Bank runs start slowly. Then they pick up speed and lines form. Too bad for the stragglers.
IndyMac Bank was the largest savings and loan association in southern California. It was deep in the mortgage loan business when it fell apart. IndyMac’s problems revolved around sketchy loan practices, negligent underwriting, and questionable appraisals.
In the mid-summer of 2008, a run started on IndyMac. Police had to be called in to maintain order at a branch in Encino. After depositors withdrew $1.3 billion in just days, IndyMac was taken over by the FDIC.
The bank had 10,000 customers with deposits in excess of the FDIC-insured limit, which was $100,000 at the time. Fortunately for many of them, Congress retroactively raised FDIC coverage to $250,000, transferring their risk to American taxpayers.
At last, after the FDIC funneled billions of dollars their way, a group of well-connected investors led by Steve Mnuchin, who would later become Treasury Secretary, and hedge funders George Soros and John Paulson, took over IndyMac at the beginning of 2009.
Instead of lining up outside the bank in a near riot in July, the alert among IndyMac depositors might have noticed a public filing in May that revealed the bank was headed to insolvency. IndyMac had slipped below the “well capitalized” threshold.
WaMu, or Washington Mutual, was the largest U.S. savings and loan association in 2008. After customers pulled almost $17 billion in deposits in just 10 days that fall, it was questionable whether FDIC resources were adequate to the cash drain. Federal officials stepped in to find a buyer.
Five months earlier, at WaMu’s annual meeting, some of the bank’s stockholders caught a whiff of the plunder that was passing for management of major financial institutions. Why, they wondered, were mortgage losses being withheld from the calculation of senior management bonuses?
A currency crisis is no different than a bank run. At first, only a few notice that things are amiss. They read the signs of the times and took prudent steps to protect themselves. Among those who realize the U.S. can’t meet its debts and other obligations without further devaluation of the dollar are today’s gold and silver investors, including foreign central banks.
By the time lines form, it is mostly too late. Cryptocurrency customers of FTX and BlockFi are standing in line, but the platforms have halted withdrawals and filed for bankruptcy. There are others like them, including Voyager and Celsius. Liquid Global and Salt have suspended withdrawals, too. And we’re not out of the crypto woods yet.
The Bitcoin Bubble: From Nowhere to $69,000 to $17,000
It’s a tragedy when people are suddenly deprived of their wealth and find that their retirement plans have gone up in smoke. But there are liquidity problems everywhere today, and not just among edgy crypto pop-ups. Clients of Blackstone, the global investment giant, are looking for exits from the Blackstone Real Estate Income Trust (BREIT). The company began limiting withdrawals this month. So did Starwood Real Estate Income Trust.
We can no longer say that these are just the earliest signs of impending danger. They are alarms going off.
As we have explained, gold and silver are the safe havens of choice in times like these because their value is intrinsic and not dependent on someone else’s performance.
Or as economist Jude Wanniski once put it: “For 2,500 years the global electorate has identified gold as the most reliable standard of value—which means that gold, a specific amount of gold, is the best possible unit of account, the best proxy for all goods, services and financial assets that are involved in the banking system and exchange economy.”
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The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.