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?
Megyn Kelly mentions Raff:
Fox’s Megyn Kelly Still Imagines “Extreme” Cyprus Bank Seizure Could Happen In U.S.
Great clip Darren!
Folks:
A little allegory of the banking situation in in Cypress:
Scene 1: Finding the personal savings of the the depositor as a source funding
Scene 2: Gov’t / Banking official appeals to the masses, which in turn express their true feelings.
Scene 3: Little gov’t / banking agent begins manipulating the personal savings
Scene 4: Contageon spreads accross the Mediterranian sea, crisis spreads with international players fighting tough markets and seas. Depositers are relentlessly pursued by top hat banking officials and their dogs.
Scene 5. Gov’t banking official casts personal savings to the wind.
Scene 6: Panic ensues, public runs for the money.
Scene 7: Depositor tries desperately to retain what little savings is left
Scene 8: Depositor relents and hopes to find security, but unfortunately shows more wishful thinking than anything.
Nal,
You’re absolutly correct…
Under TARP, it was the taxpayers, not the depositors, who bore the price of the bailout.
Forgot to add to the homeless children subtopic:
Many born, Left in Hospital
http://www.dispatch.com/content/stories/local/2009/09/28/havens.ART_ART_09-28-09_A1_88F762U.html
These newborns are not counted as homeless children?
Anon,
Right on the bank debit cards. My wife had her number stolen. There were several charges racked up, but we found out about it within a day. The bank reimbursed the account immediately. The culprit was at a University in Jakarta, Indonesia. Not much the bank could do about that, but they tried. At least between the bank and me, we were able to cancel the orders he had made. That is one of the advantages of using a locally owned bank.
Dredd,
To be a taking under the constitution it has to be some government action…. Period….. Not to say that it’s not a breach of contract between you and the bank….. But good luck in that too the sct has made class actions almost impossible….
@Betty- “A caution about debit cards vs. credit cards. Bad charges against a credit card can be challenged. Those against a debit card cannot. The debit card can be used to completely empty your bank account and there’s nothing you can do about it.”
Actually there is recourse. You contest the charges. It is then upon the merchant to prove that YOU made the purchases. If the merchant is unable to provide proof that you made the purchase the bank will reclaim the funds and restore them to your account. The merchant is the one who absorbs the loss.
Most fees are waived also in that event.
Thanks Steve.
Dredd,
I think the banks will argue that it is not a taking because they are “compensating” with bank stock under the scenario painted in the article.
Hi Rafflaw:
Been thinking a lot about this column. Scared me; the safety of our money depends on the integrity of our leaders – a frightening thought.
Here is a timeline (written by Grant Williams – “Things That Make You Go Hmmm…”) describing key events in the Cyprus crisis. As you can see, the one common thread in the narrative is the powerlessness of the Cypriot depositors (once the ride started, they couldn’t get off).
Friday March 15th: Cypriot banks close.
Saturday March 16th: Cypriot banks don’t open.
Saturday March 16th: Cypriots are told they face the theft of their money by the government, in the form of a haircut on their deposits of between 6.75% and 9.9%, depending on whether they were under the government-insured EU limit of €100,000 or not.
Saturday March 16th: Cypriots are not best pleased.
Sunday March 17th: Cypriots empty the island’s ATM machines.
Monday March 18th: Cypriot banks don’t open again — this time because of a one-day bank holiday.
Tuesday March 19th: No doubt aware of their fate should they vote in favour of the bailout terms, Cypriot MPs vote a resounding ‘NO!’ to the conditions imposed by the Troika.
Wednesday March 20th: One-day bank holiday is extended to prevent a run on the currency.
Friday March 22nd: Russia spurns request from Cyprus for financial lifeline.
Monday March 25th: New bailout terms are agreed to that don’t involve haircuts below the insured limit but substantially increase haircuts on those above — which are technically uninsured in any case.
Wednesday March 27th: Capital controls are announced, which will ‘only be in place for a week’.
Thursday March 28th: Banks reopen under draconian restrictions, but Cyprus is calm.
Thursday March 28th: The announcement is made that capital controls will be in place for a month.
Could it happen here? I think so.
Read Grant;s full column (https://d21uq3hx4esec9.cloudfront.net/images/uploads/ttmygh/6391/Apr_1_2013_TTMYGH.pdf); it serves as a companion piece to what you wrote.
OS, Most credit unions don’t require a minimum balance beyond the membership fee ($5 -$25). Have the check deposited and then use a credit union credit card with automatic payment. The credit card can be set up with a maximum charge equal to her check so she doesn’t run up a huge bill. There are no interest charges as long as the bill is paid every month.
A caution about debit cards vs. credit cards. Bad charges against a credit card can be challenged. Those against a debit card cannot. The debit card can be used to completely empty your bank account and there’s nothing you can do about it.
rafflaw,
Hypothesis: If statutes say our money is their money, that constitutes a taking without just compensation or due process of law.
Thus, any statute that TAKES our money and gives it to banksters is constitutionally infirm.
If The Office of Management and Budget of the Reagan Administration knows anything about it, he says: