The Story Behind The Story:
Thursday, March 16, 2023
GLOUCESTER CITY, NJ (March 16, 2023)(CNBNews)--People, usually older ones who lived through the Great Depression (1929 - WWII) or their adult children (1946 - 1964,) half-heartedly joke about hiding their money under their mattresses or in the freezer (cold cash.) They didn't trust banks because banks were not regulated a century ago and they operated on their own. Anything went.
To help the nation climb our way out of financial disaster, in 1933 President Franklin Delano Roosevelt (in office 1933 - 1945) started the Federal Depositors Insurance Corporation (FDIC.) The federal government backed the individual's money up to a certain point. The original amount was $5,000 and now is up to $250,000. If a bank "goes under" financially, the federal government will pay the depositors the money which he would have otherwise lost up to the limit of the time.
Why this history lesson? What do banks going under almost 100 years ago matter today? Our money is safe for all of us who have less than one-quarter million dollars in each bank. Right? Not necessarily.
Eventually, the national financial condition improved and came to an apex in about 1976. On the positive side, banks were paying interest rates of 12% +/- on CDs. The other side of the coin was that people were paying 15% +/- for mortgages. But the country survived.
Then came 2008 when banks were again unstable, some went under, the stock market crashed and people paid outlandish prices for homes. It didn't matter if the buyers couldn't afford the house, they could buy it on only their signatures. No credit checks, no background checks, and not necessarily verification of employment. All of our economic systems crashed. It crashed because business executives were both greedy and crazy.
Wouldn't it be nice if everyone had learned the economic lessons of the past? We should be coasting along having it "made in the shade." But we're not. We're about to be burned to a crisp! Friday, March 10, 2023, two of our major banks lost $5 billion in one day! The Silicone Valley Bank (SVB) California was shut down by the banking commissioners and the Signature Bank (NY) was shut down two days later. Where was our Secretary of Treasury, Janet Yellin? Surely she had everything under control. Sadly, no. She was in Ukraine, promising that the United States will pay for the Ukrainian pension system.
Most people have heard of "Mini Madoff;" a 30-ish man whose real name is Sam Bankman-Freid. He smartly moved to the Bahamas (no extradition treaty with the USA,) started a cryptocurrency exchange, and convinced "anybody who is anybody (criminals and cartels included)" in the financial world to give him their money to invest - until his house of cards came crashing down to the tune of $10 billion to $50 billion in bankruptcy. He admitted that he invested $500 million in Democratic politicians and somewhere around $5 million in Republican politicians. Although there may be no connection, at least three cryptocurrency experts have recently died unexpectedly.
On March 11, 2023, the government closed the SVB bank. Those of us on the East Coast may not be familiar with the bank but its failure is the second biggest in American history. They dealt mostly in - what else? Cryptocurrency. Only 24% of their depositors qualified for FDIC protection but President Biden decided to be generous with our tax money and covered all the millionaires/billionaires' money. Although the president promised it would not cost the taxpayer a cent - there is no way on earth that can be true.
President Biden's explanation is that the money will come from FDIC and the bank's fund FDIC. Does anyone really believe that the banks are going to turn over billions of dollars just to be nice? NO. The banks pay for the FDIC fund through the fees they charge the average depositor. It costs about $1 to $2 to process a bounced check but most banks now charge between $25 - $30. Most of that is greed on the part of the bank but some if it pays for FDIC insurance. After this round of bailouts expect most banks to find a way to raise more fees.
The next bank to go under, only two days later, was Signature Bank in New York. Again, the bank didn't cater to the individual depositor, they went after the big money - real estate, law firms and, oh yes, cryptocurrency. We will be bailing them out to the tune of $22 billion. Their depositors are suing the bank and its executives, but will the taxpayers ever get repaid?
There are 6 more banks on the of "likely to fail soon" list and another 18 are being investigated. Two banks of which East Coast depositors should be aware. The First Republic Bank (CA) IS NOT the local Republic Bank. There is nothing to worry about if you use the local Republic Bank.
Finally, Wells Fargo Bank. They have been under investigation for quite a while. What most people have read about Wells Fargo recently is that depositors who have their paychecks, pensions, etc. direct deposited have had their deposits disappear. For some reason, an employer's bank sends the pay money to the employee's account in Wells Fargo where it just disappears.
Since there is no Wells Fargo bank locally there are probably not too many individuals in Gloucester City who are affected. However, Wells Fargo holds many local mortgages. There is no reason to worry about losing your home but be prepared for confusion and frustration.
If there were ever a time when our local government needs to be aware of what the individual is facing, it is now. Banking is only one problem and a little cooperation and wise spending on the city's part could go a long way to improve everyday life for the city's residents.