Washington, DC -- (ReleaseWire) -- 08/21/2015 --BENNETT: Craig Smith and his co-author Lowell Ponte recently published a book titled Don't Bank on It, which exposes the unsafe world of 21st century banking. It speaks to why it has simply become illogical to trust your money to today's increasingly vulnerable and unsafe banks, which are hackable and trackable and hazardous to your wealth. As a matter of fact, according to Smith, your bank deposits are now in danger in at least 20 major ways, which is where I want to start today. Craig, welcome to Financial Myth Busting.
SMITH: Thank you, Dawn. It's good to be with you.
BENNETT: Last month marked the five years anniversary, of President Obama's signing of the Dodd-Frank law, which was legislation that promised to end "too big to fail" and promote financial stability. Yet, none of that has come to pass. The financial system is less stable, the big banks are bigger, and there are fewer small banks. What do you think hasn't worked with Dodd-Frank?
SMITH: What a question. I'd like to say everything. Our big banks are 40% bigger than before Dodd-Frank, and Dodd-Frank has done nothing more than to cripple a lot of the small, as you pointed out, regional banks that have been literally wiped out by the legislation, and it has done very little to protect the average consumer. And that's why when Lowell and I wrote the book: banking in the 21st Century is totally different than banking in the 20th Century. As a matter of fact, I'd rather go back to the 20th Century, Dawn.
BENNETT: I agree.
SMITH: It was safe back then. A perfect example is JP Morgan. We all heard about the hack the JP Morgan had on their systems, they lost 76 million files. They don't even know what information is missing. It took six months to detect to hack. Now, of course, some of the legislation in Dodd-Frank about the Consumer Financial Protection Bureau was supposed to monitor and eliminate all that. Well, they did nothing to stop it. And once again, a big government program is not what our banking system needs right now; it needs good old fundamentals brought back to the banks, and we'd see the banks straighten themselves out naturally.
BENNETT: Do you think it's possible that it wasn't deregulations that caused the 2008 crisis, and Dodd-Frank's passage, but that it was simply dumb regulation?
SMITH: Yes, and I think it started during the Clinton years. And it wasn't Mr. Clinton's fault; I mean, congress had a part in this. You know, when you eliminated Glass–Steagall and you broke down the wall between investment banking and speculating and having a trade desk and having deposits, all of a sudden banks became big one-stop shops for all your financial needs, and that's not what our banks should be. And what troubles me the most about it, Dawn, is that most Americans are very unaware that in 2012, and then finalized in 2013, there were talks between the Bank of England and the FDIC, where we signed memorandums that basically said, 'From now on, there will no longer be bail-outs of our big banks.' Well, that sounds good from the surface. We, as tax-payers, don't have to bail the big banks out. Instead, they're going to do what's called 'bail-ins' and that's what they did in Cyprus already. That's what they're doing in Greece currently. And that's where your deposits that are in that bank, Dawn, are part of the capital structure of that bank, and they can implement capital controls, in allowing you to have your money: like in the case of Greece, 60 euros a day. And most Americans don't have a clue that the money that you turned in, your paycheck that you turned in to that bank, is no longer your money; it's the bank's money. You have an IOU that promises it to you, and if the bank decides it needs to use it in another way, in the case of an emergency, you're out of luck.
BENNETT: Do you think Americans understand that phrase, 'capital control'?
SMITH: No. And to quote Henry Ford, 'I think if the American people understood the financial system in America, there'd be a revolution before nine o'clock tomorrow morning.' Capital controls, we're seeing all over the country. We write about this in the book. We challenge people at the end of the book, 'Go to your bank, try to cash a check for $5,000, and watch what happens.' And I can tell you verbatim what will happen. The first thing the teller's going to ask Dawn is, 'Dawn, what do you need this money for?'
BENNETT: Oh, that's true. They do ask me that. I've had that question asked.
SMITH: Right, and that, quite frankly, Dawn, is none of their business. You gave them your money to safeguard it; you want your $5,000. If you want to go put it in a pile and burn it, that's your choice. They have no right to ask you that question. Number two, they may not have $5,000 there, and if you don't answer their questions properly, they are forced by government regulation to fill out what's called the SAR, a suspicious action report, which used to be called a CTR 80-300, which is a cash transaction report. What that means is the government's going to get a report that says, 'Dawn was kind of pensive. She wouldn't tell us what the money was for.' Well, it's none of the government's business what you're doing with your money. Now, if you're trying to leave the country with a suitcase full of $50,000 cash, I suspect maybe they do have some interest in that. But this is what the American people don't understand: the reason for it is most of us don't use cash anymore. We use credit cards, debit cards. We use, in some cases, checks. And more frightening than anything, Dawn, we do most of our banking online. I just got back from Coronado, California, and I had somebody who read my book I happened to run into in a restaurant. And they said, 'You're not going to believe this, yesterday--' And he's with a big bank. I'd prefer not to say who, so I don't get sued. He said he went to his account and he had $1500 in his account, and his account showed $15. So he called the bank and the bank said, 'I don't know what to tell you. We currently show your balance as $15.' There was a glitch in the computer. Finally, by later that afternoon, they figured it out and re-credited his account the $1485 difference. But here's a point; if he had needed that $1500 that minute, the bank wouldn't give it to him, because their computers showed he didn't have it.
BENNETT: I understand that the vast bulk of money in the banking system is actually more in the form of digital loans or credit, non-physical debt. Actual, physical money or cash—the bills or coins that we can use—comprises less than 1% of the money in the financial system. The way I think, one of the biggest concerns for the Federal Reserve is what would happen if a significant percentage of investors actually decide to move into physical cash?
