Is Your Money Safe in the US Banking System?
Jul 21st, 2008 | By Eric Roseman | Category: Featured, Financial NewsBritish readers may see parallels between the collapse of US lender IndyMac (NYSE:IMB) and Britain’s Northern Rock (PINK:NHRKF), which failed last September.
Commodity Trend Alert editor Eric Roseman is issuing a stark warning: Your bank could be next.
If you have money in the US banking system, he recommends you put it instead in Treasury bills or exchange traded funds (ETFs) that invest in short-term Treasury securities like SHV or SHY.
IndyMac Bancorp (NYSE:IMB) just became the latest mortgage casualty in the United States this month. More importantly, the headline-grabbing closure officially triggered the first attempted run on a US bank since the 1970s.
IndyMac’s collapse also marks the first time since the advent of the sub-prime mortgage crisis a year ago that a U.S. mortgage thrift has failed.
Last September, Britain’s Northern Rock (PINK:NHRKF) plc, a midsized mortgage lender, collapsed. Even though the Bank of England bailed the mortgage lender out, newspapers worldwide portrayed images of Northern Rock customers scrambling to access their funds for an entire month. It was eerily reminiscent of Depression era breadlines.
On July 14, IndyMac, the nation’s 10th largest mortgage lender, borrowed a page from Northern Rock as major financial newspapers depicted crowds waiting to access their funds.
IndyMac reopened its doors under federal supervision on Monday. They promised homeowners a lifeline from impending foreclosures. The FDIC also stepped in to protect funds up to US$100,000. However, US$1 billion dollars of IndyMac’s roughly US$19 billion in deposits was NOT insured affecting about 10,000 customers. But the FDIC has stated it would seek to return up to 50% of uninsured customer deposits.
If you’re holding the bulk of your savings at a U.S. bank — including the largest money-center banks, I strongly suggest moving those assets to TD Ameritrade. Use those funds to purchase Treasury bills or exchange traded funds that invest in short-term Treasury securities like SHV or SHY.
Also, other discount or full-service brokers will work, but just make sure to invest your funds in Treasury designated securities.
Also, consider mutual funds that offer “Treasury” or Government Securities” money-market funds. These products, offered by low-cost Vanguard Group among others, are safe, liquid and maintain a high degree of credibility since assets are 100% invested in short-term government paper.
The only cash sitting in a bank today should be to pay ongoing expenses, bills, etc. Don’t keep the bulk of your precious savings or liquidity stashed in a bank.
Until financial markets stabilize, head for the relative safety of government designated securities and products. These are uncertain times. Act now.
ERIC ROSEMAN, Investment Director
Source: Northern Rock Comes to America: Will Your Bank Be Next?
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Eric serves as an editor and Investment Director for The Sovereign Society's Commodity Trend Alert. Eric's talents include blending a dozen or more alternative investment funds to produce consistent returns to traditional asset classes and making commodity based recommendations with huge upside and limited downside.
