Respectfully submitted by Lawrence E. Rafferty- Guest Blogger
The recent news about Cyprus banks confiscating depositor’s funds sent chills throughout the financial world here and abroad. I couldn’t believe that the plan in Cyprus hinged on the idea that the bank could just steal customer’s funds to balance the bank’s books. I muttered to myself when I read the story that something as crazy as that couldn’t possible happen here in the United States. Unfortunately, I learned that the plan to pull a Cyprus type grab here was already in the works.
“A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds. ” NationofChange
The above article explains that most of us do not realize that when you deposit money in a bank, that it becomes the property of the bank and we become unsecured creditors of the bank! “Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price?” NationofChange
If I deposit $1,000 dollars in my local bank, I trust that the funds are safe and protected by FDIC insurance and that even if the bank fails, I will get my money back. Under the plan listed above, we may not even be able to fall back on the FDIC insurance coverage. The FDIC-Bank of England plan would supersede our FDIC coverage and we would be relegated to become a “shareholder” in the failing bank or its successor entity. Let me see if I understand this scheme. The bank who is failing due to mismanagement or due to risky investments could steal my funds and force me to accept stock in a company led by poor businessmen with an even poorer business record! If you are brave enough, check out the full FDIC-Bank of England plan here.
Cyprus wasn’t the only place where a bankster grab of deposits was put into place or is being discussed. It is being discussed in New Zealand as well. “New Zealand has a similar directive, discussed in my last article here, indicating that this isn’t just an emergency measure for troubled Eurozone countries. New Zealand’s Voxy reported on March 19th:
The National Government [is] pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts . . . .Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.” NationofChange
To be clear, this joint FDIC-BOE plan would need enabling legislation to be passed before it could become the law of the land. However, the bankruptcy laws have put unsecured creditors, which depositors would be labeled under the plan, lower in seniority to the claims of derivative counterparties which would mean that the very parties who are causing the bank to fail, could collect before the innocent depositors.
“In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.” NationofChange
This so-called plan has been labeled a wealth tax in Cyprus, but the United States banks hold the deposits of the poor and middle class and those deposits would be at risk if this type of plan is actually activated. If this type of plan was ever activated or authorized by Congress, why would anyone ever deposit their funds in one of the major banks that could be at risk of failing due to risky derivative investments when those very deposits could be at risk? If the bank files for bankruptcy after depositors funds are confiscated, would depositors be left out in the cold entirely?
This type of bank bail out is an end run on depositors and on the American public. I can only guess why the corporate owned mass media has not been carrying this story. I do not think that I would every put any money in any of the big multi-state banks in light of this potential nightmare of a bailout. I would love to see the Senate hold a hearing to question FDIC officials on this joint plan. While the wealthy use the banks, a good portion of their wealth is in other investment vehicles and therefore the brunt of the bailout could be borne by you and me. Of course the banks will claim that we would receive stock in lieu of the confiscated funds, but can you pay your mortgage bill with stock from a failing bank?
What would you do if your bank confiscated your hard earned deposits to pay their bills? What happened to taking personal responsibility for their mistakes? Too big to fail, too big to jail and now, too big to cover their own losses! Is it any wonder that the banks want no part of Dodd-Frank and the Consumer Protection Agency?
Larry: (do you prefer Lawrence or Larry?)
My only hope at this stage is that your article will somehow find its way into the minds of every person in the US having a bank account.
I wonder if this applies to people who have money in investment accounts like those held by brokerages, which I believe are often covered by the SIPC
http://www.youtube.com/watch?v=Nms8dI-kwi8
All I know is, when everything comes down and sh*t hits the fan, we the people, better fix the problem once and for all and make sure the replacement govt that we appoint to stand in, is free of corruption.
Then we need to make sure that we put in rules and regulations for things like this, things like Glass Steagall, and laws preventing people working for the govt to leave for private industry that they lobbied for (corruption).
