Wednesday, 03 April 2013 09:34 By Gaius Publius, America Blog | Op-Ed
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(Photo: mccmicb / Flickr)I think this is a huge story, and it takes very little to tell it. These are the basics on deposit confiscation and how we got there:
■ You know that the EU-forced solution to the failure of banks in
Cyprus is to require the Cypriot government to confiscate (tax)
deposits. That news is everywhere you look; its not in dispute or doubt.
The latest has depositor losses at 60% due to the bailout-related one-time tax.
■ Confiscating deposits is exactly the opposite of insuring deposits, which is what is required in the EU, and also offered by the FDIC (as the ads say, your deposits are insured up to $250,000″).
■ The next monster taxpayer-financed bank bailout could spark a
revolution. Find me anyone who isnt a friend of Big Money who doesnt
hate the Bush-Obama bailout. Dem, Republican, Libertarian,
frog-on-a-rock no one liked the bailout.
■ This takes a taxpayer-financed bailout off the table as the next way to make bankers whole when they stumble.
■ But bankers are going to stumble soon, and big. The derivatives market is huge, and theyre aggressively reversing the tepid Dodd-Frank derivatives regulations as we speak. Of course, friends-of-big-banks in Congress are helping (thats you, Ann Kuster).
■ So the next big bailout (which is coming) will have to come from somewhere else.
Guess where that somewhere else is? Deposits.
Nations have already started to institute rules that enable deposit confiscation
Theres an international move by national governments to write
regulations that permit deposit confiscation in the case of bank
failure. This is exactly the Cyprus model, and if the news stories are
correct, confiscating deposits was being considered or enabled prior to Cyprus bank-failures.
New Zealand (h/t a very alert reader last week; my emphasis and paragraphing):
National [Government] planning Cyprus-style solution for New ZealandHeres what the New Zealand government says about Open Bank Resolution (my emphasis):
The National Government are 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, the Green Party said today.
Open Bank Resolution (OBR) is Finance Minister Bill Englishs 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 banks bail out.
Bill English is proposing a Cyprus-style solution for managing bank
failure here in New Zealand a solution that will see small depositors
lose some of their savings to fund big bank bailouts, said Green Party
Co-leader Dr Russel Norman. The Reserve Bank is in the final stages of
implementing a system of managing bank failure called Open Bank
Resolution. The scheme will put all bank depositors on the hook for
bailing out their bank.
Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.
What is an OBR?Read the rest if you like. Thats a government of New Zealand publication.
The Open Bank Resolution policy is a tool for responding to a bank failure.
It allows the bank to be open for full-scale or limited business on the
next business day after being placed under statutory management (as a
result of, for example, an insolvency event). This means that customers
will be able to gain full or partial access to their accounts and other
bank services, whilst an appropriate long-term solution to the banks
failure is identified.
Why should depositors bail-out banks?
The OBR policy is designed to ensure that first losses are borne by the banks existing shareholders. In addition, a portion of depositors and other unsecured creditors funds will be frozen to bear any remaining losses.
To the extent that these funds are not required to cover losses as more
detailed assessment of the position of the bank is completed, these
funds will be released to depositors. At a high level, this outcome
replicates the outcome that would apply in the event that a failed bank
was liquidated. The primary advantage of the OBR scheme, however, is
that depositors would have access to a large proportion of their
balances throughout the process. This contrasts with what would happen
under a normal liquidation, where depositors might not have access to
any of their funds for a significant period.
Why arent deposits guaranteed?
During the recent global financial crisis the government took the
decision to put in place a temporary guarantee on retail deposits. On 11
March 2011 the Minister of Finance announced that further
guarantees would not be provided following the expiry of the existing
scheme. Furthermore, the Minister ruled out the possibility of
introducing a compulsory deposit insurance scheme.
Deposit confiscation is being planned in the U.S. and the U.K.
Just as the New Zealand plan has been in process for a while, so is a similar plan in the U.S. and the U.K. This piece is making the rounds and making waves. It should (again, my emphasis; h/t a must-read DownWithTyranny piece):
It Can Happen Here: The Confiscation Scheme Planned for US and UK DepositorsDecember 10, 2012 was pre-Cyprus. Deposit-confiscation wasnt
Posted on March 28, 2013 by Ellen Brown
Confiscating the customer deposits in Cyprus banks, it seems, was not
a one-off, desperate idea of a few Eurozone troika officials scrambling
to salvage their balance sheets. 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.
Although few depositors realize it, legally the bank owns the depositors funds as soon as they are put in the bank. Our money becomes the banks, 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? Most people keep a deposit account so they can have ready
cash to pay the bills.
The 15-page FDIC-BOE document is called Resolving Globally Active, Systemically Important, Financial Institutions. It begins by explaining that the
2008 banking crisis has made it clear that some other way besides
taxpayer bailouts is needed to maintain financial stability. Evidently [the writers anticipate] that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite
No exception is indicated for insured deposits in
the U.S., meaning those under $250,000, the deposits we thought were
protected by FDIC insurance. This can hardly be an oversight, since it
is the FDIC that is issuing the directive.
something cooked up on the fly. Its been in the works for a while, by
all the international Bigs. Note that the source of the negotiations is
the G20 Financial Stability Board in Basel, Switzerland. This is indeed
This proves three things, I think:
- Major governments exist, in part, to make sure no banker takes a
loss anywhere in the world, regardless of risky behavior on the part of
the banks. The world and its governments serve the bankers.
- The next banking crisis is anticipated to dwarf the last one, and
the Bigs have been making plans to bail it out with depositor funds, not
taxpayer funds. Cyprus is just the first implementation.
- Loss of deposit insurance is coming to the U.S.
The Rich vs. the Rest. “All your money are belong to us” indeed. The outcome has bloodshed written all over it.
[Update: Title slightly modified to reflect that outside of Cyprus,
these are just plans, at least so far.]
Gaius Publius is a professional writer living on the West Coast of the United States. Click here for more. Follow him on Twitter @Gaius_Publius and Facebook.
Thanks to: http://2012spiritinaction.wordpress.com