Are Big Bank Bail-ins Going Global?

by Lear Capital EditorialAugust 01, 2017

Big Bets on Big Banks

Investors know that you must balance risk with reward to manage your portfolio successfully. There are times when you can take on more risk for the possibility of higher returns. There are other times when it is better to be conservative so you don’t end up losing everything.

Individual investors understand this fundamental truth, but bankers are trying (and succeeding) to reinvent these rules for themselves.

What if you could take outrageous risks, keep the jackpot profits, but then have your losses covered by someone else?

Sounds pretty great, right? Too good to be true? Not for some people. Not for some institutions.

Banking Crisis Redux - Italian Version

What if you, as an investor, could take crazy risks, keep your windfall profits and get someone else to absorb your losses?

We’d all like to have that “someone else” in our lives, wouldn’t we? But after the housing crash of 2008, we began to learn that we ARE the “someone else” for the banks.

Two more MAJOR Italian banks have failed and Italian and European taxpayers are gifting those banks with the largest, most generous payout in Italian history at 17 billion euros.

In this continuing era of big bank bailouts, banking has become akin to betting on roulette with
someone else’s money but keeping all the winnings to yourself. Must be nice!

We didn’t know it at the time, but those big risks the banks were taking by giving mortgages out like candy were going to be put on us, the taxpayers, to absorb, work through and make right again. The bankers making those decisions are still in positions to keep making those bets.

If this was a problematic business model, you would think other banks around the world would be watching and learning and changing in meaningful ways, but why would they? They keep getting paid to fail, just like they keep the profits when they succeed.

It’s a great system, if you’re the bank.

And so, those banking failures are still happening. However, they are becoming problematic for the taxpayers. Taxpayers are less and less willing and able to take on losses. Governments are running out of tax revenue to cover losses and must begin to look elsewhere. Who is next in line? It’s STILL YOU, only as a depositor, not a taxpayer.

Bail-ins Get Personal

With a bail-in, it is no longer about the tax revenue you have already paid in to the government. That money, as far as you are concerned, is lost and gone forever. A bail-in directly affects your actual bank account and puts it on the chopping block. Not a good place to be.


A bail-in uses customers’ deposits as a legal and available resource to rescue a failing bank. Nothing could be more personal than that. And they certainly aren’t paying you the interest on your deposits you would deserve if you are taking on this level of risk.


Should ALL your money be in this brittle and risky system?

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