While the mainstream media focus on ISIS extremists, a threat that has gone virtually unreported is that your life savings could be wiped out in a massive derivatives collapse. Bank bail-ins have begun in Europe, and the infrastructure is in place in the US. Poverty also kills.
At the end of November, an Italian pensioner hanged himself after his entire €100,000 savings were confiscated in a bank “rescue” scheme. He left a suicide note blaming the bank, where he had been a customer for 50 years and had invested in bank-issued bonds. But he might better have blamed the EU and the G20’s Financial Stability Board, which have imposed an “Orderly Resolution” regime that keeps insolvent banks afloat by confiscating the savings of investors and depositors. Some 130,000 shareholders and junior bond holders suffered losses in the “rescue.”
The pensioner’s bank was one of four small regional banks that had been put under special administration over the past two years. The €3.6 billion ($3.83 billion) rescue plan launched by the Italian government uses a newly-formed National Resolution Fund, which is fed by the country’s healthy banks. But before the fund can be tapped, losses must be imposed on investors; and in January, EU rules will require that they also be imposed on depositors. According to a December 10th article on BBC.com:
The rescue was a “bail-in” – meaning bondholders suffered losses – unlike the hugely unpopular bank bailouts during the 2008 financial crisis, which cost ordinary EU taxpayers tens of billions of euros.
Correspondents say [Italian Prime Minister] Renzi acted quickly because in January, the EU is tightening the rules on bank rescues – they will force losses on depositors holding more than €100,000, as well as bank shareholders and bondholders.
. . . [L]etting the four banks fail under those new EU rules next year would have meant “sacrificing the money of one million savers and the jobs of nearly 6,000 people”.
That is what is predicted for 2016: massive sacrifice of savings and jobs to prop up a “systemically risky” global banking scheme.
Bail-in Under Dodd-Frank
That is all happening in the EU. Is there reason for concern in the US?
According to former hedge fund manager Shah Gilani, writing for Money Morning, there is. In a November 30th article titled “Why I’m Closing My Bank Accounts While I Still Can,” he writes:
[It is] entirely possible in the next banking crisis that depositors in giant too-big-to-fail failing banks could have their money confiscated and turned into equity shares. . . .
If your too-big-to-fail (TBTF) bank is failing because they can’t pay off derivative bets they made, and the government refuses to bail them out, under a mandate titled “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” approved on Nov. 16, 2014, by the G20’s Financial Stability Board, they can take your deposited money and turn it into shares of equity capital to try and keep your TBTF bank from failing.
Once your money is deposited in the bank, it legally becomes the property of the bank. Gilani explains:
Your deposited cash is an unsecured debt obligation of your bank. It owes you that money back.
If you bank with one of the country’s biggest banks, who collectively have trillions of dollars of derivatives they hold “off balance sheet” (meaning those debts aren’t recorded on banks’ GAAP balance sheets), those debt bets have a superior legal standing to your deposits and get paid back before you get any of your cash.
. . . Big banks got that language inserted into the 2010 Dodd-Frank law meant to rein in dangerous bank behavior.
The banks inserted the language and the legislators signed it, without necessarily understanding it or even reading it. At over 2,300 pages and still growing, the Dodd Frank Act is currently the longest and most complicated bill ever passed by the US legislature.
Propping Up the Derivatives Scheme
Dodd-Frank states in its preamble that it will “protect the American taxpayer by ending bailouts.” But it does this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debtholders, and other unsecured creditors. That includes depositors, the largest class of unsecured creditor of any bank.
Title II is aimed at “ensuring that payout to claimants is at least as much as the claimants would have received under bankruptcy liquidation.” But here’s the catch: under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured.
The over-the-counter (OTC) derivative market (the largest market for derivatives) is made up of banks and other highly sophisticated players such as hedge funds. OTC derivatives are the bets of these financial players against each other. Derivative claims are considered “secured” because collateral is posted by the parties.
For some inexplicable reason, the hard-earned money you deposit in the bank is not considered “security” or “collateral.” It is just a loan to the bank, and you must stand in line along with the other creditors in hopes of getting it back. State and local governments must also stand in line, although their deposits are considered “secured,” since they remain junior to the derivative claims with “super-priority.”
