Yesterday, my colleague Connor Whitlock introduced you to the War on Cash. He showed you how the International Monetary Fund and HMRC are already getting their claws on your money. The money you thought safest of all. The money in your bank account and in your wallet.
It’s frightening stuff. Nowhere is safe any more.
But you ain’t seen nothing yet.
Because the real villains are over at the EU and Bank of England. With a long list of acronyms like TLAC, BRRD, MREL and CRD, they’re planning to rob your bank. Well, to rob you at the bank.
That might not sound terribly plausible. But it is the law already. Just try reading up on those acronyms.
Actually, don’t. You’ll get a headache.
Why would politicians pass a law to rob their own constituents? Because the alternative loses even more votes.
Let me start the narrative that led us here with the banking collapse of 2008.
Back then, banks needed bailouts. From Nevada to Nicosia, their loans had gone bad. And so the banks owed more money to their creditors than they were owed by their customers.
The trouble with banking systems is that they need a steady stream of new financing. Banks need ready and willing lenders each day in order to function. As soon as there’s any doubt about the bank’s ability to repay, lending dries up, and the whole thing can collapse.
That’s why we have central banks. To provide emergency lending during panics.
But the 2008 banking crisis was different because of the level of losses on the loans the banks had made. It turned out that sub-prime was risky and nobody wanted to live in isolated housing developments in Ireland and Spain.
Surprise!
The banks were insolvent, not just illiquid. Central bankers couldn’t just buy time with backup lending. Confidence wasn’t coming back.
And so the government had to do some rescuing too. It provided money to recapitalise the banks. Bailouts, not just emergency lending.
But rescuing bankers from their own mistakes isn’t very popular, politically. Even if you’re supposedly rescuing civilisation in the process.
Occupy Wall Street and other political backlashes struck the establishment hard. Especially because the government rescues often imposed a whopping loss of ÂŁ0 on those who had lent money to the failed banks.
Investors like you and me lost plenty in the stockmarket. But in the bank lending market, few people felt much pain once bailouts began. Governments were so keen on preventing a banking panic that they rescued investors completely.
We still don’t really know exactly who was rescued. Whose loans to the banks were repaid with government money?
A German journalist in Berlin made a funny documentary in which he travelled around Europe asking just that question. And got pathetic answers from politicians everywhere. Leaks revealed that the wealthy got bailouts while those without political connections and lobbyists were left high and dry.
In 2012, the politicians decided they didn’t want to have to rescue bankers again. It got too many of their colleagues unelected. And put entire national budgets under pressure.
But who should rescue the banking system if the government can’t?
You.
And that’s the law they made. Depositors and investors’ money can now be used to rescue a bank in the UK, EU and many other jurisdictions around the world.
But it’s the conclusion that follows which is terrifying. It means your savings in the bank are no longer safe. Including if you hold less than the £85,000 the government guarantees. Because I don’t think they’ll stick to that limit in an actual crisis.
Have you ever heard of a financial crisis where the government followed the law?
Hah!
This poses a problem for investors. If your money isn’t safe in the bank during a financial crash, what should you do with it?
Staying invested is a painful option too. Watching the value of your wealth plummet when you saw the crash coming isn’t an enticing prospect.
Until next time,
Nick Hubble
Capital & Conflict
Category: Market updates