DO YOU have insurance on your house? Do you pay something so that if it’s blown away in a typhoon, or if you smoke in bed one time too many, you can still recover most of the money you invested in it?

Of course you do (at least if you’ve got a little bit of common sense, and aren’t living entirely from hand-to-mouth).

But do you have insurance on your next-door neighbor’s house? You haven’t invested a single cent in it, but do you pay something so that if it’s blown away in a typhoon, or if your neighbor smokes in bed one time too many, you can collect as much money as him?

Of course you don’t.

Does his insurance company take fees for insuring his house from hundreds of neighbors, with nowhere near enough assets in reserve to pay out all the claims in the event of a fire?

Of course not.

But this, and other forms of legalized gambling, are just the kind of thing America’s largest banks, brokerage and hedge funds do every day.

That’s how JP Morgan managed to lose $2 billion recently, and it’s one of the major reasons why the world economy nearly crashed in 2008 ... and could easily crash again.

Of course these bets on the price of oil, or food, or housing prices, or currency exchange rates, or whatever, aren’t ever called bets. They go by names such as “derivatives” or “naked credit default swaps,” and they are worth one heck of a lot more than your neighbor’s house. Some analysts estimate (no one really knows for sure) their total worldwide value at more than $250 TRILLION ... about four times the world’s annual income.

So I was not sad at all when Moody’s downgraded the ratings of a few of the mega-banks a little bit last week. My only real question was what in the world took them so long.

Here on Guam, however, we are lucky. Our local banks and credit unions make most of their money the old-fashioned way, by collecting deposits, making loans to local businesses and individuals, and providing the financial services that keep our economy going ... not by gambling the island’s assets on exotic financial instruments.

As my colleague Mar-Vic Cagurangan reported in Monday’s Variety, Bank of Guam Chief Economist Joseph Bradley recently said the local banking industry is “generally a safe haven,” and that “our local financial institutions don’t participate in the kind of high-risk trading that puts U.S. banks in peril.”

I applaud them for this ... and also for the way they still treat their customers like people.

When Lynette and I moved to Guam from Japan last year in the wake of the Fukushima disaster, we tried to get a loan for an inexpensive condo from one of the larger off-island based banks. Talking to their local loan officer, everything seemed fine. It was well within our budget, we were happy to make a 20 percent cash down payment, we had enough income and assets, and our credit rating was outstanding.

As soon as they sent our information off-island, however, the trouble began. Faceless bean-counters at their head office couldn’t seem to fit the round peg of our information into the square hole of their loan approval templates, and even after several months, we couldn’t get a clear answer ... quite a problem for us with our furniture in Japan already at the shippers!

Finally, we switched to one of the local banks (BankPacific in our case), and were amazed at the difference. We were able to sit down with the actual decision makers in person, and go over our situation and documents with them first hand. They soon decided that we were a reasonable risk, and in a matter of weeks, the deal was closed.

Needless to say, we are now committed BankPacific customers, but Bank of Guam, Coast 360 and other local institutions also have excellent reputations. I have little doubt that if the heads of the “too-big-to-fail” banks conducted their business in the same common-sense manner as our bankers here on Guam, the U.S. would be in much better financial condition.