Content: Page 20 Becoming Your Own Banker Fifth Edition

Continuing our study from lesson 9 of The First National Bank of Midland, TX, it is apparent from the report of the December issue of the drilling magazine that a number of the directors of the bank were in the oil business.

There was quite an aberration in that business at that time. Many people had to wait in line for hours to get gasoline. In those days I was still flying with the Alabama Army National Guard and on drill weekends we flew patrol over the Interstate Highways for convoys of gasoline trucks. It was an interesting time. The best that I can remember it lasted a couple of years.

So, these directors of the bank were making loans to themselves to invest in the oil business where they were going to “make a killing” and not bothering to repay the loans. They were listening to pseudo-economists that were telling them, “Real money is natural resources like land, timber, coal, minerals, oil, etc. Borrow all the money from your bank that you can and put it in the oil business! You can really get rich!”

When the oil business returned to normal, these folks lost their oil business and their banking business – the best business in the world! Had they repaid their loans with interest (preferably with greater than normal interest) their bank would still have been in operation, but greed prevailed and “did them in.” All banks that went bankrupt during that period were just a variation of what happened here.

People behave on the basis of their understanding of things and are strongly influenced by the idea of getting rich quickly. Read Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. It is a collection of stories of weird behavior of people down through history. People listen to “financial experts” and my own observation is that we have more financial geniuses per square foot today than in all of history combined! If those pseudo-economists were correct that “real money is oil” then tell me how much oil does Switzerland produce? None, but those folks have known something about banking for a very long time. Banking is the best business in the world.

So, you have now seen two examples of how a business can be destroyed — the grocery business by taking groceries out the back door of your store and the banking business by making loans to yourself and not paying them back.

Again, I warn you, if you want to kill the best business in the world then go to it. But your blood will not be on my hands. You have been adequately warned.

You must admit that getting into the banking business the way we have studied in lesson 9 & 10 is very costly and time consuming. It will be a long time before you show a profit, probably as much as 10 years. But it must be extremely profitable over the long haul for people to go through the gory mess you have just studied.

There is a much easier way to accomplish it and the mechanism has been around for over 200 years. It is tried and true. It is called participating (i.e. dividend-paying) whole life insurance. The problem is that very few people know how the business works, including the home-office folks at life insurance companies.

At this point, it will help if you understand the word, “co-generation,” a term used in the production of electrical power. Most everyone knows that this power is produced in plants using fossil fuels, nuclear fuels or water to turn turbines. But there is another source of power that is significant – the wood products plants – paper mills and sawmills. Trees are harvested for the wood they contain but the bark on the outside of the tree and the sawdust from sawing lumber has little economic value. But these things make a very good fire, and thus produce steam to turn dynamos that produce electricity. Every paper mill and all large sawmills have a “co-generation plant.”
Suppose that you own a paper mill and your co-generation plant can produce 125% of your needs for electrical power. What do you do with the surplus? You can sell it, of course! But you don’t have to erect power lines and get a sales force to sell it. You simply understand the distribution system is already there and you simply tie into that system and sell it to them!

Creating your own banking system through the use of dividend-paying life insurance is much like co-generation. All the ingredients are already there in place. All you have to do is understand what is going on in such insurance plans and tap into the system.