Then we need to tear down and dismantle DHS, The Patriot Act. FISA, NDAA. Yank the teeth out of the government spying on its citizens. Outlaw Law enforcement drones, spy capability drones and the collection of drone data that can be used by LE. Take out the Hoover mentality and kill it. Require warrants and probable cause.
Next we need to for US corporations to bring jobs back home for the most part. It is time to give stronger worker rights. Time to end Corporate privacy violations and restrict a companies ability to collect data on the American people.
Instead of creating new government agencies to restrict Freedom, it is time to create one that PROTECTS Freedom and Liberty. A Privacy and Rights Agency. A specific agency that exists only to protect the rights and privacy of the American people.
Then make those rules almost impossible to repeal without essentially national consensus.
Lastly, then get out government out of every other countries business. Kill off our Imperialistic interference. Stop creating new enemies.
Reduce our military presence overseas. Reduce the amount of bases we have, make the Military Industrial Complex a servant for the country rather than its master.
It is time for the American Government to work for the American people. To represent them. It is time for a corrupt free Congress and President. Time to hold the crooks accountable. Time to hold trials for the corrupt. Send them to prison.
It is time for the American people to eradicate the Corporate Fascism that is taking over our country. Drive it straight from our shores.
The USA is full of good people. Full of people who believe in live and let live. People who are truly well intentioned and kind hearted.
But the US Government is a malicious, malignant, rotten, nefarious, and evil entity in reality. The American government, our Congress, our Presidents, simply cannot be trusted. They are liars. They are thieves. They are murderers.
if you disagree, ask yourself, what makes our govt better or more trustworthy than anyone elses? As of now our govt is only restrained by the will of the American people. But the govt is increasingly pushing the envelope. They are seeing what they can get away with more and more and more. Soon they will no longer care what the American people want. Soon they will no longer fear the people. Then the real horror show begins.
At its core, our govt is no different than the most ruthless Pirates. If the American Govt were a person, it would be an extremely manipulative, charming and scheming psychopath.
A case for gold & silver. Money should be based on production, rather than rare metals, but its a safer bet than paper right now.
BarkinDog:
If you keep your money in cash under the mattress, it will be a little safer than in the bank. But embedded inflation will make it worth 5 to 20% less each year. Storing your wealth in greenbacks whether in the bank or in FRNs in your hand is a stupid and risky proposition, as it is based upon the ‘full faith and credit of the US Govt’. That faith will very rapidly evaporate when the state of the money supply, compromised by the US Debt, becomes so obviously pathological that even the most fiscally ignorant person in the street will realize that greenbacks will soon be worthless. Bank runs will become rampant which will accelerate the inevitable, and the feds will do something rash, like what this article suggests and much more.
My suggestion put your greenbacks into precious metals while their prices are still artificially depressed. That will not lose value during the time the US dollar implodes.
Alternately, some kind of physical energy commodity, although that may not be as convenient in a govt SOE bind.
Any durable commodity is better than cash.
The sht will hit the fan within 3 years, likely within 1.5.
When the US Debt reaches $18T, the whole thing will come down, greenback printing presses or not.
The interest payments will equal the income of the US govt, and a catastrophic cascade will commence.
Gene,
they could just be bad at math, like someone I know! 🙂
Me either, pete. Some people learn the lessons of the patterns of history and are good enough at math to realize 99 > 1. Some people aren’t quite so knowledgeable or observant. Especially when blinded by their own ego and unlimited greed.
Gene
i expect the only law we’ll get out of it is a promise, cross their hearts, they’ll only do this once.
or until they need to do it again.
but i don’t expect the banksters or the mittsters to help out with anything but words.
Gene,
I like the idea of forfeiting banksters assets for a change!
pete9999,
You might have to wait until July!
almost makes me want to move to north dakota
http://en.wikipedia.org/wiki/Bank_of_North_Dakota
i’ll wait till the snow melts, late june maybe.
