Bail-Ins and Empty Pockets


Respectfully Submitted by Lawrence E. Rafferty (rafflaw) Weekend Contributor

The Banksters are at it again.  You may recall an article that I wrote in March of 2013 which detailed a plan agreed to by the Bank of England and the FDIC which would allow banks to grab depositors funds in order to avoid a bank failure. The prime example given in that article was a similar plan that was put into action in Cyprus. Similar plans were on the books elsewhere, but the Cyprus grab had actually been activated.

Now it seems that the joint FDIC-Bank of England agreement from December of 2012 was not enough to make the Banksters whole in the event that their derivative gambling went south.  The idea has gone global and it puts all of our deposits, and even our pension investments at risk!

“On the weekend of November 16th, the G20 leaders whisked into Brisbane, posed for their photo ops, approved some proposals, made a show of roundly disapproving of Russian President Vladimir Putin, and whisked out again. It was all so fast, they may not have known what they were endorsing when they rubber-stamped the Financial Stability Board’s “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” which completely changes the rules of banking.

Russell Napier, writing in ZeroHedge, called it “the day money died.” In any case, it may have been the day deposits died as money. Unlike coins and paper bills, which cannot be written down or given a “haircut,” says Napier, deposits are now “just part of commercial banks’ capital structure.” That means they can be “bailed in” or confiscated to save the megabanks from derivative bets gone wrong.

Rather than reining in the massive and risky derivatives casino, the new rules prioritize the payment of banks’ derivatives obligations to each other, ahead of everyone else. That includes not only depositors, public and private, but the pension funds that are the target market for the latest bail-in play, called “bail-inable” bonds.

“Bail in” has been sold as avoiding future government bailouts and eliminating too big to fail (TBTF). But it actually institutionalizes TBTF, since the big banks are kept in business by expropriating the funds of their creditors.” Ellen Brown

According to the New York Times, American Banksters have approximately $280 Trillion dollars worth of derivative investments on their books.  While the New York Times article discusses one good rule that was added in attempt to force Too Big To Fail banks to reduce their risk exposure, it does not go far enough.

When I have discussed this topic in the past, I always get the response from people that the FDIC will protect their deposits.  In theory that response may be correct, unless the joint FDIC-Bank of England plan is put into place.  In reality, when the FDIC has approximately $25 Billion in reserve and the exposure of the Too Big To Fail banks is $280 Trillion, it is easy to see that the FDIC has no chance of being able to handle even just one of the big banks in a failure.

If we have another recession like the one that started in December of 2007, the Banksters will be grabbing at straws. And those “straws” are your deposits and my deposits and even our pension plan deposits.  Isn’t it interesting that in an attempt to provide ways to prevent bank failures and prevent economic upheavals, the people most at risk are the customers of those institutions and not the Banksters responsible for the collapse?

Even though the Too Big To Fail banks are playing Russian Roulette with the derivative “investments”, the only losers are likely to be you and me. After all, when they are allowed to take depositors funds in order to balance their books, what incentive is there for saner investment practices.  The derivative investments are very lucrative investments for the banks and they will not stop gambling unless they are forced to.

While the Dodd Frank Act was an improvement, it wasn’t enough to protect our deposits and arguably gave derivative parties more protection than it gave to tax payers.

“Both the Bankruptcy Reform Act of 2005 and the Dodd Frank Act provide special protections for derivative counterparties, giving them the legal right to demand collateral to cover losses in the event of insolvency. They get first dibs, even before the secured deposits of state and local governments; and that first bite could consume the whole apple, as illustrated in the above chart.

The chart also illustrates the inadequacy of the FDIC insurance fund to protect depositors. In a May 2013 article in USA Today titled “Can FDIC Handle the Failure of a Megabank?”, Darrell Delamaide wrote:

[T]he biggest failure the FDIC has handled was Washington Mutual in 2008. And while that was plenty big with $307 billion in assets, it was a small fry compared with the $2.5 trillion in assets today at JPMorgan Chase, the $2.2 trillion at Bank of America or the $1.9 trillion at Citigroup.

. . . There was no possibility that the FDIC could take on the rescue of a Citigroup or Bank of America when the full-fledged financial crisis broke in the fall of that year and threatened the solvency of even the biggest banks.” Ellen Brown

What can ordinary tax payers do to prevent their deposits and pension plans from being  “robbed” by the Banksters?  The less money you have in these Too Big To Fail institutions, the better.  However, even if you bank with local banks and credit unions, they deal and invest with many of these TBTF banks and the Federal Reserve. If you deal with a 401K or a pension, try to be very thorough in just what that retirement fund is investing in and with whom.

Public Banks are another way that may help insulate individuals funds in the event of a failure that threatens to take down one of more TBTF banks.  However, in my opinion, the only sure way to protect our hard-earned money is to break up these banking behemoths into manageable sizes that don’t threaten our domestic economy.

Remember that $280 Trillion dollar figure from the New York Times.  Unless we do something soon, it will only get bigger.  One source quoted earlier suggested that large-scale depositors may be better off converting their deposits into cash and storing the cash in a private, non-bank institution.  That may help big depositors, but ordinary citizens cannot manage that.

How will you protect your deposits and retirement accounts?

Additional Resources: Dodd Frank Act

(I want to give a shout out to commenter Don de Drain for bringing the issue to my attention and to Aridog for encouragement!)

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45 thoughts on “Bail-Ins and Empty Pockets”

  1. leejcaroll said…

    Aridog, I will reply to this. I did not say you in particular called anyone names

    Thank you….my point was simply that you did not identify who you were addressing, not what you said per se. That was clear because later in the comment you quoted someone who was not me, but did not identify them either.

    Vis a vis the UV (rape) thread I said very little because it went off the rails (boring) and I have strong biased opinions based upon personal experience…e.g., I doubt I can be objective on that topic. So contrary to my nature, I mostly shut up.

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