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!)

“The views expressed in this posting are the author’s alone and not those of the blog, the host, or other bloggers. As an open forum, weekend bloggers post independently without pre-approval or review. Content and any displays or art are solely their decision and responsibility.”







45 thoughts on “Bail-Ins and Empty Pockets”

  1. Dang it leejcaroll…I have called no one names etc. Please be specific when you post omnibus remarks.

    And, for my part, I am saying they do NOT have (did not have) a special plan. The UAW and sundry other union workers, within the AFL-CIO umbrella, have similar plans. I offered a similar plan when I was in the private sector to employees….roughly a 70/30 plan no less. Nothing about the Congressional plan WAS special…in a just for them sense of the word….other than the part about no prior condition exclusions and portability….both laudable ideas…and both part of the alternative plan I proposed.

    Where am I wrong?

    1. Aridog, I will reply to this. I did not say you in particular called anyone names . I quickly scrolled thru the comment section. and actually I was wrong, this thread is quite civil and what Turley blog used to be but the post about UV is rife with name calling .I apologize for writing that on the wrong post.

  2. If Maxine Waters has been involved in all this, as stated in a previous comment, no wonder it’s a mess. When Republicans take over committees in charge of Dodd-Frank and get rid of it, I will be happy!

  3. And I do promise to not bring up the FEHBP on my own again, but only to mention it if appropriate to a post aimed at me.

    I realize that there is no interest in it. A fairly decent summary is contained in Wiki for those curious….not comprehensive, but good enough for idle curiosity.

  4. Correction: to clarify this comment….

    In the currently on going Congressional hearings inadvertently (I presume) Rep Elijah Cummings said no one offered an alternative to the ACA, while sitting immediately next to Rep Issa.

    The name added in bold is the correction.

  5. happiepappies …

    No argument about Kerry…and BTW, he threw no medals (per se) over any fence…he threw the ribbons he borrowed from another protester. They are not the same. His medals are still on a wall in his office unless he’s removed them. I cited him, not as the originator of the idea (others had made the suggestion before him), but as an example of bipartisan conceptualization…as reflected in Issa’s HR3319 recently. In the currently on going Congressional hearings inadvertently (I presume) said no one offered an alternative to the ACA, while sitting immediately next to Rep Issa. What I do not understand is why the administration and the Congress did not at least explore the possibility of adapting the FEHBP.

    Your comment about the government pays (paid) 72% of the health care premium for Congress critters supports what I said…the government pays a portion similar to many employers and the employee pays the balance. Percentages could be adjusted, up or down, by Congress in any adaptation…and by any employer who chose to enroll in an adapted FEHBP.

    For the record, I have an accounting background, as well as in heavy equipment, military and commercial, and the accounting function was the basis for my being penalized by the IRS due to my role as CFO while working in my private sector sojourn….based upon claimed fiduciary responsibility to a 3rd party not taxes I did not pay on my own behalf. My background in government & military financing dates to 1969 and officially ended in 2006, although I still consult from time to time. In short, I am not untutored on accounting topics. I designed and deployed a database to resolve asset/equity discrepancies that was approved by the DoD-IG-Financial Office during an audit in which I was the primary responder.

    I make no claim to having “seen it all”, but I will suggest that as for computer inputs…garbage in generate garbage out. On the other hand computer technology allowed me to reduce my staff by over 70% due to reduction of manual work. Beyond that, the database I cited above saved roughly 7 hours out of 8 for reconciling balance sheets to inventories…for most queries, even ad hoc, the results were possible in 3 to 5 clicks of a mouse, literally, by virtually anyone. Necessary scripts were automated for query on every single field in the Db. I do think my accounting background is at least equivalent to yours.

    Now I don’t presume to tell anyone “allll” about it…I do presume to point out that the FEHBP could have been adapted to the same purposes the ACA is allegedly designed to resolve…and was most recently proposed again by Rep Issa in HR 3319 in 2013. FEHBP does not allow denial for prior conditions, as well as provides for essential portability, and offers at least a dozen alternatives in every state in the union. With means testing it could have been adapted to accommodate those who needed subsidy, just as the ACA purports, but without the necessity of devising an admittedly convoluted new system and agency mission…e.g, it already had agency management elsewhere and had it for 50 successful years. Employers could have chosen to enroll in it, as well as individuals.

