Get Rid of Deposit Guarantees

From Peter Schiff’s The Real Crash: How to Save Yourself and Your Country.

Government supported deposit insurance removes the incentive for people to investigate how safe a certain bank is for their savings.

As a result people do more market research on a $500 TV than on what bank they entrust with their life savings.

This removes any incentive for the banks to compete in terms of trustworthiness or stability – since the customers don’t really care. Without having to worry about their reputation banks are incentived to compete not on terms of stability or trustworthiness, but solely on the interest rates they can provide. This pushes them towards risky investments which hold the potential of the highest returns.

A bank can pay higher interest rates on savings accounts only if it is making bigger investment gains, and it can only make bigger gains if it takes more risk. Play is safe, and you’re left in the dust.

On regulators and deposit guarantees.

Swiss government bonds or gold bullion may look like safe havens to me, but regulators view such assets from a different perspective. If such investment recommendations lose value (which can often happen in the short run, even for those investments that produce solid long-term returns), any my client decides to sue me, FINRA is fairly like to see the portfolio I picked as being very risky.

This isn’t a regulator setting guidelines. This is a regulator substituting his judgment for my own.


Interview With Frank Giustra

A very inspiring interview with billionaire and philanthropist Frank Giustra. I really liked how the interview gives you a peak into his thought process. For instance, he says he’s bullish on gold, but that there will be a point when to sell, when everyone wants to buy it. Or, that he’s expecting a surge of cash into the stock market, when people realize inflation is destroying their money.