Bank failures get announced every week. What does this mean?
For most depositors, it means nothing. The bank closes on a Friday afternoon, and after some new signs go up, it’s open with a new name on Monday. The FDIC shoulders any losses. Of course, if your Social Security number is associated with more than $250 thousand, you’ll take some losses. But why?
Usually it’s because the bank made a bet that went wrong. It could be a series of commercial deals, or it could be some securities they bought that went sour. When too many things go too wrong, the leverage that transforms a mediocre profit into a good investment reverses and turns an ordinary loss into a wealth-destroying disaster.
That’s what scores of investors around the country are finding out. Some fortunes have been wiped out, the trailing wreckage of the housing meltdown. This is the price some pay for the freedom to pursue their dreams. But without that entrepreneurial spirit, our society wouldn’t be so dynamic.
Douglas R. Tengdin, CFA
Chief Investment Officer
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