The “make money” formula is really very simple, yet some of the biggest banks in the world got it wrong because they left out one essential ingredient.

What is the formula and what essential element did the failed and bailed out banks leave out?

The formula is: If you want to “make” money, sell something of value at a profit.

The essential ingredient the failed bankers left out of the formula is the word “value.” 

So what is “value?” Value can be anything that makes what you offer to sell worth money to a potential customer.

For example, if you consider why people pay for carpet cleaning, or real estate, or books, consider the value they get from these goods and services.

• Buyers pay carpet cleaners because they “value” clean carpets more than dirty ones.
• Buyers pay for real estate because they “value” having a home more than being homeless.
• Buyers pay for published books because they “value” the information and stories the books contain.

Just as beauty is in the eye of the beholder, value is determined by the buyer. Nothing has inherent value.

If you doubt this, consider how much you would pay for a bottle of water if you were dying of thirst in the desert. Would you pay the same amount for a bottle of water in the supermarket on your weekly shopping trip?

Value is always determined by how much anyone wants, or doesn’t want, what you are offering.

So, what can you, as an entrepreneur or business owner, learn from the bankers who went broke?

The most important lesson from the sorry spectacle of the near collapse of the banking industry, with all of the collateral damage inflicted upon the entire global economic system, comes down to value.

The bankers made gobs of money in their relentless quest for more and more profit, but they didn’t add value with each money-making step.

Instead, the bankers created a series of transactions, using a wide range of paper instruments called “derivatives.”  Each transaction increased profit but didn’t add any real value for the buyer.

The most notable example from the subprime mortgage meltdown is the process of “mortgage securitization” that inflated value as it disconnected mortgages from real assets. 

The essential point to learn from the bankers who went broke with their mortgage securitization of subprime mortgages is that they got only part of the formula right. They knew how to make money by creating mortgages, but they ignored the critical element of value.

This means that the most reliable method to create financial success is to follow the simple formula. If you want to “make” money, sell something of value at a profit.

By Kalinda Rose Stevenson, Ph.D.

Discover how the banks created massive profit without adding value in Why Banks Went Broke Making Money: The Money-Making Magic That Triggered The Global Recession. Go to www.nomoneylimits.com. Find out more about how greed, privilege, and lax laws and regulations caused the banking crisis and how you can change your own financial situation by discovering what the bankers know about making money. By Kalinda Rose Stevenson. Ph.D. Author of No Money Limits For Real Estate Investors: Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance, National Best Books Awards Winner in Business: Real Estate Category and Finalist in Business: Personal Finance Category.

The idea of a “silver lining” comes from the old proverb, “Every cloud has a silver lining.” The proverb looks for some unexpected good outcome following some bad event.

For many entrepreneurs, business owners, real estate investors, and wage earners, the financial crisis is all too real, leaving millions with devastating losses.

What is the silver lining in all of this?

The good outcome following the bad event of the near-collapse of the banking system is that most of us know more about banks and banking than we ever did before.

Why does this knowledge help people in business?

Bankers know the difference between “making” and “earning” money. In common speech, people often treat these terms as equivalent. Yet, the most basic meaning of “earn” is to receive payment in return for effort. In contrast, the basic meaning of “make” is to “bring something into existence.” This means that “make” is equivalent to “create.”

According to this distinction, when you “earn,” you receive payment for your efforts, in the form of wages or salaries. You receive compensation, but you do nothing to increase the amount of capital in existence. In contrast, when you “make money,” you also increase the amount of money in the economic system.

The most important financial insight business entrepreneurs can learn from bankers is that bankers know that they are in the money-creation business.

And this is where many non-bankers get off track.

Every business is in the money-creation business but not all entrepreneurs and business owners understand this.

Businesses get off track when they think that they are in the carpet cleaning business, or the real estate business, or the publishing business–or any other type of business you can imagine.

You are not in business to clean carpets, or buy and sell real estate, or to publish books.

