The deposit confiscation scheme has long been in the making. US depositors could be next . . . .
On Tuesday, March 19, the national legislature of Cyprus
overwhelmingly rejected a proposed levy on bank deposits as a condition
for a European bailout. Reuters called it
“a stunning setback for the 17-nation currency bloc,” but it was a
stunning victory for democracy. As Reuters quoted one 65-year-old
pensioner, “The voice of the people was heard.”
The EU had warned that it would withhold €10 billion in bailout loans, and the European Central Bank (ECB) had threatened to end emergency lending assistance for distressed Cypriot banks, unless depositors – including small savers – shared the cost of the rescue. In the deal rejected by the legislature, a one-time levy on depositors would be required in return for a bailout of the banking system. Deposits below €100,000 would be subject to a 6.75% levy or “haircut”, while those over €100,000 would have been subject to a 9.99% “fine.”
The move was bold, but the battle isn’t over yet. The EU has now given Cyprus until Monday to raise the billions of euros it needs to clinch an international bailout or face the threatened collapse of its financial system and likely exit from the euro currency zone.
In a September 2011 article in the Bulletin of the Reserve Bank of New Zealand titled “A Primer on Open Bank Resolution,” Kevin Hoskin and Ian Woolford discussed a very similar haircut plan that had been in the works, they said, since the 1997 Asian financial crisis. The article referenced recommendations made in 2010 and 2011 by the Basel Committee of the Bank for International Settlements, the “central bankers’ central bank” in Switzerland.
The purpose of the plan, called the Open Bank Resolution (OBR) , is to deal with bank failures when they have become so expensive that governments are no longer willing to bail out the lenders. The authors wrote that the primary objectives of OBR are to:
At one end of the spectrum, there are large international financial institutions that invest in debt issued by the bank (commonly referred to as wholesale funding). At the other end of the spectrum, are customers with cheque and savings accounts and term deposits.
Most people would be surprised to learn that they are legally considered “creditors” of their banks rather than customers who have trusted the bank with their money for safekeeping, but that seems to be the case. According to Wikipedia:
The New Zealand OBR said the creditors had all enjoyed a return on their investments and had freely accepted the risk, but most people would be surprised to learn that too. What return do you get from a bank on a deposit account these days? And isn’t your deposit protected against risk by FDIC deposit insurance?
Not anymore, apparently. As Martin Hutchinson observed in Money Morning, “if governments can just seize deposits by means of a ‘tax’ then deposit insurance is worth absolutely zippo.”
It is the ECB that can most afford to take the hit, because it has the power to print euros. It could simply create the money to bail out the Cyprus banks and take no loss at all. But imposing austerity on the people is apparently part of the plan. Salmon writes:
But that was before the Cyprus government stood up for the depositors and refused to go along with the plan, in what will be a stunning victory for democracy if they can hold their ground.
Cyprus is a small island, of little apparent significance. But one
day, the bold move of its legislators may be compared to the Battle of
Marathon, the pivotal moment in European history when their Greek
forebears fended off the Persians, allowing classical Greek civilization
to flourish. The current battle on this tiny island has taken on
global significance. If the technocrat bankers can push through their
confiscation scheme there, precedent will be established for doing it
elsewhere when bank bailouts become prohibitive for governments.
That situation could be looming even now in the United States. As Gretchen Morgenson warned in a recent article on the 307-page Senate report detailing last year’s $6.2 billion trading fiasco at JPMorganChase: “Be afraid.” The report resoundingly disproves the premise that the Dodd-Frank legislation has made our system safe from the reckless banking activities that brought the economy to its knees in 2008. Writes Morgenson:
The large institutional banks not only could fail; they are likely to fail. When the derivative scheme collapses and the US government refuses a bailout, JPMorgan could be giving its depositors’ accounts sizeable “haircuts” along guidelines established by the BIS and Reserve Bank of New Zealand.
