The Rich Get Richer, The Poor Get Poorer

It is times like these that millionaires are made. If you have ever been scared by P/Es over 10 or wanted to buy a stock only to find it shoot up like a rocket before you put in your buy order, then this is the time for you. In times of recession, the ones that make out are the big kahunas with lots of cash. A CEO of a prominent tech company told me serveral times that “Cash is Queen”. If you ever had to startup a company, you learn that cash is your lifeblood. Whether your company will survive till the next month or how good of a deal you get on your later rounds of funding are dependent on cold hard cash. The banks failed because they didn’t have enough cash. If you can’t pay your immediate obligations, you have no choice but to file bankruptcy or find someone willing to let you borrow money. The further in the hole you are the more expensive it is to borrow money. The banks were in a deep hole from losses in mortgage backed securities. The other banks with more cash were able to survive and pick up the banks that failed for cheap. The investors and companies with the most cash will make out like bandits during this financial crisis.

What does this mean to you?

This means you’re not going to have many choices to where you put your money. There will be a point in time where you can count all the banks on the fingers on your hand. Since you’re not going to have much choice for banks, so that means the consumer loses out.

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One Response to The Rich Get Richer, The Poor Get Poorer

  1. tao2death says:

    You forgot to mention the Credit Default Swaps that took out Lehman and AIG, which magnified the losses to the other banks.

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