The carpets and the real estate and the books are means to make the business profits, but they are not the real objective of the business. The real objective of any business is to “make” money.

And this is where business owners get distracted. They get so involved in the means to accomplish this financial objective–the carpets, the real estate, and the books–that they forget that they are in business to “make” money by providing something of value to potential buyers.

As financial guides, the bankers also got distracted. They knew that they were in business to manufacture money, but they ignored the critical element of value.

How the banks ignored value in their relentless quest to increase profits is another story and doesn’t change the most important lesson entrepreneurs can learn from bankers.

For entrepreneurs, the most powerful silver lining behind the devastating financial losses of the banking meltdown is to think about your business with the money-making mindset of a banker.

By Kalinda Rose Stevenson, PhD.

Find out more about how greed, privilege, and lax laws and regulations caused the banking crisis and how you can change your own financial situation by discovering what the bankers know about making money in Why Banks Went Broke Making Money: The Money-Making Magic That Triggered The Global Recession. Go to www.nomoneylimits.com. By Kalinda Rose Stevenson. Ph.D. Author of No Money Limits For Real Estate Investors: Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance, National Best Books Awards Winner in Business: Real Estate Category and Finalist in Business: Personal Finance Category.

The banking crisis raises many questions.

Do you wonder how banks that claimed to hold billions of dollars in real estate mortgage assets could go broke?

And most importantly, how did a banking crisis involving mortgages turn into a global financial crisis that affects all of us?

The most basic cause is greed for more profits. But greed by itself is not enough.

The banking crisis that started in 2008 resulted from a system that combined both greed and privilege.

What bank privileges created the opportunity for massive profits?

The banks greatest money-making privilege is that they can create money out of thin air. Every time a bank creates a new mortgage, the bank creates more money.

Banks have legal charters that allow them to make money with their depositors’ money.

In simplest terms, depositors put their money into the bank. The bank can then use these deposits to loan to other people as mortgage loans.

The most powerful benefit of this privilege is that the banks can make multiple loans on the same deposits.

How much they can lend and how much they must maintain as assts is all regulated by Federal Reserve banking rules.

Although greed was the motivation, the bankers needed more than greed to plunge the banking system into crisis.

The bankers took advantage of changes in banking laws that allowed the banks to mix traditional banking with risky investment banking.

Did you ever see the classic Disney movie “Fantasia”? In “The Sorcerer’s Apprentice,” the young apprentice taps into magic he cannot control.

Something very similar happened with the banks.

When you start with the bankers’ legal privilege to make money out of thin air, and combine that with excessive greed, changed banking laws, and relaxed government regulation, it is easy enough to see how the whole situation could spin out of control.

Greed for more profits explains why banks began to make loans for mortgages they would never have financed before.

They used new lending standards, such as “subprime” loans and “no-doc” loans.

Subprime loans are typically offered to borrowers with poor credit at high interest rates.

No-doc loans stand for “no document” loans that don’t require the kind of careful verification of income, credit history, and ability to pay that traditional mortgage lenders required.

The names themselves are a clue that bankers were willing to make questionable loans.

Why did they make such make such risky mortgages?

They made risky loans because they didn’t intend to keep them. They made their profit from creating the loans, rather than keeping them. After creating the loans, they sold these subprime loans to other banks.

Then the mortgages were “securitized.”

Securitization means that the mortgage notes were bundled together and then offered to investors in the form of mortgage-backed bonds.

When a bank offers bonds to investors, it is borrowing money based on its assets.

These securities based on subprime mortgages created a double problem.

Since many of the securities contained bad mortgages, the banks were not collecting enough mortgage payments to cover their obligations to bond holders.

As borrowers began to default on their mortgage payments, the banks could not collect enough money to pay the investors who bought bonds in mortgage-backed securities based on subprime mortgages.

This is how banks with billions of dollars of mortgage assets on the books found themselves billions of dollars in debt.

