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To: elmatador who wrote (22696)	9/18/2007 1:20:50 AM
From: Elroy Jetson	Respond to of 220328

Yes, I am reading about Northern Rock. It points out the difference between American FDIC government backed insurance and the bank insurance in England. In the US, bank accounts are guaranteed against loss up to $100,000. In contrast, bank accounts in England are insured up to $70,000 - but with a caveat. The first $4,000 is fully guaranteed. Ninety percent of the next $66,000 is guaranteed. So an account with the $70,000 maximum could sustain a loss of $6,600. This is why suspected problems at Countrywide Bank led to a panic only by depositors with more than $100,000 - such as a retired football star who had $2.5 million on deposit at Countrywide. In theory it is nice to have only 90% insurance, because it makes people less likely to risk their money in banks they have reason to know might be facing problems. But this is also the problem. Since people suspected Northern Rock might have problems, they were withdrawing all of their money beyond the $4,000 limit for 100% insurance. As a result finance minister Alistair Darling has announced that the Bank of England and the UK Treasury will guarantee ALL deposits at Northern Rock for the duration of this problem. Without this guarantee, they may as well close Northern Rock. This is all unusual, . . . but still business as usual. But here's what you don't understand. The Bank of England and the Fed are only obligated to keep the banking system functioning. They are not obligated to protect bank shareholders, nor shareholders of other companies, nor owners of debt, such as mortgage debt. If there's a problem, all of these people get to see their money go to money heaven and never come back. The only people who are protected are those with less than the guaranteed maximum at banks and those invested in the debt of the central government. Why? Because they are authorized to print money to pay you back - so you are guaranteed to get your money back. Not necessarily your value, but your money. In a true economy-wide panic, your money is worth quite a lot because you have it and most everyone else has very little of it. Antiques, gold, diamonds and real estate are available very cheaply at large discounts to prior value. The alternative is to print a lot of money and make money nearly worthless. In this event, you want to own Antiques, gold, diamonds - and in some cases real estate. The problem is real estate ownership is typically greatly leveraged with debt, so values will plunge before real estate once again becomes something which retains its value. Ultimately, economies with too much debt cannot avoid one of these two fates, even if the central bank and government would wish to prevent it. Jay and I, and others, await the inevitable. When debt is reduced in economies, it matters greatly what you own. .