Raymond Jewell: [00:01] How to beat the banks at their own game. Today, we’re going to talk about wealth and assets and how to keep your money in your control. Stay tuned.
Announcer: [00:08] From Philadelphia, the home of the Liberty Bell, Financial Freedom Radio starts now. Here’s your host, Raymond Jewell!
Raymond Jewell: [00:23] Welcome everybody to FinancialFreedomRadio.com. Today, we’re going to talk about how to beat the banks at their own game and how to create wealth and keep it within your control. But first, we want to introduce engineer Steve. How are you today Steve?
Steve Bailey: [00:45] So, once again you still can’t hear my earphones. I’m gonna fix that one of these episodes, I promise you.
Raymond Jewell: [00:53] We’re gonna talk about your favorite topic today, Steve and that’s the banks.
Steve Bailey: [00:57] Oh, I just had such a hassle with my bank today so I am done with that company. It’s ridiculous.
Raymond Jewell: [01:07] We don’t even want to go down there.
Steve Bailey: [01:09] No, you really don’t. It’s a family friendly show.
Raymond Jewell: [01:11] Maybe if we need a little filler, we might try later on.
Steve Bailey: [01:16] I’ll have to be careful what I say.
Raymond Jewell: [01:20] We’ve got some pretty good video clips. So we’re going to start doing that. That’s the new thing we’re doing. Some people are going to be explaining the different problems with banks. So, maybe you’ll have an epiphany and you can share some of your dealing [crosstalk 01:38]
Steve Bailey: [01:42] Educate me, Dr. Ray.
Raymond Jewell: [01:45] The mind that opens to a new idea never comes back to its original size. Albert Einstein said that and that is our mission. To give you enough information so that you can expand your mind and have something new to walk away with. We call it a take away. Here’s another important saying, “worrying is using your imagination to create something you don’t want.” Think that through. Worrying is using your imagination to create something you don’t want. Let’s create something in your imagination that you do want. Imaging is key to whatever we’re talking about in wealth creation. Imaging, and visualization is very critical. It reminds me of another thing that I hear and it’s so true. Good decision-making, many times, begins with bad ideas. A lot of times, we have a bad idea and we learn how to navigate around it. That’s what we’re going to do. We’re going to dig into the financial institutions and make good decisions using some bad strategies.
[02:58] But first, let me go through a little monologue here. The financial institutions have not always been the pariah they are today. Before the advent of credit cards, the banks were lending money for cars, homes, and alike. They weren’t lending money at usury rates. That was against the law years ago, but credit cards taught them that they could collect money on a systematic and ongoing basis. There used to be a rule that the banks had to follow called Glass-steagall Act. The Glass-steagall Act is a law that was passed in 1933 that separated investment banking from retail banking. Investment banks organized the initial sales of stocks, they called IPOs “initial public offerings”. They facilitated mergers and acquisitions and banks actually had savings accounts. They had checking accounts, they lent money for cars and homes, but they couldn’t branch out into insurance. They couldn’t get into other areas. A great example that we want to look at today is Capital One. I saw an ad the other day on TV where now, they have their own banks that are in a coffee shop Starbucks type format. So, where you go in there, you can get a coffee and get a sandwich and you can open up your bank account. When the Glass-Steagall Act was around, they couldn’t do that. Remember, Capital One started as a credit card company, not a bank. Now they’re branching into banks. So that’s a great example to see how when the Glass-Steagall Act was repealed. I’m going to read you a little about how these other companies stepped up.
[05:03] So, let’s dig into the Glass-Steagall Act. I’ve got a lot of stuff here in my stack of notes.
Steve Bailey: [05:08] Ray has paper. Look out.