Although greed is at the heart of the banking crisis, no one can regulate greed. The real cause of the banking crisis is that the banks took advantage of their banking privileges and engaged in risky practices with their depositors’ money.

By Kalinda Rose Stevenson, PhD.

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Find out more about how greed, privilege, and lax laws and regulations caused the banking crisis and how you can change your own financial situation by discovering what the bankers know about making money in Why Banks Went Broke Making Money: The Money-Making Magic That Triggered The Global Recession. Go to www.nomoneylimits.com. By Kalinda Rose Stevenson. Ph.D. Author of No Money Limits For Real Estate Investors: Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance, National Best Books Awards Winner in Business: Real Estate Category and Finalist in Business: Personal Finance Category.

Nothing has enraged ordinary people more than the idea that the biggest banks used bailout money to pay huge bonuses to their executives.

The House voted Friday to slap restrictions on how Wall Street executives are paid after nine banks that took government bailout money rewarded thousands of their employees with bonuses topping $1 million each.  House Votes

In the same year the banks were failing, and taking billions of dollars in bailout money, the banks were paying their executives million dollar bonuses.

The core of the problem is the connection between reward and risk.  Safe investments tend to be low paying investments. Often, the greater the risk, the greater the profit. 

One of the reasons that the economic system got so out of whack is because the biggest banks found ways to make greater profit with riskier loans after the Glass-Steagall Acts were rescinded in 1999.

The Glass-Steagall Acts were passed in 1932-33 to prevent another Great Depression.

I wrote a report, “Why Banks Went Broke Making Money: The Money-Making Magic That Triggered The Global Recession.”  In this report, I explain why the ability of banks to make more and more money with risky loans that violated every standard of responsible banking practices led to the financial crisis of 2008.  

The real estate boom years coincided with successful political efforts to de-regulate the banking system. Based on the idea that government regulations limited free-market capitalism, Congress passed laws to set the banks free from all kinds of restrictions about what different types of banks could do, and significantly reduced oversight of banking.

Those who believed that “the best government is no government” argued that these restrictions and regulations were impeding free market capitalism. “The most notable results of this effort to set the banks free from government regulation were the repeal of the “Glass-Steagall Acts” of 1932 and 1933, and the enactment of the “Gramm-Leach-Bliley Act” of 1999.

“Glass-Steagall” required a clear distinction between investment banks and commercial banks, to separate risky ventures from ordinary banking services. “Gramm-Leach-Bliley” removed these restrictions. This Act allowed commercial banks to engage in speculative investment banking.

With new-found freedom from all kinds of post-Great Depression era regulations, the biggest banks threw caution to the wind, and created a dazzling array of paper instruments which allowed them to make massive profits. Kalinda Rose Stevenson, Why Banks Went Broke Making Money,

Without these restrictions, the biggest banks had great incentive to engage in risky banking.  The riskier the banking, the greater the potential profit.

As the banks took greater risks, their actions also had the potential to create great harm to the economy.   The “mortgage meltdown” and the bank bailouts are all the direct result of increased risks by banks. 

According to Barney Frank, the banks realized that they would make great profits only if they took great risks.

Rep. Barney Frank, D-Mass., who sponsored the bill, said the extra regulation is necessary to ensure bankers and traders aren’t rewarded only if they take big risks. Under the provision banning risky incentive-based pay, regulators would be given nine months to dictate precise guidelines.

If a bet goes wrong, “the company loses money and the economy may suffer, but the decision makers do not,” he said.  House votes 

As the banks took greater risks, their actions also had the potential to create great harm to the economy.   The “mortgage meltdown” and the bank bailouts are all the direct result of increased risks by banks. 

The practice that has enraged ordinary people more than anything else has been the extremely generous executive bonuses paid to bankers who were running their banks and the economy into the ground.
 
