Behind The Vault Part 4: Examples of Bank Failures
Hey, everyone! Welcome to Part 4 of our Behind The Vault series, where we’re exposing how banks and corporations get bailed out while your wallet takes the hit. If you missed Part 3, “When Banks Fail, You Foot the Bill” you can check it out here. Quick recap: when banks go bust, the Federal Reserve fires up its money printer, “printing” billions from thin air to cover the mess. Picture your bank account at -$1,000, and—poof! The bank makes it $0 without you lifting a finger. That money didn’t come from profits or savings; it’s fake, created out of nowhere. We’ll dive into how this money printing works in Part 5 (coming out next Friday), but for now, know it’s the Fed’s go-to trick for saving the big dogs.
Here’s the deal: you don’t get that magic button, but “too big to fail” banks and corporations do. If your account tanks, nobody cares—you’re a small fish in the financial ocean. But when a bank or company with billions in loans and deposits goes under, they panic, claiming a collapse would wreck the global economy—jobs gone, markets crashed, chaos unleashed. So, Congress “saves” these giants with the help of The FED by printing money or guaranteeing loans, flooding the system with extra dollars. But here’s the catch: those extra dollars make it harder for you to afford your everyday expenses, while the big fish swim away.
Bailouts aren’t about saving “the people”—they’re about protecting banks. Letting these giants fail would sting short-term but save you long-term by:
Preventing inflation, so your dollar buys more.
Forcing banks and companies to stop gambling with risky bets.
Breeding smarter decisions, like driving carefully without insurance.
If big banks were allowed to fail, accounts could go to zero, and the FDIC’s $250,000 insurance cap wouldn’t cover big deposits. If you have a mortgage with them, that could get messy too. Failed banks could seize homes to pay debts. But this is why as a consumer, taking responsibility in your own hands is a good idea. For those curious how that could happen, we highly recommend reading “The Great Taking” by David Rogers Webb. You can purchase a physical copy or download a free PDF here
Website: https://thegreattaking.com/about-this-book.
As we dive into a few examples, keep in mind that the list of bank bailouts are over 50 pages long, and this is a continuous problem today. You can see the full list here.
U.S. Automakers
By 1978, Chrysler, one of Detroit’s “Big Three” automakers, was a train wreck. The OPEC oil embargo spiked gas prices, and buyers ditched Chrysler’s gas-guzzling tanks for more fuel efficient imports. But Chrysler kept building the same vehicles, while borrowing over $1 billion from banks to fund the disaster. With high interest rates and failing company, banks weren’t eager to throw more cash at a sinking ship—unless someone else took the risk.
Enter the bailout - Chrysler’s bosses, union reps, and bankers flooded Washington, in a panic that a collapse would kill 200,000 jobs, bankrupt suppliers, and leave Americans with just two car brands. Congress in 1979, passed the Chrysler Corporation Loan Guarantee Act, promising $1.5 billion in new loans if banks stepped up. The banks played along, “sacrificing” by writing off $600 million of old loans and swapping $700 million for Chrysler stock. That stock skyrocketed after the bailout news, wiping out most of their “loss.” Thankfully it played out that way because if Chrysler was to default on the new loan, congress acted as a co-signer and the tax payers would be held responsible. Chrysler paid back the loans by 1983. In the end, the banks dodged a billion-dollar bullet, and Chrysler got a do-over.
Fast forward to 2008, and General Motors (GM) was Chrysler 2.0, but way bigger. Decades of bloated costs and cars that couldn’t compete with Toyota or Honda left GM with billions in debt. The 2008 financial crisis was the final blow—car sales tanked, and GM’s cash was gone.
GM’s 20% market share in 2008 was down from 28%, while Toyota’s 16% and Honda’s 9% held firm. GM’s -19% margin vs. Toyota’s and Honda’s positive margins made GM a competitive failure. Toyota and Honda’s lean manufacturing operations let them sell more cars at better prices, staying profitable even in a recession. GM lost $30.9 billion in 2008, needing a $50.8 billion bailout to survive.
The pitch to congress was a rerun: 700,000 jobs at stake, auto suppliers doomed, and an economic ripple that’d make the Great Recession look like a hiccup. Congress agreeing to pump $50.8 billion into GM through the Troubled Asset Relief Program (TARP) and Fed-backed deals. The government grabbed a 61% stake, basically nationalizing GM, while banks’ loans stayed safe. But here’s the reality: taxpayers lost $4 billion when the government sold its shares.