    Next, not all HMO’s are “bad” (which I presume you are implying…correct me if I am wrong)…the one I selected was the one I used in the private sector and continued as a military “Fed.” The HMO I utilize is one that does not operate at a deficit and provides complete coverage, with minimal co-pays and deductibles, for those enrolled, and even manages to do so when I am under Medicare. It is a very good plan, with the only limitation being the network system in which all of my doctors are in to begin with, but that also permits outside direct coverage when called for, such as when I am in another state.

    Frankly, I don’t understand what you are challenging in what I said at 1:50 AM today. I merely pointed out that leejcaroll did not stipulate the specific Congressional coverage…coverage that you have confirmed as I described it.

  6. happiepappies…..leejcaroll is not saying anything about exactly what Congress has…but I am. The devil is in the details. Many people skip that. They have exactly the same plan that I do…or they “had” the same plan (pending ACA enrollment..something they missed when voting for it) … and it is not free. It is however totally private sector under contract to OPM, with portability and prior condition coverage.

    In short, it is not a special plan, it is the same as what many employers provide where the employee pays a percentage and the employer pays a percentage…except that in all FEHBP cases the plans are effectively portable and cover prior existing conditions. In my case it is an HMO at the largest teaching hospital in my area…where all of my doctors are and have been for 30+ years…but with coverage allowance nationwide, if notified in 48 hours IIRC…and world wide upon request for reimbursement. Medicare makes it more complicated for that last item. In other words, I am covered if I fall off a cliff in Montana, but not so sure about how well in Austria 🙂 The medical center in Innsbruck, CMS, and my HMO might have to dither a bit.

    Just to wear this FEHBP subject out one more time (the last time, since few seem interested): there is no reason what-so-ever why the plan could not have been modified (as both Kerry and Issa suggested) to accommodate the indigent or otherwise uninsured, with subsidies means tested for income levels, and access provided to employers without mandates…or individuals as they saw fit. The only reason for the ACA is political stubbornness of the first order….and a desire to force single payer, down the road, instead of the totally private sector FEHBP. Government n-e-v-e-r goes for the simple answer, it always goes for the one that increases government size, power, and taxes. Health care is but one of multiple examples. When I was part of it, it made me nuts.

    1. Aridog – The only thing Kerry is good at is throwing Medals over the fence. You can talk to me all day long about this if you want. I stayed up all night and memorized Gruber tapes before they took them down. I really liked that Novemer 2013 one. that one was special where he went into the details you just went into.

      I liked the one also when he gave Brother Kerry the credit for having the Insurance Companies charge back the raises in rates to the Middle Class since the Mandate really was not there and was a trick.

      Another typo I guess.

      No Aridog. You tell me allllll about it. I worked as a bookkeeper most of my life and I saw it all. I watched everything financial go on the Computer and I shook my head. I watched the HMO’s take over and witnessed the death of health insurance as we know it.

      Tell me all about it.

      No, you go back and read what she said. That is what she said. I read stuff 5 or 6 times. It was insulting. The government pays 72% of Congressional Healthcare and they pay the rest. I looked it up. 🙂

  7. leejcaroll…what I will never understand is why they did not utilize the FEHBP and add the features necessary instead of creating the abomination of the ACA. I guess the fact it was a working model, for 50 years, with a working database no less, and a plan with portability and coverage for prior conditions. Bureaucrats can never use what works, they have to make their marks…oh, yay 🙁

  8. Re the congress has
    free healthcare” this has been a repeated lie or misunderstanding by the right ever since ACA. It is one of their if we repeat enough people will believe it to be the truth and sadly that is the case. Why the dems and President Obama has allowed them to shape the conversation and not come out swinging with the truths to their lies, I will never understand

    1. leejcaroll – do you really think that Harry Reid with his son’s solar plant financed with govt. backing in Nevada is squeaky clean? Do you really think Democrats are squeaky clean? Don’t you think it would be best to clean house and start over with a smaller government.
      Remember – not to beat a dead horse to death but Woodrow Wilson signed the Fed into being. He was a terrible president and he was a Liberal.

      Re the congress has
      free healthcare” this has been a repeated lie or misunderstanding by the right ever since ACA. It is one of their if we repeat enough people will believe it to be the truth and sadly that is the case. Why the dems and President Obama has allowed them to shape the conversation and not come out swinging with the truths to their lies, I will never understand

      Are you trying to say they don’t have a special plan? Or that it’s not free – no one thinks it’s free. Not an educated person anyway. It never has been. it’s the Government and the cost must be defrayed.

      1. Are you trying to say they don’t have a special plan? Or that it’s not free – no one thinks it’s free. Not an educated person anyway. It never has been. it’s the Government and the cost must be defrayed.
        yes upthread it was stated it was free. (before the comment to which you had replied with this answer)

        You know I don’t know how many times I have said it here, that neither side has clean hands but continiues to be the “truth” that I never said it. (you wrote: Do you really think Democrats are squeaky clean?”

        I have repeatedly written that it is a sadness that this blog has become so polarized and that both sides have resorted to name calling and nastiness as opposed to the thoughtful replies tht had at one time been the cornerstone of this blog.

  9. Barking Dog….neither Congressmen or women have “free” health insurance. They had, until the Pelosi/Obamacare enactment, the Federal Employees Health Benefit Plan…a rather standard employer provided plan where the employee paid 30% or more of the premiums (employer…e.g., the federal government percentage is capped for the higher level plans). That is why so many of them hollered when they discovered (pass it so we can find out what’s in it, yada yada) they were required to enroll in exchange based ACA plans…and why they arranged to have that requirement modified for their staffs and in come cases themselves.

    As I have repeatedly mentioned, to little response, the FEHBP is entirely a private insurance based system, with the Office of Personnel Management contracting with a dozen or more providers in each state, mandating portability, and no denials due to pre-existing conditions, as part of the RFQ/RFP’s. It has worked well for 50+ years, with an existing efficient database no less, but was ignored by the progressives, even though it was proposed back in 2004 by John Kerry as candidate…and subsequently re-proposed by others, including Daryl Issa in 2013 via HR 3319.

  10. A bank will require you to have flood insurance to cover your home if you have a flood and the mortgage is at risk. FDIC was supposed to be a flood insurance of sorts for the depositors. We need a Congressman or Congresswoman to introduce a Bill to repeal the free health care for Congressmen and Congresswoman. None will do that and none will stand up against the banks.

  11. Campaign finance reform may be the biggest problem to solve. Until the “people’s representatives” start representing real people will any fix last for long?

  12. My basic rule is never trust anything on zerohedge, so I think there’s got to be more to the story than this oogeddy-boogeddy stuff. I say that mostly b/c there’s been a whole lot of regulatory focus on banks’ capital adequacy in the US in the past few years.

    But if you’re really worried about banks and you’ve got more than 85,000 British Pounds (over $132K) on deposit, then you might want to move your deposits to a money-market mutual fund.

    Where’d the 85,000 GBP figure come from? It’s the proposed limit on deposits that would be immune from all this crap. Odd that rafflaw didn’t mention that. Not scary enough?

  13. Reinstating Glass–Steagall Sections 20 and 32 would be a good start.

    It is sad that we have to now watch the solvency of our local banks rather than just having what is now becoming blind faith.

    Plus, the return on investment of bank savings accounts is so low it is almost a joke to view it as such. It should be used really for more petty cash purposes such as for checking and day to day spending. Liquid assets for buffering, such as used for personal reserve funds, are better placed into other forms.

  14. My dad used to love real estate. He always used to tell me “the best investment on earth is dirt.”

    I never did tell him this, “then invest in yourself.”

  15. DBQ, I’d love investing in art. At least you could actually enjoy having it on your wall. Aside from major artists it gets a bit dicey. Gems are another thing you can enjoy as an investment. And wear! Property? Eventually, but you do need patience. Stocks? No way! Read some articles about having large amounts of cash available, not safety deposit box, but out of computers. Easy access may become important, but not in your home.

  16. Thank you Rafflaw for bringing this situation to our attention. I also thought that what happened in Cyprus could not happen here. I have to stop being so naive. What baffles me is that when congress passed Dodd Frank that they didn’t take into consideration that by giving super priority to derivatives claims that there was the potential for the tax payer to be hurt again if another recession should occur. A “bail in” is another term for legalized theft as far as I’m concerned. I think that the super priority for derivatives claims should be eliminated and all the states should follow the lead of North Dakota and set up public banks.

  17. Sadly, these revaluations should not be a surprise, but so many have just ignored these bankster parasites or believed that banksters were benevolent beings. Unfortunately, those misplaced beliefs are what give bankster more power to continue their destructive ways.

    From 2009 and an honest assessment of the banksters form Sen. Durbin:

    : “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place,” he said.

    The deplorable likes of Lloyd, Jamie and crowd have congress and the federal agencies in their hip pocket, and they can and will pillage without regard to depositors or the American people.

    Government, both GOP and democrats, do the banksters bidding, not the bidding of the American taxpayer. The chance to control the banksters died with the 2008/2009 bankster bailouts of GWB and Obama.

    Lloyd thanks you for the last bailout and he promises he will be back for more…..

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