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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Is it news to everyone that those in charge of the money have this level of control? Whatever turns the wheel will happen, and if one methodology is removed another will arise, but the wheel will surely turn, or we all suffer in the end. The only good step is to not count on anything too much
http://www.huffingtonpost.com/2014/12/04/wall-street-government-shutdown_n_6272776.html
Wall Street Demands Derivatives Deregulation In Government Shutdown Bill
WASHINGTON — Wall Street lobbyists are trying to secure taxpayer backing for many derivatives trades as part of budget talks to avert a government shutdown.
According to multiple Democratic sources, banks are pushing hard to include the controversial provision in funding legislation that would keep the government operating after Dec. 11. Top negotiators in the House are taking the derivatives provision seriously, and may include it in the final bill, the sources said.
The bank perks are not a traditional budget item. They would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. — potentially putting taxpayers on the hook for losses caused by the risky contracts. Big Wall Street banks had typically traded derivatives from these FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them to move many of the transactions to other subsidiaries that are not insured by taxpayers.
Taxpayer insurance helps banks secure higher credit ratings for their derivatives, since taxpayers assume some of the risk, which in turn makes the banks more profitable.
Last year, Rep. Jim Himes (D-Conn.) introduced the same provision under debate in the current budget talks. The legislative text waswritten by a Citigroup lobbyist, according to The New York Times. The bill passed the House by a vote of 292 to 122 in October 2013, 122 Democrats opposed, and 70 in favor. All but three House Republicans supported the bill.
Himes was passed over for leadership positions after the 2014 midterm elections, which he said he interpreted as unrest within the Democratic Party over his strong ties to financial elites.
“My guess is, it was a factor, which is disappointing because I think the criticism is way off base,” said Himes, who previously worked at Goldman Sachs.
It wasn’t clear whether the derivatives perk will survive negotiations in the House, or if the Senate will include it in its version of the bill. With Democrats voting nearly 2-to-1 against the bill in the House, Senate Majority Leader Harry Reid (D-Nev.) never brought the bill up for a vote in the Senate. President Barack Obama opposed the bill ahead of the House vote, as did former FDIC Chair Shiela Bair, former House Financial Services Committee Chairman Barney Frank (D-Mass.) and Rep. Maxine Waters (D-Calif.), currently the top Democrat on the Financial Services Committee.
@ Sandi
We live in a really small population area and the only two banks we have are small regional banks. Not even statewide banks but regional to our specific area. Because we are small in population, the staff at the bank knows you, greets you by name. The bank managers are friendly, available to talk to and go way out of their way to be accommodating.
However, they are also handcuffed by the ridiculous banking regulations and can only “bend” the rules so far. Even so, the regional headquarters are also approachable and can work with you for loans and lines of credit for businesses.
A big faceless bank, national firm…..you are nothing to them.
Anyone with much cash or wealth, should be very very wary of parking their money in the banking institutions for the very reasons that rafflaw says. They WILL find a way to take your money from you if they are given half a chance.
Hard assets. Gold. Silver. Collectible items. Things that can be bought and resold or that will appreciate in price if held a proper amount of time.
Why do you think the market in collectable cars, Barrett Jackson etc, is going through the roof. http://www.nbcnews.com/business/autos/are-wealthy-creating-vintage-car-bubble-n183216 There is not much else to invest in. The cars still have appreciation potential. Is it a bubble. Of course it is. You just need to know when to buy and when to sell. Don’t let your enthusiasm bite you in the @ss.
As I used to try to impress on my clients. Most of the time, they listened and I had happy clients.
Everybody hates banks. The complexities of all financial processes are terrifying. Everything is a number on a computer screen (yes, we have backups). The last century brought changes without real assurances. The banking I learned to deal with life at the age of 21 is laughable. With our current education system I wonder how many people have no idea how it all works. My mother paid with money orders when I was small. I balanced her checking account from the day she opened it. As someone paying attention and understanding our own financials, I wonder about those who don’t. We used to call them the “little guy.” The ones who lost everything because a realtor and financial services said they could afford this. We watched so many lose their homes and every penny they had. Not America’s dream anymore.
The banker used to be a man admired, trusted, a good guy. Where did he go?
Avoid the rafters in case of fire. Get a fireproof safe and keep it low but not under water so to speak. It must be hid and no one but you should know. Leave a Will in Pig Latin to give out the locations. The Will can be in a box maintained by a loyal person. That way wifey poo wont reveal the location when under torture. Real estate is a better investment than many things but you must be in a location where the values go up. Stock market is fun and so it was in 1929. My half blind guy follows my lead. I am a lead dog.
Doglover,
Here you go.
http://www.publicbankinginstitute.org/
Current bank interest rates are laughable. You are going backwards when you factor in inflation. Only keep what you need in a bank for current monthly expenses plus a little extra for a cushion. Real savings should be in that little can stuffed up in the rafters until the rate of return reverts to something that makes it worth your while to put money into a bank. Investments in other non bank affiliated vehicles are often risky, but then…THAT’S the point. Take a risk in stocks or other types of investments.
Hard assets. Tangible goods are where it is at at this time. Even real estate in certain areas and at the right price can be profitable. Those assets require either you yourself to do some work or to hire a professional and reputable property management team.
Towards the end of my career as a financial advisor, (about 2009) I had one client who liquidated some of his low interest paying bonds. At that time the rate he was getting was about 5%. He liquidated at an above par or at par amount and began purchasing foreclosed properties in some rather nice areas of the San Francisco Bay area. We discussed it before liquidating and both came to the conclusion that just buying the properties and renting or buying and flipping would give him a higher return on his investment than the existing bonds…..AND that the capital appreciation in those desirable property areas was higher than the existing bonds. He liquidated an is earning over all about a 12% return, PLUS having many tax write offs by being a landlord. That doesn’t work out as nicely for everyone, but he was in the right place at the right time.
