First, a financial institution specific bail in would occur when an institution is failing and government for whatever reason (no available dough or maybe just too politically unpopular) opts not to bail out that institution. Other option, obviously, would be simply to allow the institution to fold and suffer whatever systemic consequences that might ensue.
Second, a country specific bail in would occur when the entire country is in financial jeopardy as outcome of inability to rein in profligate spending while ever higher interest rates render debt service impossible. Here everyone would be in jeopardy, bank deposits would be seized in part or whole, government would terminate private property rights and take ownership, etc. etc…
I looked at the Cyprus bail in. It appears to have been bank specific. This does lend credence to the idea of dealing with financial institutions in decent shape and avoiding those poorly run and/or on their last legs.
All are welcome to participate because we all could be impacted at some point. Was seeking serious comment, not frivolous comment or wise cracks. It’s a legitimate issue in my view and one I’m seeking to understand better.
The sort of discussion I had in mind here is not one regarding likelihood of a bail in. Who knows about that. Instead, I’m interested in exploring defense strategies . . . . if any exist. I mean, money in a bank or at a brokerage is clearly vulnerable. Land is tough to conceal. Are gold, other precious metals, or diamonds an answer? I dunno. Might spreading work, where no balance at a single financial institution would be too high? I dunno. Am looking for ideas and strategies.
When this happened in Cyprus people there were taken by surprise. I do not like surprises where money is concerned.
There is and was tons of Russian money in the Cypriot banking system. If you were paying attention, after the Cypriot banks froze withdrawals during their banking crisis, one of their top Cypriot politicians or officials went to Russia for a diplomatic visit. While no public announcement was made, after the visit the Cyprus bank branches in Moscow and London remained open during this week for full withdrawals. Normal people back in Cyprus were stuck queuing for a few $100/day which was all they could get from the ATMs while the banks were closed. After the Russians pulled out all their money, the Cyprus government bailed in depositors - something like the first €100k was protected and after that most of it was taken and you got bank stock in a nearly broke bank in exchange.
I guess the lesson is to figure out who the really powerful people are in charge of the banks and watch what they’re doing so hopefully you can protect yourself the way they do.
Oh, that wasn’t clear to me at all. After you said “Been contemplating bail ins” I thought you were talking about participating in some kind of an investor consortium that would save a failing bank after the government decided not to. I figured that would require buku bucks.
Understood. Thank you for clarifying. Yeah, I’m not anticipating a bail in any time soon.
Instead I was thinking about the topic and realized I have no answer should one ensue. And I thought I should at least contemplate what I would do.
Not intending to go off topic on my own thread, but a bail in (at least to me) is just another black swan event. And black swan events in general are tough nuts to crack where wealth preservation is concerned. Most recent example that comes to mind for me is back in 2008 when some Americans lost 30%-40% of their nest eggs in the crash.
I managed to avoid those losses, but the event was a dope slap for me nevertheless. I do see a bail in as another kind of black swan, and I guess by definition black swans are not just cataclysmic but are also most difficult to sidestep. So I posted in hope others might have thinking to contribute and possibly even a strategy to deal with bail ins.
Good post and good comment. Another bail in, insofar as I can tell, happened in the crisis in Iceland. The forced trading of my money for equity (bank or otherwise) is, of course, a total joke and not something in which I ever would participate voluntarily. It’s just an attempt to keep people from rioting IMHO.
So again, clearly money in banks or at brokerage houses is highly vulnerable. They just seize it. So how does one store wealth in a manner more resistant to such seizures?
Isnt the only answer to have your assets offshore? Of course, that just exposes you to the same risk in another country.
I dont think there’s all that much to worry about, beyond FDIC insurance limits. If you have your money spread between numerous institutions, and they all fall subject to these “bail ins” where deposit insurance fails, the only things you could own that will really matter are canned food and ammo.
I thought this thread was about bailing out of county lockup.
My view on this is somewhat philosophical as I heard my parents talk about the grand old days where their families were the .01 % until war broke out and everything went to ashes. The lesson to me is that s*it happens and sometime there’s no avoiding it. No matter how prepared one is, there’s always thing one can’t predict. Always invest in education for yourself and your offspring and don’t get attached to things. As long as you are alive, people can’t take away what’s in your head. Your own existence is possible because your fore father at one time know the value of being alive over the value of things or property.
Wouldn’t international stock (index) funds fit the bill there? the underlying stocks obviously would be tied to a specific country but that’s where diversification comes in. It’s unlikely that all of them would collapse at once.
The other thing I could think of is real estate in various stable countries (preferably distant from each other to avoid the impact of regional conflicts). It’d take more than financial crisis to have governments go into expropriation. Usually it’d take dramatic political events that completely change the economic system.
Also many of those at risk countries don’t become risky overnight. They are often smaller economies and the trends actually take years to develop. Cyprus banks were in trouble at least 5 years before the crisis. They then got hammered by the effect of the 2011 Greek financial crisis. If you left your money in Cyprus in 2011, you either had no choice to do so or were not keeping track very well.
You could keep money in gold but then you’d be giving up a lot of returns for the relative safety. Plus you’d have to keep the gold somewhere where it could still be seized.
So to me, outside of geographical diversification, it’d be hard to safekeep assets from every risk. After that, it’s just a matter of where is the least risky to have your investments.