Turning Bankruptcy on Its Head
Under the old liquidation rules, an insolvent bank was actually “liquidated” – its assets were sold off to repay depositors and creditors. Under an “orderly resolution,” the accounts of depositors and creditors are emptied to keep the insolvent bank in business. The point of an “orderly resolution” is not to make depositors and creditors whole but to prevent another system-wide “disorderly resolution” of the sort that followed the collapse of Lehman Brothers in 2008. The concern is that pulling a few of the dominoes from the fragile edifice that is our derivatives-laden global banking system will collapse the entire scheme. The sufferings of depositors and investors are just the sacrifices to be borne to maintain this highly lucrative edifice.
In a May 2013 article in Forbes titled “The Cyprus Bank ‘Bail-In’ Is Another Crony Bankster Scam,” Nathan Lewis explained the scheme like this:
At first glance, the “bail-in” resembles the normal capitalist process of liabilities restructuring that should occur when a bank becomes insolvent. . . .
The difference with the “bail-in” is that the order of creditor seniority is changed. In the end, it amounts to the cronies (other banks and government) and non-cronies. The cronies get 100% or more; the non-cronies, including non-interest-bearing depositors who should be super-senior, get a kick in the guts instead. . . .
In principle, depositors are the most senior creditors in a bank. However, that was changed in the 2005 bankruptcy law, which made derivatives liabilities most senior. Considering the extreme levels of derivatives liabilities that many large banks have, and the opportunity to stuff any bank with derivatives liabilities in the last moment, other creditors could easily find there is nothing left for them at all.
As of September 2014, US derivatives had a notional value of nearly $280 trillion. A study involving the cost to taxpayers of the Dodd-Frank rollback slipped by Citibank into the “cromnibus” spending bill last December found that the rule reversal allowed banks to keep $10 trillion in swaps trades on their books. This is money that taxpayers could be on the hook for in another bailout; and since Dodd-Frank replaces bailouts with bail-ins, it is money that creditors and depositors could now be on the hook for. Citibank is particularly vulnerable to swaps on the price of oil. Brent crude dropped from a high of $114 per barrel in June 2014 to a low of $36 in December 2015.
What about FDIC insurance? It covers deposits up to $250,000, but the FDIC fund had only $67.6 billion in it as of June 30, 2015, insuring about $6.35 trillion in deposits. The FDIC has a credit line with the Treasury, but even that only goes to $500 billion; and who would pay that massive loan back? The FDIC fund, too, must stand in line behind the bottomless black hole of derivatives liabilities. As Yves Smith observed in a March 2013 post:
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 depositors to fund derivatives exposures. . . . The deposits are now subject to being wiped out by a major derivatives loss.
Even in the worst of the Great Depression bank bankruptcies, noted Nathan Lewis, creditors eventually recovered nearly all of their money. He concluded:
When super-senior depositors have huge losses of 50% or more, after a “bail-in” restructuring, you know that a crime was committed.
Exiting While We Can
How can you avoid this criminal theft and keep your money safe? It may be too late to pull your savings out of the bank and stuff them under a mattress, as Shah Gilani found when he tried to withdraw a few thousand dollars from his bank. Large withdrawals are now criminally suspect.
You can move your money into one of the credit unions with their own deposit insurance protection; but credit unions and their insurance plans are also under attack. So writes Frances Coppola in a December 18th article titled “Co-operative Banking Under Attack in Europe,” discussing an insolvent Spanish credit union that was the subject of a bail-in in July 2015. When the member-investors were subsequently made whole by the credit union’s private insurance group, there were complaints that the rescue “undermined the principle of creditor bail-in” – this although the insurance fund was privately financed. Critics argued that “this still looks like a circuitous way to do what was initially planned, i.e. to avoid placing losses on private creditors.”
In short, the goal of the bail-in scheme is to place losses on private creditors. Alternatives that allow them to escape could soon be blocked.
We need to lean on our legislators to change the rules before it is too late. The Dodd Frank Act and the Bankruptcy Reform Act both need a radical overhaul, and the Glass-Steagall Act (which put a fire wall between risky investments and bank deposits) needs to be reinstated.
Meanwhile, local legislators would do well to set up some publicly-owned banks on the model of the state-owned Bank of North Dakota – banks that do not gamble in derivatives and are safe places to store our public and private funds.
