"Too big to fail."
If you lived through the financial crisis in 2008, it's a phrase you heard often.
Leading up to the crisis, banks knew they were taking on too much risk. But they didn't care. They were too busy rolling in profits... And of course, their greed almost caused the entire financial system to collapse.
During this crisis, the concept of "too big to fail" was prominent, with the taxpayer responsible for covering the losses of these giant U.S. banks – institutions that only cared about their bottom line.
It's a classic example of a "moral hazard." If banks know the government will bail them out, there's no reason for them to act responsibly.
And that's exactly what happened...
As big banks like Citigroup (C) and Goldman Sachs (GS) lost billions of dollars during the crisis, they also received billions in bailouts from the government... and then turned around and gave billions out in bonuses.
And that's all while average folks lost jobs, homes, and retirement savings. It took years for many to recover. Some never did.
An important lesson I hope people learned during the Great Recession is...
Big institutions don't care about regular folks.
Consider the recent Silicon Valley Bank ("SVB") collapse.
When SVB failed in early March, it was the largest U.S. bank failure since the 2008 financial crisis... and the second-biggest bank failure in U.S. history.
When news of SVB's troubles spread, customers withdrew $42 billion in deposits in a day. Credit cards ceased to work, and companies that had their money with the bank scrambled to pay for goods and employees' salaries.
Then the U.S. government stepped in to rescue the bank with a promise to make all depositors whole.
SVB is only a fraction of the size of banks like Citigroup and Goldman Sachs that got bailed out in 2008. But SVB just proved that even it was too big to fail.
Now, many people will point the blame to SVB's customers. I saw a headline the other day that this was the first "Twitter-fueled bank run" in history. And sure, perhaps the bank would have been fine if customers didn't panic and pull their money at the same time.
But there's more to the story. And it's a story we've seen over and over again... greed and mismanagement.
You see, SVB didn't grow like a normal bank. Typically, banks are boring and grow steadily over time. SVB, on the other hand, was caught up in the Silicon Valley tech frenzy... Deposits tripled in just three years, and management took too much risk by plowing most of its spare cash into long-term, mainly government-backed bonds. Management didn't consider its interest-rate risk because, well... business was good. Bonuses were flowing all throughout the company.
Then, of course, when the Federal Reserve jacked up interest rates, the value of these bonds dropped, leaving SVB in need of extra capital.
We're more than a decade removed from the great financial crisis. And despite an increase in banking regulations, I come back to the same conclusion...
Big institutions don't care about regular folks. Profits will always come first.
With that in mind, you can't rely on any bank or any wealth manager to keep your hard-earned cash safe.
What if the institution managing the pension you're counting on vanishes? What if you simply don't have enough sacked away to retire because your bank doesn't pay you enough interest on your nest egg?
How will you get by over the next 10, 20, or 30 years?
Retirement should be a time to relax and enjoy what you've worked so hard for during your lifetime. It's not the time to worry about bankruptcy filings or becoming a burden to your family.
For years, I've sounded the alarm on organizations that don't have our interests at heart. You can't depend on them to save you in retirement, which means you can only depend on yourself.
And in my special report, "How to Protect Your Income from Big Banks, Big Pharma, Big Everything," I tell you exactly how to increase your income by getting back at the big guys... from Big Banks to Wall Street to Big Pharma. It's time to take what's yours.
Don't just get even... get paid.
You can get this full report – for free – when you reserve a spot for my critical retirement update, which goes live tomorrow morning.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
April 12, 2023