Raymond Jewell: [05:13] Glass-Steagall Act was passed in 1933 that separated Investment Banking from retail banking. Investment banks organize the initial sales of stocks called initial public offering they facilitated mergers. As we just talked about a minute ago, many of them operated their own hedge funds. Retail banks took deposits, managed checking accounts and made loans, but in 1999 or 98, President Clinton repealed it and there is no longer the Glass-Steagall Act. So now banks can do anything they want, but let’s dig further. Let’s talk about where they were able to make loans of managed checking and savings accounts. By separating the two, the two retail banks, were prohibited from using depositors funds for risky investments. Only 10% of their income could come from selling securities. They could underwrite government bonds. Most important to depositors, the Act created the Federal Deposit Insurance Corporation and we all know what FDIC is. It ensures your accounts. The law gave power to the Federal Reserve to regulate retail banks. You created the Federal Open Market Committee which determines the short-term rates that they can lend, allowing the Fed to better implement monetary policy. The Glass-Steagall Act prevented investment banks from having a controlling interest in retail banks. So investment banks couldn’t be retail banks. Retail banks couldn’t be investment banks. They had to find another source of funds separate from depositors’ accounts. It prohibited bank officials from borrowing excessively from their own bank. Remember, all of this was created in 1933 as a result of the Depression when they had a run on the banks. So the Act regulated interest regulation to prevent banks from paying interest on checking accounts. It also allowed the Fed to set ceilings on interest paid to other kinds of deposits. It was passed by the House of Representatives May 23rd, 1933. Glass-Steagall sought to permanently end bank runs and the dangerous bank practices that created them. Congress passed Glass-Steagall to reform a system that allowed the failure of 4000 banks during the Great Depression. It had debated the bill during 1932 and redirected bank funds from fueling stock speculation to building industrial capacity. So the whole reason was to keep the two types of banks separated.
Steve Bailey: [08:19] And that’s a good thing, right?
Raymond Jewell: [08:20] That’s a good thing. Yes it is. But in 1998, it was repealed by the Clinton administration. So now you’re seeing banks being insurance companies and they have their own hedge funds. They have their own insurance companies, they’re in all sorts of things. They control so much money that the downturn in 2008 is speculated to be caused by them. Although they blame it on Fannie Mae and Freddie Mac, the banks had the money. They had huge amounts of money and if they decided not to lend it out, then that created people panicking and thus we had the downturn in 2008. There are some other reasons for that happening too.
[09:12] So, let’s look at the different types of banks. There’s four major types of financial institutions including central banks, retail and commercial banks, internet breaks and we break it down further. You have depository institutions. These financial institutions get their funds mostly through public deposits. Your local bank, your local Savings and Loan. Insurance companies collect premiums and pay compensation if certain events occur. They’re not a bank, but yet they have money that they take in and they put it on deposit to pay death claims later on. Pension funds are another depository of money, securities firms. There are firms out there, Goldman Sachs. They’re not a bank, but they sell securities and hedge funds and all that. Finance companies and federal credit agencies. So the whole point of laying this out is so you understand the different types of banks and when they repealed the Glass-Steagall Act, what occurred was the banks now could merge their services together. It didn’t keep them separate. So that caused more of a problem because who are they and who’s their judiciary responsibility? Is it to you, is it to the depositors, or is it to the stockholders? Now that they’re in mutual funds can they take your money that they’re managing and sell you a mutual fund where they double-dip on the commission and if you have a trust account with a bank, they’re now investing your trust money into their mutual funds. They’re collecting fees from that so.
Steve Bailey: [11:21] Seems shady.
Raymond Jewell: [11:25] It really does. Many people are confused by it because they can’t understand why they don’t get personal attention. They go to their bank down on the corner and they want the bank manager to give them personal attention. That bank manager are usually young people right out of college managing banks and they don’t have a clue what they’re doing. So that leads us to our four rules of financial institutions that I’ve talked about over and over and over again. Now that you can see the problems that exist, let’s dig into our four rules and these four rules have gotten me in trouble many times with financial people because they think I’m taking shots at them when I’m really not.
[12:15] So what are the four major rules? Rule Number One is to get your money. Rule Number Two is to get your money on a systematic and ongoing basis. Rule Number Three is to hold on to it for as long as possible. Rule Number Four is to give it back as little as possible. So let’s look at rule number one, to get your money. Now, they’ve got, with the repeal of Glass-Steagall, they’ve got a multitude of ways to get your money. All these papers here. So they now can get your money for insurance, they can get it for mutual funds, they have hedge funds, they got savings accounts, they got checking accounts. Who knows, next thing you know they’re gonna be a grocery store. I don’t know. Capital One now sells food in their so-called bank.
Steve Bailey: [13:13] That blows my mind.
Raymond Jewell: [13:15] So, let’s look. I got a video that I want to show you that supports get your money. It’s video number one and I got this off of YouTube. I don’t endorse these people or anybody that’s on these videos, but I just thought the information was supportive of our four eight major rules and number one gets your money. Steve you want to play that one?
