The following article is a complete transcript from our video titled

Why banks are collapsing and an alternative for storing wealth reserves.

Steve Gibbs:

All right, so I’m here with Barry Brooksby, one of our infinite banking pros. Barry, glad you’re here.

Today, we want to address really the recent SVB bank collapse. We want to talk about why banks collapse in general.

Speaker 2:

And Friday marks the end of a rough week for the banking industry.

Speaker 3:

Once a titan in the world of tech startups, wreaking havoc, including for sellers who use e-commerce site, Etsy.

Emily Flitter:

The bank could have avoided what happened to it if it had properly accounted for the risk of rising interest rates.

Speaker 5:

I had no idea this was going to affect me.

Emily Flitter:

One thing I can say is that Silicon Valley Bank tried to bet with too much certainty on how quickly and how high rates would go, and they lost.

Steve Gibbs:

And consider together, folks that are looking for a favorable alternative to storing cash. And if there is one, and we’re going to suggest there is and talk about that. So let’s jump into this topic. Barry, why do you think that banks fail?

Barry Brooksby:

They practice what’s called fractional reserve banking. They don’t have all of the cash that we’ve deposited on hand. They’re printing money out of thin air. We know the government does that over and over again, trillions and trillions of dollars. So when there are these runs on cash, people wanting their deposits, the bank doesn’t have the money in their vault to be able to disperse what you might see on your bank statement, which is a scary thing, frankly.

Steve Gibbs:

Right. So fractional reserve, I mean, there’s different comments on that out there. Is it 5% reserves that they need to keep and then they can loan out at 20 x or whatever it is? So when you really look at it, it feels like a game. When I put my money in, I’m confident I can get it out. Well, I hope I can. In the SVB case, that’s exactly what happened. They had large depositors, people wanted their money and the bank collapsed because they couldn’t provide everyone their cash when they demanded it. A little bit of nod to old Jimmy Stewart.

Speaker 7:

But George, I got my money here.

Speaker 8:

Did he guarantee this place?

Speaker 9:

Well, no, Charlie, I didn’t even ask him. We don’t need Potter over here.

Speaker 8:

I’ll take mine now.

Speaker 9:

No, but you’re thinking of this place all wrong, as if I had the money back in a safe. The money’s not here.

Steve Gibbs:

All right, so let’s dive into how do banks make money? It’s something maybe we don’t think about. Obviously Barry, you’re a financial guy in your background. Banks make loans. They have your money sitting there, then they loan out at the rates that they want to loan out at. And we know that the rates that you get from a bank aren’t very spectacular majority of the time. So we store our cash there and then we replenish it and we’re supporting the bank’s system, however good or bad it may be. Correct?

Barry Brooksby:

Yeah, they’re using other people’s money to make money.

Steve Gibbs:

Interesting.

Barry Brooksby:

It is interesting that here we have banks failing. Generally that occurs because of bank mismanagement, that those in charge just simply aren’t managing the bank funds well. In theory, a bank should never fail. They should never fail because they’re using other people’s money to make money. So the mismanagement causes a lot of problems. But what we want to do is we want to take advantage of what the banks do. How do we become our own bank? How do we make money and perpetuate that wealth moving forward? We teach a lot of that in what we do with the webinars, the insurance and estates.

Steve Gibbs:

Right, and we’re going to dive into that in a second. I want to unpack that. But the reality of it is that people think, well, I got FDIC, right? That’s covering me, 250,000. So the response on that, of course, the initial response is, well, you definitely don’t want to have more than 250,000 in a bank then, right? Because that’s the limit. But also what happened with SVP when it came to FDIC insurance? Basically a lot of large depositors there, right?

Barry Brooksby:

If you’ve got a million or 2 million or 10 or 20 million in deposits with your bank and you’re only insured for $250,000, you would have to have your cash in 30 or 40 or 50 banks to be covered by FDIC. But Steve, there’s a myth about FDIC that a lot of people don’t know. If a bank fails, you don’t get your 250,000 the next day. It’s government supported. It’s really tax dollar money that funds FDIC, and they could pay that back to you over a 10- year timeframe. So you might get $25,000 a year for the next 10 years. You’re not going to get your 250 back within 30 days.

Steve Gibbs:

That’s sobering, especially because the time value of money would then mean you’re getting less back than the 250 that you lost.

Barry Brooksby:

Correct.

Steve Gibbs:

And the other thing I heard about this, and I think it’s worth verifying, but the FDIC doesn’t need to keep dollar for dollar reserves in for their 250 per person, whatever it is.

Barry Brooksby:

They do what the banks do.