_____________________
Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com. Listen to “It’s Our Money with Ellen Brown” on PRN.FM.
Filed under: Ellen Brown Articles/Commentary | Tagged: bail-in, Dodd-Frank, Financial Stability Board, public banking |
WEB OF DEBT BLOG 
Quote , .wikipedia._Soddy
“In four books written from 1921 to 1934, Soddy carried on a “quixotic campaign for a radical restructuring of global monetary relationships”[this quote needs a citation], offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”[this quote needs a citation]. While most of his proposals – “to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”[this quote needs a citation]. Soddy wrote that financial debts grew exponentially at compound interest…”
http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt
THE
ROLE OF MONEY
WHAT IT SHOULD BE, CONTRASTED WITH WHAT IT HAS BECOME By
FREDERICK SODDY
M.A. (Oxon) ; LL.D. (Glasgow) ; F.R.S. ; Nobel Laureate in Chemistry, 1921 ; Author of ” Science and Life ” ; ” Wealth, Virtual Wealth , and Debt ” ; ” Money versus Man ” ; etc.
PREFACE …
“…It was recognized in Athens and Sparta ten centuries before the birth of Christ that one
of the most vital prerogatives of the State was the sole right to issue money. How curious that
the unique quality of this prerogative is only now being re-discovered. The” money-power ” which
has been able to overshadow ostensibly responsible government, is not the power of the merely ultra-
rich, but is nothing more nor less than a new technique designed to create and destroy money
by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of
the community or the real role that money ought to perform therein.
… It is concerned less with the details of particular schemes of monetary reform that have been advocated than with the general principles to which, in the author’s opinion, every monetary system must at long last conform, if it is to fulfil its proper role as the distributive mechanism of society. To allow it to become a source of revenue to private issuers is to create, first, a secret and illicit arm of the
government and, last, a rival power strong enough ultimately to overthrow all other forms of
government. ”
In four books written from 1921 to 1934, why do you deny, You were not told ?
Reblogged this on justaluckyfool and commented:
YOU HAVE BEEN WARNED !!!
Reblogged this on pgoeltz.
Reblogged this on Dreams of Liberty and commented:
Banks should fail as anyone that loses in the game of money, specially if they get out using our money. They have no right!
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[…] Source: WEB OF DEBT BLOG While the mainstream media focus on ISIS extremists, a threat that has gone virtually unreported is that your life savings could be wiped out in a massive derivatives collapse. Bank bail-ins have begun in Europe, and the infrastructure is in place in the US. Poverty also kills. At the endRead more… […]
Please Share: “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC)?
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Who are these parasites going to steal from when the rest of us are broke. O they are going to feast on us remaining Morlocks H.G. Wells got it wrong it will be the Eloi who will be the cannibals.
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there are many comments here ,none of which address anything other than the article.WE CAN READ!!!!! AS FOR AN ANSWER TO THIS “‘FORGET IT”‘ THE CRIMINALS AND WE KNOW WHO YOU ARE HAVE RIGGED THE SYSTEM SO AS TO NOT ALLOW ANYTHING TO HAPPEN TO THEIR ENTERPRISE .THEY OWN THE ENTIRE CONGRESS AND SENATE AND AS FOR SANDERS CHANGING ANYTHING THATS A BAD JOKE.AND AS FOR ELLEN ANSWER TO GET YOUR CONGRESSMAN /SENATOR TO LISTEN FORGET IT.UNLESS YOU SEND A CHECK FOR SAY 10-15MILLION ,HE/SHE IS DEAF.THIS IS MORE THAN A FINANCIAL CONSPIRACY TO THIS CABAL.THE N W O LEAD BY THE USUAL CRIMINALS WHO FOR CENTURIES HAVE BEEN AT THE FORE OF THIS CABAL
I agree one hundred percent.
Savings accounts are FDIC insured. How would that come into play for bail ins?
Please a profound answer for CK. Also,
Would all deposits be protected against being turned into “a bank asset” up to $250K ? CD’s ?
”Your deposited cash is an unsecured debt obligation of your bank. It owes you that money back.” So why can we not set our own interest rates for the bank to pay us back incl late payment charges.