Banks suck.
Nate-
I think that the State bank of North Dakota is only for the use of public agencies but why not be innovative and start a movement for a type of banking that doesn’t put everyone’s money at risk?
The benefit conferred upon a bank deposit is interest earned and paid by the bank. Interest rates are low. If you put $20 bills into you own safe and bury the safe somewhere where no pirates will find it then you have solved the problem. Even if you have a hundred thousand dollars or so keep it in twenties. The hundreds are more susceptible to counterfeiting. My FDIC Rule is no more than twenty grand per safe. FDIC stands for Free Democratic Inhouse Credibility.
Didn’t you give me grief when my rage “bordered on annihilation” when Obama let the bankers off the hook?
Welcome to your new world.
Being a sailor, I can have a permanent address most anywhere. Am seriously considering “moving” to North Dakota and opening an account with the Bank of North Dakota, the only public, non private/FDIC/Wall St bank in the U.S. that I know of.
There is no end to the government and big banks trying to pick our pockets and get our money. No end to the grasping and thievery.
http://calpensions.com/2013/05/28/a-state-run-retirement-plan-for-private-sector/
California had/has a proposal to quote: could give most of the estimated 6.3 million California workers with no employer retirement plan an “automatic IRA,” a paycheck deduction that goes into tax-deferred investments.
Meaning the State wants to TAKE an additonal 3% or more of your pay and put it into a State run pension plan. A FORCED IRA. CalPers is actually bankrupt as it is, but they want to take the meager wages of people working at minimum wage and add that to the pot. That is in addition to Social Security, Medicare, Disability etc etc etc.
The Federal Government has similar ideas about taking over larger pension plans and even your own personal 401Ks and IRAs
We are just too stupid to be able to manage our own money it seems and the Government with its TRILLIONS of dollars of debt and the State run pension plans that are all actuarially bankrupt are going to to a better job?
Give. Me. A . Break.
Oh, yeah–but don’t forget, Putin is the real enemy… ??? And a convenient one…
Haircuts for everyone! Get in line…
Bankers are why God made guillotines. The 280 Trillion figure is probably way too low of a “notional” value. And, the “notional” value is not what stands to be lost. But the higher that number is, the greater the potential loss is. Assume just a 5% real value based off the notional value, and if there is a 25% loss of real value, then the loss could easily make a $3.5 Trillion loss overall.
Now, part of that $3.5 Trillion will be based on collateral, which has probably been cross-collateralized a dozen times over (re-hypothecation). The effect would be devastating. For example, consider the Long Term Capital Management hedge fund collapse in 1997, from Wiki:
Then things began to run sour.
http://en.wikipedia.org/wiki/Long-Term_Capital_Management
This was just one company, with $1.25 Trillion in notional value, and there was panic. Imagine the carnage with $280 Trillion notional.
Squeeky Fromm
Girl Reporter
rafflaw said …
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.
Ordinary folks, now in their 90’s + if there are any left once made their “deposits” in small paper bags hidden on basement or roof rafters. I’ve seen the remnants of this system in the homes of the old and deceased. Of course, massive inflation can wipe this out as well. Keep precious metals and let even one person know about it…you will likely be robbed. A few years ago there was a burst of non-bank safe deposit businesses around here. I do not know if they still exist…never had so much money as to need them 🙁
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.
I like Issac’s idea…take a chain saw to the mess. Question is, of course, just how many representative are not already captive to the TBTF financial interests..e.g., don’t have their privates in a vise already?
I meant to add that the robbery is devised by unelected persons, but apparently endorsed by oblivious elected leaders…and dictators in some cases.
How soon will sane men and women in Congress re-legislate the Glass-Stegall Act?
May not be the whole cure for this grab by unelected persons, but it would be a sensible start.
They live in another world where one as a regulator will be either coming from having been a banker, going on to be a banker or both. I knew a girl in London who had just finished a five year stint with the government tax department. She had a MBA as well. We went out and celebrated into the early hours because she now was the hottest commodity in the London investment house community. She could advise them how to beat the system, the same system that unless you work both sides you have to follow. Is it any wonder that Bernie Madoff was a regulator for a while. Did he not use his understanding of the checks and balances to game the system of billions. Every Greenspan and Volker in the business is working for the wrong side when it comes right down to it.
The devil in the details is that the system is so convoluted and corrupt that the only people capable of regulating it are the foxes that know where the holes in the chicken coop are. They also know they will be foxes again so they play both sides of the game. They leave plenty of holes for later. These supposedly brilliant and society conscious people then enlist armies of vacuous tools in the form of lawyers and given that their adversaries in the government are in reality themselves with different names, the solutions are more convoluted systems that only they are privy to.
The only way to create a fair and equitable system is to take a chain saw to the structure and reduce it to a simple, basic, and fair casino instead of rewarding idiot MBA’a from MIT for coming up with more dangerous ways to make money.
Then when the system is basic, and someone is caught cheating, because regardless of the terminology, it is cheating, they go to jail for a time commensurate with their theft. If someone gets twenty years for breaking into a bank by the back door and stealing ten million then someone who steals ten million by insider trading or any other nefarious system whatsoever, should also go to jail for twenty years.
Things would be a lot better and the thievery would stop pronto.
Thank you, Rafflaw.
The FDIC & FRB should address this quickly, this is not acceptable. I say the from the perspective of a 40+ year banker.