It’s one thing to realize that the banks have been paying millions of dollars in bonuses to executives who were making such bad banking decisions. People were angry enough about that.  What turned anger into outrage is the realization that the banks were continuing to pay generous bonuses after they received government bailout money.

At its core, the financial crisis is a banking crisis, brought about by risky behavior by banks and lack of regulation by government agencies.   This action by the House is an effort to change the risk to reward ratio, so that bad banking is not so rewarding to the people who made the bad banking decisions.

Dr. Kalinda Rose Stevenson

I have just completed a free report,  “Who Is Your Money Working For? You Or Your Bank?”

The goal of the report is not to bash the banks,  but to identify what happens to money itself when you save it, and how “saving” money  limits your ability to “make” money.

The report is available for immediate download at Free Report

For Your Abundant Success,

Kalinda Rose Stevenson, Ph.D.
kalinda@NoMoneyLimits.com
www.NoMoneyLimits.com

PS. Do you understand how the current economic crisis is directly related to what bankers understand about the nature of money? Find out how the banks made money out of thin air, in “No Money Limits For Real Estate Investors.”

Award Winner of National Best Books 2007 Awards
Business: Real Estate Category And Finalist in
Business: Personal Finance Category

In the Monopoly Game®, the rules are clear.  The players have a clear set of rules, which determine what they can and cannot do with money.  The banker also has a clear set of rules, which allows the banker to use money differently than the players do.
 
This distinction between the money rules for players and the money rules for bankers is a critical element in No Money Limits.

In the real economic world, we have experienced significant blurring of roles among various institutions, as the rules have changed and evolved over time. 

Banks are a prime example. It used to be that the lines between different types of banks were clearly defined.  In broadest terms, commercial banks served businesses, thrifts served consumers by taking deposits and originating home mortgages, and investment banks help businesses acquire capital.  In recent years, through a series of legal changes, these lines have become so blurred that most of us have only the vaguest idea of the difference between various types of banks.

During the same period of time, there has also been significant blurring of the lines between bankers, non-banking companies, and private lenders related to lending.

One particular example concerns large companies that have become both sellers and lenders.

Analysts point to two key reasons why some of the nation’s largest companies have unraveled in the current downturn. One is that they had come to rely on providing financing to their customers, lending money for sales of their own products. When the credit markets ground to a halt in mid-September, it set off chain reaction of pain, hurting consumers and manufacturers alike.   Corporate America’s Giants Crumbling

As we analyze what went wrong with the economy, to lead us to this state of economic crisis, one theme keeps recurring.  The economic crisis originated with lending practices gone bad.

Lending money can be extremely profitable. To get in on the profits, various types of banks kept expanding their services and their capacity to make loans. At the same time, big corporations realized that they could increase their profits if they became lenders for consumers who wanted to buy their products. 
 
In the process, bankers made risky mortgages to people who could never repay them, because the lending process itself was highly profitable.  Meanwhile, big companies set up their own lending divisions.  Instead of sending car buyers to the bank to get car loans, why not provide financing directly to your customers? As a result, a company such as General Motors became both the maker of cars and financer of cars through its financing arm, GMAC.

In retrospect, [Ed] Yardeni said, the business model was essentially flawed. When companies like GM and GE financed customers, the loans must have been cheaper than what the customers could get elsewhere and must have meant that the risk of lending to them wasn’t being reflected in the loan rates. Corporate America’s Giants Crumbling 

Self-financing by big companies led to the same trap that ensnared the banks that got caught up in making subprime mortgages. 

“Self-financing is inherently a dangerous game,” Yardeni said. “You’re biased. You want to convince yourself that the borrower is good for it, and you want to make the sale. You’re not going to be an objective lender. That may be one of the problems here.” Corporate America’s Giants Crumbling

The driving force behind the expansion of their traditional roles—both for banks and large companies involved in self-financing—is the intention to create profit by increasing transactions. This is the essential goal of any business.    