Larry: [13:42] So, Mary said to me, “Hey Larry, all we hear about is how well the stock market’s doing, but this bank mutual fund that we own hasn’t done very well and we just don’t understand why. Can you have a look?” So I Googled the fund and I said to my sister, “Do you realize you’re paying 2.3% in fees?” She said “We’re paying fees?” I said “Yeah, 2.3% a year”. She said “Oh well you mean 2.3% of our returns, right?” I said “No 2.3% of your total amount invested every single year whether the market goes up or down. Which means if you’ve owned this fund for the past 15 years, 30 or 35% of your money has been stripped away in fees.”
Raymond Jewell: [14:23] So, did everybody hear the full audio on that, Steve?
Steve Bailey: [14:35] Everybody heard that, Ray.
Raymond Jewell: [14:37] Hidden in their mutual funds are fees that they don’t disclose. So remember, they got to get your money and how they get it is they’ve got creative geniuses figuring out how to get your money. This is just one little clip of the ways they get it and that’s inside your money market, through mutual funds. There are fees there that they don’t disclose. Now this came to the forefront. The owner of Vanguard went to Congress and testified where they were hiding these fees because Vanguard was a no free fund. It’s a mutual mutual fund, so it was owned by the depositors and he disclosed this. They did apparently come up with some ways to fix it, but they still hide them in there. Remember, they got to get your money and they’re going to do it every creative way they can.
[15:51] Rule number two is they’ve got to get your money on a systematic and ongoing basis. So if you have a mutual, and we’re taking those fees out on a monthly basis. So they’re getting your money on a systematic and ongoing basis. That’s rule number two. They figure out ways to do this that you’re not aware of. Another way they blatantly do it as they say, and a lot of the financial people are out saying this, they use this as part of their sales tactic. Let’s dollar-cost average. So instead of depositing your money at the beginning of every year and letting it run through the year, they say if you put money in every year, you’re going to get the highs and lows. Well, you’re gonna get the highs and lows if you put it in one time versus stringing it out, but they want it on a systematic and ongoing basis so your highs and lows are you probably will average out about the same. It’s just a matter of convenience, they’ll tell you. But it’s a systematic and ongoing basis for them to get your money. When they run the risk of telling a person to put it in on a monthly basis, that person might not deposit at that month. They might not follow through with their plan, but again that’s a matter of psychology and we’re not going into that today.
[17:21] So, they’re getting your money, they’re getting it on a systematic and ongoing basis, and the third one is they want to hold onto it as long as possible. They have many different maneuvers that they hold onto it for as long as possible. Let’s take a look at this lady here. She has a little investment group and she’ll tell you about their hold onto it as long as possible schemes.
Lady: [17:54] Number one: transaction reordering. I remember the first time I logged into my bank account and something seemed sketchy. I’d woken up on payday and moved money into my savings and then taken money out to pay rent. I should have had plenty left over, but a few hours later, when I checked my account, I saw a red, angry, negative number. What? I scrolled down my recent transactions and noticed that what had happened is the bank said first I’d moved money into savings, then I had taken out money to pay rent, and then I got paid. Which meant they’d manipulated it to look like I had overdrawn my bank account so that they could slap me with an overdraft fee. It’s a process known as transaction reordering and while it is frowned upon, it is 100% legal.
[18:34] Number two: Nickel-and-dime you for already being broke. One of the most egregious ways banks can legally screw us over is with all those unnecessary fees. Notably, these fees are positioned to penalize you for being broke. For example, the monthly maintenance fee, also sometimes called a monthly service fee. This is usually about a $12 fee that the bank will charge you if you do not keep an average daily balance of $1,500. That means you need $1,500 in your account everyday. Another example is the extended overdraft fees. Banks will hit you with an additional overdraft fee if your bank account was negative for five days or more. And of course ATM fees.
[19:12] Number three: The deposit hold. Have you ever noticed that when you cash a check, using a mobile app, a little window will pop up and let you know when your funds will be available? This is known as a deposit hold. Typically, when you cash a check, the first $200 of that check are available immediately, but the rest of the funds can get held for two to five business days, sometimes even up to nine business days if you’re a new account holder. This policy impacts those in the paycheck-to-paycheck cycle the most because a deposit hold could mean that you don’t have the funds available when you need to do things like pay rent or your utilities or other necessary bills which could, of course, trigger more late fees.