How’d taxpayers lose $10.6 billion? The government bought 500 million GM shares at an average of $43 each during the bailout, totaling $21 billion of the $50 billion package. When GM went public again in 2010, the stock debuted at $33 per share—already a loss. By 2013, the Treasury sold all its shares at an average of $34.45, well below the $43 buy-in. The math: 500 million shares bought for $21 billion, sold for $17 billion, is roughly a $4 billion loss on the stock. How did congress even get the money to afford the bailout that would cost the tax payers $4 billion? The FED.
Banks
In 1982, Continental Illinois was the seventh-largest U.S. bank with $42 billion in assets and 12,000 employees across offices in nearly every major country. From 1976 to 1981, its net income on loans skyrocketed from $127 million to $254 million, doubling in five years. That’s a 15% annual growth rate, making it the envy of Wall Street. It was labeled as one of America’s five best-managed companies in 1981.
Penn Square Bank, a small, aggressive lender in Oklahoma City that rode the 1970s oil boom. Penn Square specialized in energy loans, funding oil and gas ventures when prices were sky-high. Continental, hungry for high-interest profits, partnered with Penn Square, buying $1 billion of its loans between 1978 and 1982. These weren’t your average loans; they were tied to speculative oil and gas projects, like drilling rigs and wildcat wells, often with little collateral or due diligence.
When Penn Square collapsed on July 5, 1982, it left $2 billion in bad loans, half owned by Continental. Of Continental’s $1 billion share, $800 million became “non-performing” (borrowers stopped paying), wiping out profits and sparking panic. Big institutions like other banks saw the red flags and pulled $6 billion in days via wire transfers, which was the first electronic bank run.
The Fed and FDIC considered them “to big to fail” because they claimed it’d trigger a national banking collapse (and most likely would have) with other banks tied to Continental’s mess. Fed Chairman Paul Volcker called it “unthinkable” to let the world economy tank. So, the FDIC unleashed a giant bailout: $4.5 billion in bad loans taken off Continental’s books by selling them for $3.5 billion, and $1 billion in new capital for an 80% government stake—basically nationalizing the bank without saying it. The Fed threw in $8 billion, climbing to $9.24 billion by 1986. And to top it off: only 4% of Continental’s deposits were FDIC-insured, but they covered 100%, sticking taxpayers with 96% of the bill. That 96% yet again, was not money they had, so the rely on The Fed to help cover it by “printing” money out of thin air.
Now that money is used to keep them afloat, which just adds more money chasing goods and services with the end result being tax payers footing the bill.
Why This Keeps Happening
Its the way the system was designed from the beginning. It’s what the big banks needed when the Federal Reserve Act was passed in 1913. The Fed, now as “lender of last resort,” prints money to save institutions deemed “too big to fail.” That causes inflation. A dollar in 1970 now buys just 13 cents of goods. Why? Partially because bailouts and stimulus have flooded the economy with trillions of fake dollars. Banks and corporations know the playbook. If their risky bets fail, they’ll just scream “systemic collapse” and get rescued. No punishment. No accountability. Just a blank check from your pocket. And if you know they will cover you, why not take on more risky bets knowing you will be covered by the full faith and credit of the government.
Between 1970 and now, these bailouts have cost trillions. Even the $5 trillion pandemic stimulus helped juice inflation to 9.1%. More money chasing the same goods = you pay more for everything.
Conculsion
So there you have it—decades of bailouts, billions lost, and trillions printed… all while your paycheck stretches thinner and your savings buy less. This isn’t accidental. It’s the system doing exactly what it was built to do: protect the top, while the rest of us pick up the tab.
But here’s the good news—when you understand how the game works, you can stop playing defense. That’s what Behind the Vault is all about: helping you take control, protect your future, and build something that lasts in spite of the chaos.
Next week in Part 5, we’re pulling back the curtain on money printing itself—how it works, why it’s used, and what it’s really doing to your bank account. Spoiler: it’s not just “stimulus”… it’s a slow bleed on your financial freedom.
Subscribe, stay sharp, and remember: the vault’s open—but only if you know where to look.
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