A Deposit In A Bank Is Not A Riskless Form Of Saving
This is a good time to remind our readers of something. Via ZeroHedge
Cyprus has reminded us of a couple of awkward truths:
A deposit in a bank is not a riskless form of saving.We may not see eye to eye with the FT’s Martin Wolf on many aspects of modern economics and central banking in particular, but he described banks well last week:
“Banks are not vaults. They are thinly capitalised asset managers that make a promise– to return depositors’ money on demand and at par– that cannot always be kept without the assistance of a solvent state.”
When states become insolvent, the piper must ultimately be paid. Fatal, embarrassing insolvency is not a problem that can be perpetually or painlessly deferred.
Why do we have FDIC? Because banks can fail,, and when they do, without someone else like the FDIC, depositors can lose part or all of their money, which is what happened in the Great Depression of the 1930s. For a lesson in banks, watch “It’s a Wonderful Life.”
And even if the bank does not fail, if the interest they pay does not exceed inflation after taxes, the money in the bank is worth less over time because you can’t buy as much with the money as you did in the past. The simple truth is that there is no “safe” place for money, even under the mattress. Whenever you have money there is risk of loss. Cash can be stolen. Banks can go bust and investments can lose money. For serious money, get professional help.