Ultimately, the nature of money made all of this possible. Money is not a commodity in limited supply.  Money is created in transactions.  By creating more transactions, banks and self-financing companies could make more money.  The more transactions they made, the more money they would make. 

The primary insight of No Money Limits is that the only limit to money is the belief that money is limited.   What we are seeing in the current economic crisis is the result of people who took this insight too far.  

In the desire to increase profits, banks and self-financing companies made more and more bad loans, throwing prudent lending practices out of the window, until the whole financial structure teetered on the edge of collapse.  

Dr. Kalinda Rose Stevenson

The Monopoly Game involves players and a banker. The rules of game state that the banker cannot go broke. The significance of this rule is a critical element in No Money Limits. Yet, one of the dominating experiences of recent months has been the spectacle of banks going broke. We have seen banks receive billions of dollars in “bailouts” or “rescue” packages, and still go broke.

At its core, the economic crisis began with the banks, as they multiplied techniques to use creative financing to fund the real estate boom. The reason banks have gone broke is that the banks stopping playing the kind of role the banker plays in the Monopoly Game.

In Monopoly, the banker serves the players as a utility. The banker provides a useful function to collect and distribute cash, to allow the players to play a real estate trading game. In the real world of the real estate boom, the banks were no longer content to be utilities. Instead, the banks began to be drivers of the economy. The banks used increasingly creative financing techniques because they understood that money is not found. Money is created.

The root cause of the financial crisis is that people who understand the essential nature of money carried creative financing too far. They became ingenious in their methods to create money on paper, with a variety of clever techniques.

The bankers on Wall Street created an array of techniques, such as mortgage securitization, credit swaps, and derivatives. All of these creative techniques created more and more paper assets, until the whole system was revealed as so much mumbo-jumbo, and collapsed like a giant soufflé.

In the Disney classic “Fantasia,” one of the most memorable episodes is the “Sorcerer’s Apprentice.” The young sorcerer taps into magic he cannot control.  Watch the ”The Sorcerer’s Apprentice.”

This is one of the best illustrations of what went wrong with the banking system during the real estate boom. The bankers tapped into the magical power to create money by using creative financing techniques and the whole process quickly got out of control.

[This is the second post in a series about how creative financing techniques, which created money out of thin air, led to economic crises around the world.]

Dr. Kalinda Rose Stevenson

Find out more about the nature of money and how money is created out of thin air in No Money Limits For Real Estate Investors: Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance,  National Best Books 2007 Awards Winner in Business: Real Estate Category and Finalist in Business: Personal Finance Category.

In all of this, we hear talk of Main Street and Wall Street. To this point, the rescue packages, the stimulus packages, the bailout packages, have gone to Wall Street, with very little directed toward Main Street—the small businesses and ordinary people who are being dragged down with little hope of immediate rescue.

What I want to focus on is the contrast between two types of stories. One story teaches us to hope for rescue. The other story teaches us to be heroic and rescue ourselves.

Let’s start with the stories that teach us to wait for rescue. From earliest childhood, we have been taught to hope for a savior. The movies and TV shows have taught us that rescue will come, usually at the last minute, in the nick of time. The cavalry will ride over the hill. Reinforcements will arrive. The knight in shining armor will show up and we will be saved.

The hope of being rescued touches a deep psychological need for all of us. We hope that someone will help. Someone will care. Someone will do something to solve the problem.

Christian religion has made salvation a central promise of the gospel message. You are lost. You are hopeless. You are struggling. God sends a savior, to rescue you, because you cannot rescue yourself.

Twelve step programs teach that we are incapable of saving ourselves from our addictions. We need help. We need a higher power. We need to be rescued.

In other words, we hope for a hero to save us.

In all of this, I don’t mean to undermine, diminish, or challenge the idea that sometimes we really do need help. We really do need rescue. We really do need to be saved. If you fall off an ocean liner,  you will need someone to throw you a lifeline, to haul you back in.
 
