least that’s what Wikipedia claims.<\/p>\n

For what it’s worth, like most folks, I have an “innie.”<\/p>\n

By the way, belly buttons don’t have a monopoly on innies and outies; the financial world has them too. Specifically, I’m talking about the dangerous practice of bailouts<\/a> and bail-ins that governments are employing with increasing frequency to save so-called “too big to fail” banks and businesses from bankruptcy.<\/p>\n

Bailouts and Bail-ins<\/strong><\/p>\n

Most people are familiar with bailouts. They usually come in the form of government loans that transfer some or all of a failing entity’s risk to the taxpayers. One example: Back in 2009 General Motors received a bail out of almost $50 billion in cash, loans and other bankruptcy aid from the government. Unfortunately, the taxpayers lost $10 billion<\/a> after the Treasury finished selling the last of its GM stock.<\/p>\n

While bail-outs indiscreetly affect almost everyone’s pocketbook through taxation, so-called bank “bail-ins” shift the risk to the depositors. That’s great news for the taxpayers.<\/p>\n

Then again, if it’s your<\/em><\/strong> bank that requires the bail-in … well, not so much.<\/p>\n

In 2013, depositors with the insolvent Bank of Cyprus had 47.5% of their savings over $132,000 stolen from them under the guise of a bail-in. In fact, the Bank of Cyprus bail-in is the new blueprint that will be used in the European Union from here on out to save failing banks.<\/p>\n

And don’t think bail-ins are just being limited to Europe. They’re not. Bail-ins are now the law<\/a> in the United States too.<\/p>\n

Unraveling the Illusion <\/strong><\/p>\n

I strongly suspect most people would be surprised to learn that when they hand their money over to the bank, by law, they become unsecured creditors and the bank becomes a debtor to them. The bank is then free to loan or invest the cash as it pleases, while the depositors are left with only a legal claim on their money.<\/p>\n

Unfortunately if a bank goes, ahem, belly-up, then unsecured creditors are, by law, near the back of the line<\/a> when it comes to getting their money back; even the bank’s bond holders have more seniority. As such, there is often very little left for the unsecured creditors to recover.<\/p>\n

Of course, the banks don’t tell you that when you’re putting your hard-earned money in their institutions. Then again, if they did, I suspect at least a few more people would decide to hide their money elsewhere — or, at the very least, greatly reduce the amount of cash in their interest bearing accounts.<\/p>\n

Here are a few other points that I think many unwitting bank depositors fail to understand:<\/p>\n