Sprott’s Thoughts Sprott

Since 2007, bailouts to save banks and governments have become relatively commonplace. They have occurred in Ireland, Iceland, the United States, Portugal and Greece, just to name a few. And the playbook has generally followed a recognizable pattern: Using customer deposits, a financial institution over-levers itself and buys assets of dubious quality. At some point, the institution runs into trouble as the assets that have been purchased drop in value, become illiquid or simply become too enormous to support. In order to minimize the impact the bank’s failure has on the global financial system, a bailout package is arranged with the prevailing government (s) ‘‘saving’ the institution from ruin. In all cases, the government then guarantees the bank’s deposits and/or other securities to facilitate stability. There are no bank runs – no panic to put cash under a mattress, and life goes on. However, the news out of Cyprus this weekend altered this playbook significantly.

via Sprott’s Thoughts Sprott.

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