Let’s talk about the bank bailout of 2008 in the final video in this banking series.
The year 2020 was a history making year in so many different ways, that can not be denied. It will be a year that none of us will forget, where we all changed in one way, shape, or form.
We had for the first time in our lifetimes all non-essential jobs and schools close down for over 8 months. We learned how essential the grocery worker was and how fragile the American economy and household was. You may have heard that the average household didn’t have enough money saved in the bank to shelter them in the case of a rainy day. Well, 2020 was a torrential downpour of hardship for so many. And for those who kept their jobs, there was isolation and fear to contend with. We had an outbreak we knew nothing about and for a while, most people didn’t even take it seriously and called it a hoax. I think for sure we all lived through a year there in 2020 that we will not soon forget.
But another year that was also very significant was 2008, especially when we talk about the banks, because of their mismanagement, subprime loans, and terrible lending practices. The banks that year were bailed out and made a ton of money when the rest of the country was hurting really bad. How many of us know someone personally who had to short sale their home or were foreclosed on? You can watch the movie, “The Big Short” a film directed by Adam McKay based on the 2010 book “The Big Short: Inside the Doomsday Machine” by Michael Lewis showing how the financial crisis of 2007–2008 was triggered by the United States housing bubble. The film stars Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt, for a refresher and if you haven’t seen it, prepare to be infuriated by it.
Basically what happened was that the United States Treasury Department forked out $200 billion dollars of the American taxpayers money. Wells Fargo, Chase, Bank of America, and Citigroup Bank’s had $25 billion dollars handed out to each one of them according to The New York Times. Basically again these banks were bailed out for doing something that they were not supposed to do. On the flip side, people at this time were losing their jobs, their houses, and their income at the time. So did a penny of the bailout go to the taxpayers? NO! There was absolutely no tax-payer bailout, and if these folks did dip into their 401k’s or IRA’s for an early withdrawal, they not only had to realize the huge market losses at that time by selling, but they had to pay the 10% early withdrawal penalties, and they were of course taxed by the IRS the following year for the additional capital realized as income that year. The Variable market strategy is honestly too hard to stomach and if you’re the baby boomer generation, you probably know better than most how painful these market fluctuations have been to your financial nest-eggs. There was a huge loss in 2001 when the dot com bubble burst, I myself was very young back then and just started investing in the stock market and had lost over 75% of my gains at the time or about $40,000 and I never recovered from that until very very recently. Then 9-11 hit and hurt the markets, then in 2008, as I mentioned here with the housing bubble and bank bailouts, finally in 2020 and frankly, I predict a huge drop in this market for 2021. So if you have been an investor for the last 20 years, you are probably sick and tired of losing so much and are frustrated because you don’t know of another option. You only have the traditional financial advice, manage, diversify, put the cash in different places, all being variable and accounts that put your hard earned capital at risk.
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Have a wonderful day!