Professor Kurt von Mettenheim of the Sao Paulo Business School of Brazil writes, “The credit policies of BRIC government banks help explain why these countries experienced shorter and milder economic downturns during 2007-2008.” Government banks countered the effects of the financial crisis by providing counter-cyclical credit and greater client confidence.
Russia is an Eastern European country that weathered the credit crisis although being very close to the Eurozone. According to March 2010 article in Forbes:
as the more trustworthy alternative. As a result, state-owned banks are expected to continue dominating the Russian banking industry for the foreseeable future.
The entire Eurozone conundrum is unnecessary. It is the result of too little money in a system in which the money supply is fixed, and the Eurozone governments and their central banks cannot issue their own currencies. There are insufficient euros to pay principal plus interest in a system in which only the principal is injected by the banks that create money as “bank credit” on their books. A central bank with the power to issue money could remedy that systemic flaw, by injecting the liquidity needed to jumpstart the economy and turn back the troika-imposed tide of austerity choking the Eurozone.
For more on the public bank solution and for details of the June 2013 Public Banking Institute conference in San Rafael, California, see here.
____________
Ellen Brown is an attorney, chairman of the Public Banking Institute
On Tuesday, March 19, the national legislature of Cyprus
overwhelmingly rejected a proposed levy on bank deposits as a condition
for a European bailout. Reuters called it
“a stunning setback for the 17-nation currency bloc,” but it was a
stunning victory for democracy. As Reuters quoted one 65-year-old
pensioner, “The voice of the people was heard.”The EU had warned that it would withhold €10 billion in bailout loans, and the European Central Bank (ECB) had threatened to end emergency lending assistance for distressed Cypriot banks, unless depositors – including small savers – shared the cost of the rescue. In the deal rejected by the legislature, a one-time levy on depositors would be required in return for a bailout of the banking system. Deposits below €100,000 would be subject to a 6.75% levy or “haircut”, while those over €100,000 would have been subject to a 9.99% “fine.”
The move was bold, but the battle isn’t over yet. The EU has now given Cyprus until Monday to raise the billions of euros it needs to clinch an international bailout or face the threatened collapse of its financial system and likely exit from the euro currency zone.
The Long-planned Confiscation Scheme
The deal pushed by the “troika” – the EU, ECB and IMF – has been
characterized as a one-off event devised as an emergency measure in this
one extreme case. But the confiscation plan has long been in the
making, and it isn’t limited to Cyprus.In a September 2011 article in the Bulletin of the Reserve Bank of New Zealand titled “A Primer on Open Bank Resolution,” Kevin Hoskin and Ian Woolford discussed a very similar haircut plan that had been in the works, they said, since the 1997 Asian financial crisis. The article referenced recommendations made in 2010 and 2011 by the Basel Committee of the Bank for International Settlements, the “central bankers’ central bank” in Switzerland.
The purpose of the plan, called the Open Bank Resolution (OBR) , is to deal with bank failures when they have become so expensive that governments are no longer willing to bail out the lenders. The authors wrote that the primary objectives of OBR are to:
- ensure that, as far as possible, any losses are ultimately borne by the bank’s shareholders and creditors . . . .
At one end of the spectrum, there are large international financial institutions that invest in debt issued by the bank (commonly referred to as wholesale funding). At the other end of the spectrum, are customers with cheque and savings accounts and term deposits.
Most people would be surprised to learn that they are legally considered “creditors” of their banks rather than customers who have trusted the bank with their money for safekeeping, but that seems to be the case. According to Wikipedia:
In most legal systems, . . . the funds deposited are no longer the property of the customer. The funds become the property of the bank, and the customer in turn receives an asset called a deposit account (a checking or savings account). That deposit account is a liability of the bank on the bank’s books and on its balance sheet. Because the bank is authorized by law to make loans up to a multiple of its reserves, the bank’s reserves on hand to satisfy payment of deposit liabilities amounts to only a fraction of the total which the bank is obligated to pay in satisfaction of its demand deposits.The bank gets the money. The depositor becomes only a creditor with an IOU. The bank is not required to keep the deposits available for withdrawal but can lend them out, keeping only a “fraction” on reserve, following accepted fractional reserve banking principles. When too many creditors come for their money at once, the result can be a run on the banks and bank failure.