But that fact that we sometimes need to be rescued, does not mean that we always need to be rescued.

In heroic stories, the hero is the one who finds a way to solve the problem. Sometimes the hero rescues others. Often, the hero has to rescue herself or himself. No one saves the hero. The hero is the one who does the saving.

And this leads me to my point. Especially now, when the economic crises pile up day after day. When things seem to get worse and worse, this is the time to be heroic about your situation. Rather than wait for rescue, resolve to find a way to rescue yourself.

The unofficial entrepreneur’s motto is:  “If it is to be, it is up to me.” This single belief is the real distinctive of true entrepreneurs. They don’t wait for permission, approval, or help. If they are in trouble, they act to save themselves.

The real danger right now is for everyone in financial trouble—which includes millions of people—is to wait for the savior to come. These are tough times and they require commitment, determination, and a plan of action.

I wrote a book with a man who faced a financial crisis and did exactly that. He made a commitment to get himself out of his financial crisis, with focus, passion, and motivated action. In the process, he created a formula for the essential elements of financial freedom. Find out the formula that saved him from financial ruin here.

Maybe the government will find a way to bail out Main Street, and solve your financial problems. But don’t wait for it. Most of us do not fall into the category of “too big to fail.”  This means that the only real salvation will come from saving ourselves.

Dr. Kalinda Rose Stevenson

One of the primary reasons for the economic crisis is that banks have abused their ability to create money out of thin air.  Find out how banks create money in No Money Limits For Real Estate Investors:  Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance, Winner of 2007 National Best Books Award in Business: Real Estate Category. 

In response to the global credit crisis, governments are buying ownership in banks. Often, we don’t recognize significant moments when they happen. We don’t see the events that change things forever. But the economic events of the last few days are a clear sign of enormous systemic changes that are underway around the world.

For weeks, we have heard about the proposed “$700 billion bailout” for banks passed by the United States Congress. On Monday, October 13, European governments topped that amount with a plan to invest $2.3 trillion into European banks.

European governments overcame their differences to put $2.3 trillion on the line Monday in guarantees and other emergency measures to save the banking system in their most unified response yet to the global financial crisis. “Europe puts $2.3 trillion on line for banks”
http://www.msnbc.msn.com/id/27137551/

Today, Tuesday, October 14, the United States government announced that it will buy shares in the largest banks.    

The government put itself four-square into the country’s banking business Tuesday, resorting to what President Bush conceded was the unwelcome choice of massive government investments in the banking system in order to loosen paralyzed channels of credit.

The president said the decision to buy shares in the nation’s leading banks – a kind of federal intervention not seen since the Depression era – was “not intended to take over the free market but to preserve it.”  “Administration unveils revamped bank bailout”
http://www.msnbc.msn.com/id/27161138/

 From a long term perspective, these actions to nationalize banks, both in the United States and Europe, raise several issues.

First, is this a temporary response to a global crisis or are we witnessing a fundamental change in the relationship between governments and banks?

In both Europe and the United States, governments are stressing that the actions are temporary.

The government said its stake in each of the banks is strictly temporary, but the subsequent transformation of the sector is on the massive scale of the postwar bank nationalizations in the 1940s and the privatization of the industry in 1980s. “Europe puts $2.3 trillion on line for banks” http://www.msnbc.msn.com/id/27137551/

Under the new multifaceted stabilization program described Tuesday, the government will initially buy stocks in major banks. When financial markets stabilize and recover, the banks are expected to buy the stock back from the government, Bush said in brief remarks from the White House Rose Garden.  “Administration unveils revamped bank bailout”
http://www.msnbc.msn.com/id/27161138/

However urgent the crisis, and however necessary this response, temporary solutions, made under crisis conditions, have a way of becoming permanent. Under crisis conditions, people and their leaders will agree to conditions that they would reject under non-crisis conditions. 

