Lara-Murphy Report – The Greatest Hits

The LMR Greatest Hits are articles selected from past Lara-Murphy-Reports financial news letters that are still relevant and popular today. Paid subscriptions are available – click here for more information.

Why Evaluating Life Insurer Financial Strength is Important

From October 2014
In the wake of the 2008 financial crisis following the crash of the stock and real estate markets, Americans witnessed 1,200 of the estimated 7,000 commercial banks in the country stagger financially. As expected the FDIC sprang into action to cover bank depositor’s funds, but what many people have never realized is that the FDIC literally ran out of money! The FDIC went $9 billion in the hole and these reserves were shored up only after receiving a loan from the U.S. Treasury. But that’s not all, in the midst of the catastrophe panicked investors of every stripe saw the typical money storehouses for retirement savings collapse with even one of the most financially sound money market funds (the Reserve Primary Fund)1 “breaking the buck.” Prompted by a flight to safety and to salvage poured huge sums of money into the insurance sector. Even the insurance industry’s foundational product, the slow and boring dividendpaying Whole Life contract, saw a resurgence it had not seen in decades. When at first it seemed like there was no place left in this entire country to put one’s money, the life insurance sector— the epitome of conservatism— was left standing, just like it always had for over two centuries.

Why Do We Use Money?

From May 2016
Although it’s a pretty basic question, it’s worth asking: Why do we use money? Once we think through the answer, it becomes clear just how awful our current monetary system is. For those wanting a comprehensive treatment, I refer you to our book (co-authored with Carlos), How Privatized Banking Really Works. I also refer you to our new podcast, the Lara-Murphy Show, and in particular episodes 15 and 16 where we discuss how governments historically have used inflation to cover their budget shortfalls.

Bank Owned Life Insurance Is On The Rise

From March 2016
First quarter 2016 numbers are just now closing, but analysts everywhere are still analyzing 2015 year-end results across all sectors of the global economy. The numbers don’t look too good. In fact they are downright anemic. However, there is one area that is remarkably robust. Bank owned life insurance (BOLI) assets and new purchases reached a new high of $156.2 billion in 2015, compared to $149.6 billion in 2014. Over 90% of this 4.4% increase in BOLI assets on the books held by commercial banks, savings banks and savings associations are in permanent cash value life insurance policies. For those unfamiliar with this terminology, that’s the kind of life insurance policy that covers you for the entirety of your life.

The Liquidity of the Life Insurance Industry

From May 2016
Highly profitable companies can run into financial trouble if they don’t have the liquidity to react to unforeseen events. Even companies with a stockpile of assets on their balance sheets will struggle with cash flow issues when markets crash if those assets are illiquid. In a moment of crisis, assets are of no value if they cannot easily be converted to cash in order to save the company.

The Importance of Sound Thinking – an Interview with Nelson Nash

From February 2016
R. Nelson Nash was born in Greensboro, GA in 1931, and married Mary Edwards Williams in 1952. Nash received a BS Degree in Forestry from the University of Georgia in 1952, and spent 30 years with the Army National Guard, where he earned Master Aviator Wings. In addition to being a Consulting Forester for 9 years in eastern North Carolina, Nash was a life insurance agent with Equitable of New York for 23 years (Hall of Fame member), and The Guardian Life for 12 years. Nash describes himself as the “discoverer and developer” of The Infinite Banking Concept (IBC). He explains his revelation and how IBC works in his classic book, Becoming Your Own Banker, of which more than 300,000 copies have sold. Nash is also the publisher of BANK NOTES, a quarterly newsletter. He lectures all over the United States and Canada teaching his book in ten-hour seminars, averaging 30 seminars per year. Nash is a passionate student of Austrian Economics, having started this pursuit 59 years ago.

The Implications of the MetLife Ruling

From April 2016
On March 30, U.S. DiStrict JUDge Rosemary Collyer reversed the ruling by the federal Financial Stability Oversight Council (FSOC) that the insurance giant MetLife was a “systemically important financial institution” (SIFI)—or what is called “too big to fail” in common parlance. Regulators gave MetLife this designation back in 2014, and last year MetLife sued to remove it, as it triggers extra capital requirements. In this article I’ll explain the context of the ruling, and then discuss implications for the future of the financial sector. Taken in isolation, Judge Collyer’s ruling is not only sensible legally but also throws a monkey wrench in the federal government’s efforts to expand its control over financial institutions. Unfortunately, in the grand scheme this episode will probably amount to a temporary setback for the regulatory Leviathan State.

The DOL Ruling and the IBC Practitioner

From April 2016
Just about every financial professional in the country is by now familiar with the U.S. Department of Labor’s (DOL) Fiduciary Ruling. A change to the definition of fiduciary under ERISA, which after much wringing of hands and gnashing of teeth for the greater part of seven years, was finally officially released three weeks ago on April 6, 2016. Full compliance with the new requirements begins one year from today—April 2017, with the special exemptions to the ruling, the “Best Interest Contract Exemption,” and the “Principal Transactions Exemption,” having a “phased implementation approach” through January 2018.

A PRIMER ON THE “MEC” RULES

From March 2012
Whenever a newcomer is introduced to the wonders of dividend-paying whole life insurance, he soon encounters the dangers of overfunding and hence “MEC”-ing a policy. In this article I’ll give a quick primer on what this status means, where it came from, and the ramifications it has for policyholders.

Banks vs. Insurers During the Depression

From April 2012
When explaining the relative safety and stability of the insurance sector, proponents of Nelson Nash’s “Infinite Banking Concept” (IBC) will often point to the 1930s. They make claims that although thousands of banks failed, no insurance policyholders missed a payment. Is this true? In the present article I’ll rely on a hostile article, with at least one of the authors affiliated with Citicorp, to see just what happened. As we’ll see, even though the authors of the piece, Huertas and Silverman (H&S), try to paint a different picture, their own statistics and storyline show that the insurance sector was much more reliable during the Great Depression than the commercial banking sector.

Equipment Financing With IBC, Part II

From August, 2012
In last month’s issue, I discussed one of the most important parts of Nelson Nash’s book Becoming Your Own Banker, namely Part IV on Equipment Financing. I walked through (what I called) the base case, where a hypothetical individual had a whole life policy and did not take out any policy loans. Nash’s purpose in this portion of his analysis was to establish a baseline so that we could isolate the effects of the Infinite Banking Concept (IBC) proper, as opposed to just using whole life insurance the way a textbook would recommend. In the present article, I will finish the analysis by walking through Nelson’s treatment of the hypothetical individual using his whole life policy to finance purchases of large logging trucks for his business. We will see that our individual grows wealthier even relative to the base case. In other words, we will see that if you use your whole life policy productively, you will hit wealth milestones faster than if you let it sit in the corner and merely make your premium payments on it.