The New Zealand OBR said the creditors had all enjoyed a return on their investments and had freely accepted the risk, but most people would be surprised to learn that too. What return do you get from a bank on a deposit account these days? And isn’t your deposit protected against risk by FDIC deposit insurance?
Not anymore, apparently. As Martin Hutchinson observed in Money Morning, “if governments can just seize deposits by means of a ‘tax’ then deposit insurance is worth absolutely zippo.”
The Real Profiteers Get Off Scot-Free
Felix Salmon wrote in Reuters of the Cyprus confiscation:Meanwhile, people who deserve to lose money here, won’t. If you lent money to Cyprus’s banks by buying their debt rather than by depositing money, you will suffer no losses at all. And if you lent money to the insolvent Cypriot government, then you too will be paid off at 100 cents on the euro. . . .The big winner here is the ECB, which has extended a lot of credit to dubiously-solvent Cypriot banks and which is taking no losses at all.
It is the ECB that can most afford to take the hit, because it has the power to print euros. It could simply create the money to bail out the Cyprus banks and take no loss at all. But imposing austerity on the people is apparently part of the plan. Salmon writes:
From a drily technocratic perspective, this move can be seen as simply being part of a standard Euro-austerity program: the EU wants tax hikes and spending cuts, and this is a kind of tax . . . .The big losers are working-class Cypriots, whose elected government has proved powerless . . . . The Eurozone has always had a democratic deficit: monetary union was imposed by the elite on unthankful and unwilling citizens. Now the citizens are revolting: just look at Beppe Grillo.
But that was before the Cyprus government stood up for the depositors and refused to go along with the plan, in what will be a stunning victory for democracy if they can hold their ground.
It CAN Happen Here
Cyprus is a small island, of little apparent significance. But one
day, the bold move of its legislators may be compared to the Battle of
Marathon, the pivotal moment in European history when their Greek
forebears fended off the Persians, allowing classical Greek civilization
to flourish. The current battle on this tiny island has taken on
global significance. If the technocrat bankers can push through their
confiscation scheme there, precedent will be established for doing it
elsewhere when bank bailouts become prohibitive for governments.That situation could be looming even now in the United States. As Gretchen Morgenson warned in a recent article on the 307-page Senate report detailing last year’s $6.2 billion trading fiasco at JPMorganChase: “Be afraid.” The report resoundingly disproves the premise that the Dodd-Frank legislation has made our system safe from the reckless banking activities that brought the economy to its knees in 2008. Writes Morgenson:
JPMorgan . . . Is the largest derivatives dealer in the world. Trillions of dollars in such instruments sit on its and other big banks’ balance sheets. The ease with which the bank hid losses and fiddled with valuations should be a major concern to investors.Pam Martens observed in a March 18th article that JPMorgan was gambling in the stock market with depositor funds. She writes, “trading stocks with customers’ savings deposits – that truly has the ring of the excesses of 1929 . . . ”
The large institutional banks not only could fail; they are likely to fail. When the derivative scheme collapses and the US government refuses a bailout, JPMorgan could be giving its depositors’ accounts sizeable “haircuts” along guidelines established by the BIS and Reserve Bank of New Zealand.
Time for Some Public Sector Banks?
The bold moves of the Cypriots and such firebrand political activists
as Italy’s Grillo are not the only bulwarks against bankster
confiscation. While the credit crisis is strangling the Western banking
system, the BRIC countries – Brazil, Russia, India and China – have
sailed through largely unscathed. According to a May 2010 article in The Economist, what has allowed them to escape are their strong and stable publicly-owned banks.Professor Kurt von Mettenheim of the Sao Paulo Business School of Brazil writes, “The credit policies of BRIC government banks help explain why these countries experienced shorter and milder economic downturns during 2007-2008.” Government banks countered the effects of the financial crisis by providing counter-cyclical credit and greater client confidence.
