American Banks: Too Big To Fail?

How Much Did American Banks Actually Receive In Federal Bailouts

bank bailoutsIn 2008 when everything fell apart financially, the stock markets slumped, labor took a nose drive, and many people lost their retirement savings; there is a vague recollection of hearing about the financial institutions who received bailout money from the Federal Reserve.  At the time, there was so many other issues at hand, that very few took notice or even seemed concerned, that the major financial institutions in this country were bankrupt.  Recently, Bloomberg utilized their resources and pulled for information from the Fed that indicated that the fed had given 16 trillion in bailouts to banks, and companies to keep them afloat during rough economic times.  7.7 trillion of that money went to 6 of the biggest financial institutions in the U.S., including:  JP Morgan Chase, Bank Of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley.  These institutions alone comprised of 63% of the total federal governments bailout fund.

Why Were The American People Unaware That American Banks Were In Financial Trouble?

As a trusting customer, you walk your deposit and your hard earned money up to the bank teller and have her place it in your bank account.   Little could you suspect that there is a chance you will never see that money again.  Why is it that investors were totally unaware that the American Banks were in that bad of a financial situation.  It’s because the bank bailouts were one of the biggest cover ups we have seen in this country.  With one breath the banks were telling Americans that their numbers were strong and they were doing well.  With the next breath they are begging for help from the federal reserve.

Were The Bailouts Of American Banks Ethical?

This is a fairly gray area…Lyn Turner, the former chief accountant at the securities and exchange commission feels that the banks omission of their financial instability was concerning.  Since 1989 the commission has required companies to make public the details about material federal assistance.  That being said, having the fed bail you out from a financial crisis, certainly creates a stigma and a certain lack of trust on the part of investors.

Are The Banks Too Big To Fail?

Based on the feds apparent willingness to bailout America’s banks in the past it would appear that we do have the overall sentiment that banks are too big to fail.  That being said, banks haven’t necessarily learned their lesson.  The destructive force in 2008 was an overexposure to derivatives and mortgage backed securities.  When an investment like that goes south, it is very financially devastating.  Today these same banks have trillions of dollars wrapped up in derivatives, the same mistake they made 4 years ago is repeating itself.  Only today, there is not enough federal resources to bail out the banks should their gamble fail again.  If these banks go down, it could have a devastating impact on the economy.  As an investor it is your job to speak to a redhawk advisor and make certain that your hard earned money is safely tucked away in a reputable investment that will preserve your principal and maximize your profit.  Don’t wait until the banking problem is so severe that there is no bailout big enough to help.  Do yourself a favor and secure your assets now.
















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