Said Treasury Secretary Henry Paulson: “We regret having to take these actions. Today’s actions are not what we ever wanted to do – but today’s actions are what we must do to restore confidence to our financial system.” “Administration unveils revamped bank bailout”
http://www.msnbc.msn.com/id/27161138/

History shows all too often that when governments receive temporary powers under crisis conditions, they are often not willing to surrender those powers when the time of crisis has passed. This plan does not make clear how the government will get out of the banking business after the time of crisis has passed. 

It’s far from clear what the government’s exit strategy will be. The history of financial panics shows that they are rarely resolved in a single moment by a single measure. The loss of confidence that underlies the current panic took years to develop; it will be months at least before some measure of confidence is restored.  “Massive bailout won’t work overnight” http://www.msnbc.msn.com/id/27181364/

Another notable issue is that the United States government will buy these bank shares with part of the $700 billion bailout fund that was supposed to buy up bad mortgage debt. In other words, however urgent and however necessary this action to buy bank shares, the government is already veering away from the stated purpose of the $700 billion bailout. This means that the bill that was passed with enormous conflict and drama is already being modified by actions without the approval of Congress. 

The administration plans to spend $250 billion this year on the stock purchases and the president certified Tuesday that another $100 billion would be needed in connection with covering bad assets. That would leave $350 billion of the $700 billion program, presumably to be spent by the next president.

The action represents a remarkable turnaround for a rescue program that was already the largest bailout in U.S. history. As the plan sped through Congress, the administration said the money was needed to purchase bad mortgage-related assets that are weighing on the books of financial institutions, never mentioning direct stock purchases. “Administration unveils revamped bank bailout”
http://www.msnbc.msn.com/id/27161138/

A final issue concerns Bob Hope’s observation:

“A bank is a place that will lend you money if you can prove that you don’t need it.”

The government is following a similar strategy. The banks that don’t need the money are the ones that will get the government’s money. The United States government is going to appropriate half of the money appropriated for the $700 billion bailout to buy shares in banks that are stable. 

Nine major banks will participate initially, including all of the country’s largest institutions. The first bank to take advantage of the new program was Bank of New York Mellon which announced Tuesday that it would sell $3 billion in preferred shares to the Treasury.

Some of the nation’s largest banks had to be pressured by to participate by Paulson, who wanted healthy institutions that did not necessarily need capital from the government to go first as a way of removing any stigma that might be associated with banks getting bailouts. “Administration unveils revamped bank bailout”
http://www.msnbc.msn.com/id/27161138/

These are perilous times and government leaders around the world are in full crisis mode. Each day brings more proposals, more challenges, and more fear, as leaders around the world make decisions that are intended to prevent a global economic collapse.

There is an old proverb—reputed to be an ancient Chinese curse—that says:

 ”May you live in interesting times.”

We are certainly living in interesting times. No one knows what the remade economic system will be like when this current time of crisis is over. What is clear is that banking will never be the same, whether the banks are owned by governments, held privately, or some combination of the two. We are witnessing the end of an era of economic growth fueled by uncontrolled debt owed to banks. 

Dr. Kalinda Rose Stevenson

For more on how economic growth is fueled by debt created by banks, see Chapter 9 of No Money Limits For Real Estate Investors 

By Kalinda Rose Stevenson

Banks some times fail, and when they do, depositors sometimes lose their money.   However, there are failsafe ways to make sure that you do not lose any of your money if your bank fails.

The first step is to know that the Federal Deposit Insurance Corporation sets a $100,000 upper limit for any single insured account. (The upper limit is $250,000 for an IRA.)  This is the federal agency that insures bank deposits. If the bank fails, the FDIC will reimburse your money.

The second step is to make sure that you keep your money in an insured account. Not all bank accounts are insured by the FDIC.

The third step is to spread your money into different accounts, preferably at different banks to keep your accounts below the $100,000 upper limit.

For more about how to protect your bank deposits, see “How Safe Are Banks?” By John W. Schoen