[19:48] Number four: Refusing to refund a fraudulent charge. I’ve been hit with both credit card and debit card fraud. It is an awful feeling when somebody else is in your bank account, taking out hundreds of dollars. Luckily, I noticed early and reported it to my bank immediately. So I got all of my money back, but banks don’t have to fully refund all of your fraudulent charges, but failing to notify the bank within two days could mean that you’re responsible for $50 of the fraudulent charges. Between two and 60 days and you could be responsible for $500 of the fraudulent charges. After 60 days, the bank could say that that’s all on you.
[20:23] Number five: Shitty interest rates on your savings account. Okay, this one isn’t the absolute worst compared to refusing to refund fraudulent charges, but come on, offering a shitty interest rate like 0.01% on your savings account is just another way banks can legally screw you over.
Raymond Jewell: [20:43] Shitty interest rate. You like that, Steve?
Steve Bailey: [20:47] That was fantastic.I was in there like “oh family friendly just went out the window, today.”
Raymond Jewell: [20:48] The third one is to give it back as little as possible. In this video, this guy’s a Marxist economist. Just so you know, Marxism in economics is not the Marxism that you think of in communism. So, even though this fella has this title, not so sure that he’s a communist person, but in terms of economics, they have a hodgepodge school of thought along with many other schools in economics. So this one is to give it back as little as possible. Steve, you can play video number three.
Richard Wolff: [21:35] Okay, let’s begin with what banks basically do. We, the people, and businesses put money into the bank for safekeeping, for record-keeping and all the rest make our payments. Normally the banks give us little or nothing for doing so, but then they take the money we deposit and lend it out. To take the most extreme example, we these days put money into a bank, get literally half of 1% and the bank turns around and lends that money out to people who use credit cards, charging them in the neighborhood of 16, 17, 18 or more percent. In short, how banks make a big part of their money is by getting us to give them deposits on which they pay a little and then turning around and lending that money out at interest rates that earned them a lot with our money. The problem has been that banks who love this arrangement, for reasons that should be obvious, have a tendency to lend out pretty nearly every nickel we give them, because obviously, the more of our money they lend out, the fatter the profit they take home. The big problem here is if, for any reason, a large number of us want our deposits back which, after all, they’re ours and we have every right to them, the bank would not be able to give them back to us because they’ve lent them out. And that has led periodically to what used to be called, honestly, a bank panic because people panic realizing that they might get to the bank and be told that their deposits could not be and might not ever be returned to them.
Raymond Jewell: [23:33] So that gives it back as little as possible because many times, they can. They’ve got it lent out, so they will discourage you. I’ve got a case right now, personally, where Hurricane Irma came through here down in south Florida in Naples. That’s not my roof. I’m still trying to play with the insurance company. Now I have to take them to court because they don’t want to give out the money to fix the roof and my pool cage and those kinds of things. So I hope what I’ve done today is I’ve built the case for how to beat the banks at their own game. Next week, we’re going to talk about use and growth simultaneously, but in all this information that I’ve laid out here, it is clear that they are not operating in our best interest. These banks are operating in the interest of the stockholders and the investors. So, we need to understand that before we can understand how to beat them at their own game. Wealthy people have used strategies for years to beat them at their own game and we’re going to explore those at our next show which is next week. Episode, I believe seven.
[24:53] So you want to tune in and listen to use and growth simultaneously. How to use your money and how to grow it at the same time without putting it in a bank. So, we’re gonna leave it here for today and I want to thank you all for coming and listening. I hope this information was helpful and we’ll see you next week. FinancialFreedomRadio.com.
Announcer: [25:22] Thanks for listening! Please remember to subscribe to the podcast. If you want to learn how to create real sustainable wealth like the extremely rich people do, or maybe you just want to sustain the wealth you already have, you need to check out Dr. Ray’s new book “Why the Rich are Rich”. Ray’s been coaching clients for 35 years and has completely unlocked the secret strategies that rich people use day in and day out to grow and sustain their wealth, regardless of what’s going on in the economy. His book is completely free, and you can get it by going to https://whythericharerich.com and entering in your email address. Again, that’s https://whythericharerich.com. Head over there now.