Steve Gibbs:

Right. So, we wanted to talk about this and SVB, and we’ve seen banks collapse before, and the government swoop in to bail them out. But for anybody thinking, how can I trust a traditional bank for my cash reserves? Barry, why don’t you kick off what we like to tell people as far as an alternative goes.

Barry Brooksby:

Yeah. We love, we support, we encourage people to add a different asset to their portfolio, high cash value, whole life insurance. And we’re not talking about traditional old style whole life. We properly structure these whole life cash value policies for one main reason. And that is to accelerate cash value growth. And there are so many benefits that a person will get in these policies. And then we teach how a person can then become their own bank. But what we’re talking about initially is guaranteed growth on your money, access to liquid cash so you can be your own bank. And three, if done correctly, tax-free growth of that money.

Steve Gibbs:

And those are great concepts that we’ve talked a lot in our other webinars and we’ve dove into together. But now let’s think about it. The reason you’re becoming your own banker, and people sometimes confuse what we mean by that, number one, you’re able to take advantage of leverage, which you really can’t in a traditional bank account. So you can take a policy loan and there’s some misinformation about policy loans out there, and we’ve got other webinars on that. And you can truly then use that cash to pursue other opportunities, all the while having it work, just like a bank. Your money’s still working if you take that cash, which is really the key. So that’s one of the things that we mean, and the originators of the concept, what they meant is you’re leveraging that. You’re keeping the money working. Call it the velocity of money, using leverage. You’re starting to do all the things that a bank seems to be inclined to do. They don’t want you to do it, but they’re doing that.

Barry Brooksby:

That’s exactly what they’re doing. Leverage. Think about it like this from a numbers’ perspective. Let’s say you put $100,000 into a policy and it grows to 200,000. You can use the full $200,000 tax-free to go buy more assets to create and generate more wealth. And that is what the wealthy do, Steve. They’ll take assets they have, pull equity out of those assets tax-free and go buy more assets. It’s a beautiful plan. It’s a beautiful structure because you’re not having to pay tax on those gains if done correctly. And essentially you’re perpetuating wealth over time by doing that.

Steve Gibbs:

That’s exciting. And the insurance companies aren’t doing fractional reserve stuff with the money. They’re not taking your premium dollars and loaning it out 20 times.

Barry Brooksby:

They can’t. They legally can’t do that.

Steve Gibbs:

Exactly. I wanted to talk about that.

Barry Brooksby:

Which is why these mutual, dividend paying, whole life insurance companies, they are the most solvent, secure financial institutions on the planet. You can feel very safe and secure knowing your money is with a mutual insurance company.

Steve Gibbs:

Right, and this is why banks heavily invest in the very thing that we’re talking about.

Barry Brooksby:

Exactly. That’s right.

Steve Gibbs:

Don’t take our word for that. BOLI is very common. You can look at the balance sheets of banks, and so we want you guys to be aware of that. This is not a niche thing. This is a reality in the financial world that we want you guys to be able to take advantage of.

Barry Brooksby:

Lots of social proof out there.

Steve Gibbs:

Lots of social proof. All right, so in wrapping this up, Barry, you mentioned it a little bit, people can take a loan, they can leverage it. Anything else about policy loans we want people to know? Those are very liquid. They can get those loans very easy, within a day or two.

Barry Brooksby:

Yep, a day or two. I usually tell clients we want to under-promise and over-deliver, three to seven business days, but I’ve had clients get loans the very next day. It’s easy to do. You either pick up the phone, request the loan, or some of these companies have an app. You can do it right there within the app. When you take a policy loan, this is what’s so remarkable about a high cash value policy that’s structured correctly for cash value growth. They don’t physically remove the money from your cash value. So in that $200,000 example, if you take $150,000 loan, you’re still earning interest and dividends on your total 200,000. You are paying the insurance company some interest, and that interest does go back to the insurance company. But you are earning compound interest and dividends on your total cash value even though you have a loan.

Steve Gibbs:

And that’s a great point. And guys, it’s guaranteed growth. And it’s guaranteed growth that is respectable versus what you see in a traditional account, right? I hesitate to throw in numbers, but we’ve done a lot of webinars where we are showing the numbers and the average returns, and we’ve even compared it to market-based returns, not as we’re doing apples to apples, but just because that issue gets brought up all the time. Look into it guys. You’ve got a guaranteed growth, plus dividends. You also have state asset protection on these accounts. You certainly don’t on your bank account. I can say that as a experienced planner and attorney. You definitely don’t have creditor protection in a traditional bank account. I encourage you guys, the bank’s failing is just a wake-up call that if you’ve got a financial strategy and you want a true safe bucket, well think twice about the savings account, obviously.

With that, thank you for joining us, guys, and we’ll see you in the next video.