insurance on treasury bonds

[LdiJ]

hi aj,

like you said earlier, getting cds at banks - i still have to rely on the fed, just like i do with treasuries

i have already looked into cds with various banks. and i have already contacted schwab, although i have not yet set up an acct

sorta in the process of learning about stuff. the main reason i had picked treasuries over cds is that i live in california. we are heavily taxed. even our sales tax is now over 10%. and treasuries are income tax-free from the state.

if our govt collapsed, i think real estate would become even more valuable. but i am so sick and tired of it. my outlook for our govt is not nearly as rosy as probably most of you guys.

i did find out for sure that there is nothing else backing federal stuff, except the govt. and that scares me.

thanks for all the replies. i just need to let things rest, until i make a decision.

up until a few months ago, i didnt realize you could get 1 year stuff in the 4-5% range. and then when i did some research, i find it is near a high over the past 30 years, so i thought it would be a good time to go 30 years. but the rate has fallen quite a bit in the past 2 auctions, and expected to fall more - LOL.

some of the hard loans are over 12%, as well. but agents arent always honest, and most of the loans have some real issues. and i am still dealing with this bankruptcy debacle.

i just may keep my cash in this privately insured credit union. i am debt-free, so i would never spend my money in my lifetime

Re the bolded...

Did you actually think that a private insurer would be safer than the federal government? It's the federal government that backs the private insurers!

 

[Taxing Matters]

That's what I've been doing, risk free.

Not risk free. Very low risk, particularly as things stand today. But in the world of money and finance there is no such thing as truly zero risk.

 

[TrustUser]

Re the bolded...

Did you actually think that a private insurer would be safer than the federal government? It's the federal government that backs the private insurers!

i cant say i know how that works. but since some credit unions vote to have private insurance, there must be some reason for that.

i do agree that we would be in a world of hurt if the govt were to go insolvent. but i think real estate would benefit. it truly is the best asset to have, because it has intrinsic value to it. i just dont want to deal with it, any more.

 

[adjusterjack]

i cant say i know how that works. but since some credit unions vote to have private insurance, there must be some reason for that.

To get customers that they wouldn't get without it.

 

[doucar]

To get customers that they wouldn't get without it.

Perhaps its cheaper?

 

[TrustUser]

To get customers that they wouldn't get without it.

it would seem like it would be just the opposite. people would be more hesitant ? it could be cheaper, as was suggested ? if i can remember, i will ask the president the next time i speak to her. i dont see her that often.

i also dont see why some company couldnt pay their bills, just cuz the govt went bankrupt ?

i think the worse thing i can think of is that it seems like before a govt went bankrupt, they would continue to print money, until their currency was somewhat worthless, on an international basis

so if our govt went insolvent, our dollar would probably be in horrible shape.

 

[Taxing Matters]

i also dont see why some company couldnt pay their bills, just cuz the govt went bankrupt ?

Some would still go on, probably. That depends on all the circumstances. But consider that finance in the U.S. (an to a lesser extent the world) is built on the idea that US debt is the safest investment possible. Many banks and insurers have significant Treasury holdings for that very reason. Insurance companies don't sit on a pile of cash such that they could pay claims to all their insureds if they all flooded the company with requests all at the same time. That's why casualty insurance contracts routinely exclude from coverage events like flooding, earthquakes, volcano eruptions, war, mass riots, and nuclear accidents. It's the same thing with banks. They don't have all their depositors cash stacked in a box in the back somewhere that can pull out for them if there is a run on the banks.

The bank run that followed the Black Tuesday stock market crash of 1929 is perfect example of that. Depositors literally rushed the banks to get their money out, but only the very earliest succeeded. (There is a very good scene depicting that in the Christmas classic movie "It's a Wonder Life" starring Jimmy Stewart.) The banks ran out of cash and the loans they depended on to make money also went bad because the borrowers couldn't get the cash out of their bank accounts and their stocks were either worthless or had dropped so much in value that the borrowers got wiped out too. But in part thanks to the U.S. Treasury still being sound, a lot of banks did survive the crash, and a number of companies did see their stock prices begin to climb back again, though that took time.

What safety net will an insurer have to use to pay the claims of all its insurance on Treasury obligations if the Treasury were to become bankrupt?

One other thing to consider is that when a country's government or central bank financially collapses, faith in those institutions drop and with that drop in faith is a drop in the value of the nation's currency. The cash you had saved may become nearly worthless.

The fallout from these kinds of financial catastrophes is often wide ranging and difficult to predict. I can't see any insurer wanting to take that risk. If the Treasury ever did default and crash, that insurer would have a run on claims, most of which it wouldn't be able to pay, and the company would fail. That kind of collapse would result in a world wide economic crisis considering how many nations, banks, and others around the world hold U.S. debt.

i think the worse thing i can think of is that it seems like before a govt went bankrupt, they would continue to print money, until their currency was somewhat worthless, on an international basis

If the financial collapse was more gradual rather than the result of some sudden event, that's one of the things you would see. Look at Venezuela. It's currency has plummeted since Maduro took power. Under his government, the economy of that country declines every day. But it's been a long, drawn out affair, so the government does have the ability to paper over some of the problem by printing money.

so if our govt went insolvent, our dollar would probably be in horrible shape.

Yep, that's one effect of it that I think you could bank on, if you'll pardon the pun.

 

[TrustUser]

hi tm, i think this thread is gonna go on for awhile. you just opened up a lot of conversation - LOL

its a wonderful life is one of my favorite movies. that may be a good example that a financial institution does not keep its cash in the safe. but jimmy's bank did not go broke. it still owned lots of real estate (loans on all the houses).

here are some facts that maybe not everyone knows ? it used to be that banks kept all or most of their loans in house. these were called portfolio loans. that was the norm when i was a kid. so a big part of a person being able to get a loan had to do with the person, himself. that is no longer the case. banks sell off most or all of their loans to other companies.

banks are private businesses, owned by private individuals, to make profit. credit unions are owned by their depositors. i know my credit union makes house loans, car loans, etc. i highly suspect that most or all of these assets are held by the credit union, itself. it just isnt big enough that some corporate entity is gonna want to buy their loans, like they would a bank's loans.

i think that makes a credit union safer, cuz it actually owns (or has liens) on hard assets, mainly real estate.

q1 ) do you think my credit union, or credit unions in general, own a lot of treasuries, fdic instruments, or other federal assets ?

q2 ) say we hire ABC Insurance to guarantee our deposits. it sounds as if you are saying that you think ABC Insurance does own a lot of treasuries, or other federal assets ?

 

[quincy]

Instead of continuing on FA’s main board, you “seniors” should take your conversation to the section of the forum designed specifically for this sort of discussion.

 

[adjusterjack]

Troll alert.

TrustUser is arguing the same points repeatedly.

Stop feeding the troll.

 

[quincy]

Troll alert.

TrustUser is arguing the same points repeatedly.

Stop feeding the troll.

TrustUser is a longtime member of the forum (not a troll) but he should know where discussion questions like this belong.

 

[TrustUser]

hi quincy, i had no idea that we could not have this sort of thread on the forum. the only thing i knew was not to hijack another thread, and get too far off course.

 

[quincy]

hi quincy, i had no idea that we could not have this sort of thread on the forum. the only thing i knew was not to hijack another thread, and get too far off course.

This is not a chat/discussion forum. It is designed to address real life legal questions and concerns from those who are currently having real life legal problems. You are not seeking answers to legal questions but, instead, you are looking for investment advice.

Thank you for continuing your discussion in a more appropriate place.