Bad Banks and Bailouts
Dear Clients and Friends,
Financial markets have been stormy the last week or so as a result of a banking crisis, and you may have seen some dramatic headlines. Several banks in the US had “runs on the bank,” which means too many depositors tried to withdraw funds and the banks were not able to meet redemptions. This is obviously not good, and could likely end with bankruptcy for those banks. However, this situation is not unprecedented, and the government stepped in to alleviate panic and allow the customers of those banks to access their money. Basically, the safeguards and protections in place worked as designed, and in some ways, the government did even more than it needed to in order to maintain order and stability. Just yesterday another bank that seemed to be in trouble was rescued by an infusion from its peers, organized in part by the Federal government.
There seem to be specific reasons why the banks that failed did so (imprudent investment risks in their own portfolios, over-concentration on cryptocurrencies and Silicon Valley startups, for example), and there are reasons why their failure should not ripple out to the rest of the banking sector or the economy overall. However, there is concern that the risk could spread to other companies and cause a financial crisis. If the risk does spread it seems unlikely to be as significant as the Great Financial Crisis of 2008 for a number of reasons, but these crises are always unique.
As always, the future is uncertain, and how this will play out in the markets is impossible to predict. However, even if current events turn into a more significant financial crisis, our faith in the underlying fundamentals of the economy and markets remains intact. There has been talk of a coming recession for many months, and this could be the spark that causes it. Yet that possibility is not itself a reason to change anything, because as we’ve talked about before, a recession isn’t something that needs to be feared, but instead prepared for. As we have discussed over the years, we’ve crafted your strategy and financial plan to anticipate and prepare for times like this.
There are many nautical analogies to the financial world, and the one that comes to mind is that “we build strategies not to dart between the storm clouds, but to weather the storms and arrive safely at our goal on the other side.”
As always, we are here to answer any questions you may have, please reach out if you’d like to connect. We will keep our eyes on the storm clouds on the horizon, but have hope that this storm in particular may blow itself out with limited long-term impact.
Best Wishes,
Ted Haley, CFP® AIF®
President, CEO