Great article, raff. Good information about a topic I haven’t been paying as close attention to as I should. This has all the earmarks of a prelude to a worse disaster than the CDS debacle.
Too big to fail, too big to jail, too big to regulate all means too big to exist.
It’s time to break up the big banks and put in an equivalent of a stronger version of Glass-Steagall – one that holds bank officers personally accountable and provides for prison sentences and asset forfeiture for co-mingling commercial and financial banking as well as install protections for consumers.
Enough is enough. Until it’s too much. And that’s when the pitchforks will come out. I’ll put on the popcorn.
dobbie606,
Thanks for the Canadian update. Scary information.
Everytime I start to read 1 of these articles I know what’s coming. I start grinding my teeth, which is interesting, because I don’t have any teeth to grind. And most of the politicians are right in the sack with them. In order to wield power successfully without it corrupting you, you need to keep your ethics in in in. That is why the imperial presidency of Barack Obama frustrates me and saddens me. Why were too big to fail and too big to jail successful? The Attorney General was given direct orders not to criminally prosecuted these cases. Yes, they did go after some civil prosecutions, but only because it financially benefited the US government not out of some sense of justice. Yes, I know that in a criminal trial fines could be assessed as well even substantial ones. But all it does is give the politicians boasting rights and white collar criminals buying their way out of jail. The Untouchables describes them perfectly.
Unfortunately, I expect more of these blogs and articles not less. At least I am glad to say they are superbly written and researched.
The Harper Government never naps:
http://intellihub.com/2013/03/29/cyprus-style-bail-ins-are-proposed-in-the-new-2013-canadian-government-budget/
The politicians of the western world are coming after your bank accounts. In fact, Cyprus-style “bail-ins” are actually proposed in the new Canadian government budget.
by Michael Snyder
Economic Collapse Blog
March 29, 2013
When I first heard about this I was quite skeptical, so I went and looked it up for myself. And guess what? It is right there in black and white on pages 144 and 145 of “Economic Action Plan 2013″ which the Harper government has already submitted to the House of Commons.
This new budget actually proposes “to implement a ‘bail-in’ regime for systemically important banks” in Canada.
“Economic Action Plan 2013″ was submitted on March 21st,
which means that this “bail-in regime” was likely being planned
long before the crisis in Cyprus ever erupted…
I remember the bumper sticker back during the Vietnam War. “Nixon: Pull Out Now Like Your Father Should Have.”
Well, if I pull my money out of the bank now, what can I buy that will hold value? Inquiring minds want to know. Dont tell me dog biscuits.
I just wonder where they derive the notion that a dollar is a derivative.
OS, I did not know that. The better half and I do not get SSI so I’m not really familiar with it. LOL, all I know is I had 39 quarters, missed it by a smidge. I know government food assistance went to a card because I see them used at the grocery, but I think that’s a state card. I guess government is getting out of the check writing business. I wonder if the banks are charging the state and federal government a fee to participate in the programs? Seems like it should be the other way around though since the consumer is a captive one.
RWL,
The interest rate with the under the mattress bank is pretty similar. If you stay away from the big banks, you may be safe.
RWL, That’s actually a very good question and probably depends entirely on your point of view. Do you look at the as yet unregulated banks as following the same path to utter economic destruction or not?
From article: “To be clear, this joint FDIC-BOE plan would need enabling legislation to be passed before it could become the law of the land.”
Congress would NEVER do THAT. LOL. After all, they work for us.
Pension and various saving accounts/CDs. That’s what working people have. The lack of regulations on banking/investment keeps pension money in various instruments under constant threat. (Bankruptcy laws regarding employer sponsored pensions are their own criminal enterprise.)
I have wondered how the combined savings and investments made by us plebs through banks, like college funds for the kids, CD’s and saving accounts, could be ripped off. I worry about what scheme is being cooked up and blessed by the Congress (when needed) to loot the last bit of money from the untermenchen. FDIC-BOE sounds about right as tools go.