Rick Rule spoke with King World News last week, suggesting that the Cyprus bank depositor 'haircut' was chiefly "something that happened to Russian drug traffickers," but provided a number of lessons for investors:
1) Ultimately, given the leveraged nature of the system, that deposit insurance is just another social promise that won't be able to be kept.
2) That the regulators are completely incapable of balancing their own budgets. Never mind managing a business as complex as banking.
3) You need to have some, not all, your assets outside of the system. You need to own some things that they [central banks) can't print and regulate. And one of my nominations for one of those things would be bullion: Gold, silver, platinum or palladium.
Rule spoke out firmly against government regulation of the banking sector, lambasting European governments for dictating to the banks how much capital they can raise:
These regulators, these governments are the very people who can't balance their own budgets. And now they're trying to explain to the bank how the banks should budget? This is truly, truly crazy. We have a situation where the inmates are in control of the asylum.
If you look behind the collapse of the Cypriot banks, what it had to do with was their investment in defaulted government bonds, so you have the class that caused the bank to go broke regulating how and in what the banks can invest. And how they fashion their recovery.
While Rule does well to expose the difficulty of financial market regulation, he fails to make the connection between lack of regulation and the breakdown of the financial system in 2008.
Rule claimed that prior to the crash, "for 20 years, the financial system was a generous place to live." But some of this generosity was a result of "irrational investor exuberance" in very high risk, ultimately toxic assets, both encouraged and unregulated by governments and the private sector alike.
Source: King World News