That would be like a disabled Vet DEMANDING that the government pay them after not doing so for 18 years. Then,in the 19th year they pay him for 5 years back pay. So you lose all of your hard earned savings! Then you can collect welfare. At least you will be able to be seen at your nearest hospital.
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As always, Ms Brown’s primary purpose seems to be to smear the EU, a waste of time since practically nobody in Europe reads what’s on the American internet. Since Americans suffer no disadvantage through the EU’s existence and would derive no advantage from its disappearance, I cannot see what American interest she’s defending. My best theory is that Ms Brown believes in US global hegemony and see the EU as a threat to that.
Hi Ellen,
Suppose we stop the gratuitous bailin discussion and get right down to brass tacks. Tackle the debate about the FDIC, and that this is a scam. This would be more scholarly in lieu of simply freaking folks out. Is it our intent to make sense of what is going to happen, or jist limit this to bright lights and sirens?
Now, if you care to get this discussion to the level that is much more important, then i am in. If not, are you and the alternative press just winking? Seriously, i want real translation and real discussion. Drop the fear. Now, what i am requesting is hard work. It means getting someone in govt to answer. That real person may not exist. Real Journalists used to work hard for this. There is No Such Thing as mainstream journalism any longer. Hasnt been for decades. Well, doesnt have to be for the alternative press.
Good luck to us all.
JT
Ps, banks still hand out and explain the FDIC pamphlets. Is this a scam? Well, is it? Can we have the facts instead of conjecture?
Ps#2,
Regardless of how much FDIC funds exist, will they “print” to fund it in crisis? There are plans, they exist, just as we have military plans. What is the answer? If not you, who can we go to for the answer.
Now, one can get the answer by forcing a debate in congress, and committing the last digit and bit of the nations computer to fund. But, where is this debate, where is the answer?
If you have only pursued this to the info you list, then- i am not on board yet. You are tormenting and teasing us. Last call for journalists to come out of the cracks and crevises where they live.
Banking is fraud.
Banksters creating money from nothing is fraud.
This is a story of the Banking cabal with the govt committing theft .
This is what they do to the debt slaves, the govt is the banking cabal’s corporation!!
The crisis is one of ignorance.
You contradict yourself in the same sentence, and destroy the entire content of your “article” Look at this IMPORTANT section: “an “Orderly Resolution” regime that keeps insolvent banks afloat by confiscating the savings of investors and depositors. Some 130,000 shareholders and junior bond holders suffered losses in the “rescue.”” You say they are “confiscating the savings of investors and depositors”. That makes us all worry about our bank accounts. They are taking our savings and checking accounts. Oh no! But the next sentence you accidentally state the TRUTH. Some 130,000 SHAREHOLDERS and JUNIOR BOND HOLDERS suffered losses. TOTALLY DIFFERENT. And not even the senior bond holders, but the JUNIOR ones! If Wells Fargo or another bank went belly up, your first statement says the bank accounts would be confiscated. The second sentence truthfully says the people who own STOCK in Wells Fargo (or other bank) and the BOND HOLDERS in Wells Fargo would “suffer loss”. Just like happens when ANY company goes bankrupt! Why scare everyone by saying “depositors” are losing their accounts when it is the INVESTORS in that company that lose? Just because I have money in Wells Fargo does NOT mean I am a shareholder, and your coupling of the two is IMHO deceptive at best and outright lies at worst. Why spread what sounds to me like FEAR MONGERING to write an article where you have to put the truth but you put it in after a sentence that makes people skim right over it? Terrible article!
Got gold?
Got cigarettes and whiskey?
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How to regulate derivatives:
Treat derivatives like short sales of stock.
Require derivative participants to deposit margin cash.
Have ALL derivatives tracked continuously on computer.
When the net sum of a player’s derivatives move adversely, issue a margin call.
Either the player posts more cash,
or some of his derivatives get automatically closed out to cover the margin.
This would make it IMPOSSIBLE for a crisis like 2008 to recur.
It would prevent any derivative from EVER going negative!
When the derivative reaches zero, it automatically gets closed out.
But we know that the government/financial complex
won’t move toward an honest system like this.
They’ll issue more laws like Dodd-Frank
that make the system more DIShonest!
This plan can be seen in more detail at:
http://daytonos.com/?p=4899
We Need SMARTER Regulation
What about Credit Unions?