Phil Cannella has spent much of the past 39 years gaining experience in the Insurance industry and watching many large companies go into bankruptcy. But it wasn’t until the unregulated activity during the 2008 financial crises that Phil realized the hidden upside in declaring bankruptcy for companies and also the disaster it created for investors. Corporate bankruptcies have ruined the savings, nest-eggs and lives of millions of hard working Americans. This realization took Phil Cannella by surprise. He was appalled to see corporations on Wall Street adopting the philosophy of declaring bankruptcy as a type of strategy; one that leaves the everyday investor out to dry.
Each Week Phil Cannella invites everyday investors to Crash Proof Educational Events where he explains how:
“You realize, that when a corporation goes into bankruptcy…that’s their payday, because they get to keep your money. Contrary to popular belief the people affected most by declarations of bankruptcy aren’t necessarily the CEO or other executive officers of these major corporations. Generally, it’s the preferred stockholders and bondholders; the ones who never see any return on their investment. People who invested in General Motors learned this lesson the hard way after the financial fiasco.” –Phil Cannella
After the financial meltdown of 2007-2008, Phil Cannella wanted to better understand why General Motors was eligible to declare bankruptcy and subsequently fleece bondholders out of billions of hard earned dollars. Ultimately this allowed General Motors to avoid most of the pain when they received government bailouts to the tune of $40 billion dollars.
“One year later, we the people bailed out General Motors with our tax dollars,” explained Phil Cannella. “And just two years after declaring bankruptcy—are you aware that General Motors profited $11 billion—but paid back none of their bondholders or preferred stockholders? Who are bonds safe for?…the company who issues them.”
The numbers back him up. In the end, the GM bailout cost the American taxpayer $12 billion. But you won’t hear that from your broker.
These Bonds weren’t safe for the people who lost money in the GM bankruptcy. They did not perform much better for the thousands who hold municipal bonds who’ve watched as various American cities go into bankruptcy, leaving them with worthless pieces of paper. This is one of the many reasons why Phil Cannella works tirelessly to dispel the myths of ‘diversification’ in the form of a mixture of stocks and bonds. As he explains, Stocks and bonds both fall under the risk category of investments. Bonds won’t protect you from a market downturn, nor will they provide you with a tax-free source of income.
Cannella says:
“Remember, bonds are graded based on the credit of their issuers. So if you see a bond with a high yield, that’s often accompanied by a high risk of default. “
Phil Cannella clarifies this illusion and others each week at Crash Proof Retirement educational events.