SMITH: That's a great question. And the answer is that the treasury would have to run 24 hours a day, 7 days a week, printing as much money as humanly possible, because there's not 11 trillion dollars, as you pointed out, in cash to meet those deposits. Your number was correct; it's about 1.6% of all the money in the country is in the form of, you know, $5, $10, $20, $100 bills. So we have a significant problem there. Again, most people aren't going to do that, because they believe they're safe in that bank, and they are safe. A bank has become much, in my opinion, like a municipal bond. If you hold it for the duration, you're going to ultimately be paid.
BENNETT: Well, you hope.
SMITH: Yeah, well, in the case of Orange County, California, they defaulted, had to restructure the bonds, so a period of time, your bond was worthless, and you had to be patient. You ultimately got your money, but my concern is where's your liquidity? What if you had a medical emergency and you needed a quick $2,000 or $3,000 out of your account and you couldn't get to it? And this is why we wrote the book Don't Bank on It, because when I was a kid growing up, there were two places in town you could trust with 100% integrity, your local bank and your local church. Now I would suggest both of them are suspect for various reasons. And now you can't just put your money into the bank and say, 'I know it's as good as money in the bank,' because your money, as you said, and you put it a perfect way, your money's not there in cash. It is in the form of a digitalized process. It doesn't really exist. It's an entry into a digital balance sheet. And let's just say we had a massive computer hack, where we had a denial of service on every major bank in America; we would be up the creek. And we had that happen, to a small extent, a couple of weeks ago, and nobody did any big reporting about it, but the hackers took down the New York Stock Exchange, they took down the Wall Street Journal, they took down News Corp's site, they took down Market Watch, and it was several hours before they could get it back up. Now, was it the end of the world? No, they got it fixed. But it shows we're vulnerable to that type of attack.
BENNETT: Greece comes to mind, where the average Greece taxpayer was told they couldn't take money out of their own bank accounts. Could something like that happen in the United States?
SMITH: Yes. If you look at the Banking Secrecy Act of 1971. Within there, it laid out the premises on which capital controls could be used in the case of emergencies. Those capital controls were reinforced in Dodd-Frank. And capital controls merely mean that the treasury has the ability to control the flow of capital. And if you're sitting in a bank, and a bank's in trouble-- here, let's just say JP Morgan's computers went down tomorrow, and you had your $50,000 IRA in there, and now it shows it has $50 in it. What are you going to do, Dawn? You call them up, say something's wrong, they say, 'Our computers have been hacked. We can't--' 'Well, I want my $50,000.' They'll say, 'Well, until we get it fixed, we can't help you, because we're not sure you have $50,000, because the fed's digits don't show you have $50,000. That means we don't have $50,000.' And this has become a bigger problem, because of the Bank for International Settlements and the IMF are all tied together. Now, the Bank for International Settlements, that is the central bank to all the central banks. It's like the Federal Reserve is to our banks. And here's the biggest problem, in my opinion, and that is we are so globally connected; one virus can create the whole system to freeze. It doesn't mean you're going to lose your money. I want your listeners to be clear on this, that it doesn't mean you're going to lose your money forever. It just means there's going to be a delay in you being able to get that money, and the government, by law, has every right to do that. I'm not saying they're being nefarious about it; they're not trying to hurt you. They're just trying to make sure that the system can have some type of flow to it. It's like Greece. Do you think the banks didn't want to give people their money? No, they had to dole it out in bits and pieces because they didn't have enough to cover everybody.
BENNETT: I understand that government money market funds have new fees and provisions to them. If the system is not under duress, why would they be coming up with these rules and reforms for money market funds?
SMITH: Yeah, it's very interesting. And just so you know, that's the only place I believe you're 100% safe, is in a government approved money market fund. Not a government approved mutual fund, but a government approved money market fund. And that is because theoretically, Dawn, the United States government has to declare bankruptcy before you're in trouble. And we know that's not going to happen, because we have the power to tax and lay levy, and so ultimately the government will pay their bills. But I've got to tell you, I think the banks are in worse shape than they were in 2008. I've written about this extensively. I think that what we saw in 2008 was a precursor of the big one that's going to hit us soon. If you look every seven years, follow it back to in the '90s and go every seven years, you'll see that there's a crisis. In 1987, the big stock market crash. Seven years later, 1994, we have another crisis. Seven years later, 2001, we had 9/11 and the stock market drop. 2008 we had the housing crisis and everything fell apart there. We're seven years out, right in the window of something getting ready to happen again. And this seven year cycle has repeated for decades, and that's not a for sure thing that something's going to happen, but the banks that were supposed to reform themselves have not reformed themselves. And ask yourself one quick question; these banks were in so much trouble that they needed to pass the TARP—let's just call it a trillion dollars to round numbers off—and yet, within two years, the banks were fully recovered. They paid back all their money and they were in massive profits and their stocks quadrupled in value. How can that happen, Dawn?
BENNETT: I know, it's impossible. Craig. How can people get your book?
SMITH: They can call 800-289-2646, mention Dawn's program, Financial Myth Busting, and they'll send you a complementary copy and they'll pay for the postage. Or we'll send it to you on a PDF. It's 800-289-2646. We'd be happy to get it in their hands, and hopefully they'll read it and call you and talk to you about it.
All data sourced through Bloomberg
Securities offered through Western International Securities, Inc., Member FINRA & SIPC. Bennett Group Financial & Western International Securities, Inc. are separate and unaffiliated companies.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org