Russia is an Eastern European country that weathered the credit crisis although being very close to the Eurozone. According to March 2010 article in Forbes:
As in other countries, the [2008] crisis prompted the state to take on a greater role in the banking system. State-owned systemic banks . . . have been used to carry out anticrisis measures, such as driving growth in lending (however limited) and supporting private institutions.In the 1990s, there was a movement globally to privatize public sector banks. But in the 1998 Asian crisis, many Russians who had put all their savings in private banks lost everything; and the credit crisis of 2008 has reinforced their distrust of private banks. Russian businesses as well as individuals have turned to their government-owned banks
as the more trustworthy alternative. As a result, state-owned banks are expected to continue dominating the Russian banking industry for the foreseeable future.
The entire Eurozone conundrum is unnecessary. It is the result of too little money in a system in which the money supply is fixed, and the Eurozone governments and their central banks cannot issue their own currencies. There are insufficient euros to pay principal plus interest in a system in which only the principal is injected by the banks that create money as “bank credit” on their books. A central bank with the power to issue money could remedy that systemic flaw, by injecting the liquidity needed to jumpstart the economy and turn back the troika-imposed tide of austerity choking the Eurozone.
For more on the public bank solution and for details of the June 2013 Public Banking Institute conference in San Rafael, California, see here.
____________
Ellen Brown is an attorney, chairman of the Public Banking Institute
Source
banzai7
Submitted by Tyler Durden: Based on the most recent data, JPMorgan notes
that the share of large or uninsured deposits is likely to be close to
half of total deposits in the European Union. With deposits already
flowing out of some of the peripheral EU nations...
(as we warned here)banzai7
Submitted by Tyler Durden: Based on the most recent data, JPMorgan notes
that the share of large or uninsured deposits is likely to be close to
half of total deposits in the European Union. With deposits already
flowing out of some of the peripheral EU nations...
we thought it appropriate to point out just which nations have the largest share of uninsured deposits (and are not yet under the ECB's 'standard of living' capital controls). It seems - among many others - that despite France throwing in the towel on the 75% income tax, there is another good reason for the wealthy to leave...
The only reason why Europe has been slow to impair its loans (as shown by the artificial rise in Italian and Spanish bad debt) over the past 4 years, is that a full representation of reality on the asset side (such as that which finally caught up with Cyprus) would lead to a dramatic collapse in balance sheet assets, requiring a comparable crunch on the liability side, where unsecured liabilities such as deposits would certainly take a big hit as well (especially if an equity cram up such as that of Citi is required to preserve the equity tranche).
Which is why the only thing preventing a "Cyprus-type event" from spreading to other nations is the gradual, determined bad debt impairment.
Of course, should there be a risk flaring event and banks are forced to remark bad debt to reality, what just happened in Cyprus will be a gentle breeze compared to what would come.
Source
Battle Update:
Apparently bankster spin meister Schaeuble "Won't Be Blackmailed"
Submitted by Tyler Durden: Some late news indicates that the 'deal' is further away than many hoped (or rumored) earlier in the day. Welt am Sonntag reports that German FinMin Schaeuble exclaimed "I won't allow myself to be blackmailed,"
adding his responsibility to the stability of the Euro. Simply put, he
adds Cyprus must respect the rules, insistent that, "Cyprus is a hard
road to go either way; but that is not the result of European stubbornness, but a business model that no longer works."
With that as background, Cyprus President Anastasiades will be meeting
with the IMF's Christine Lagarde tomorrow morning with talks at a
"delicate point," with his spokesperson admitting the situation is "very difficult." The disinformation-to-total-confusion train pushes on forward; beggars can be choosers and 'demanders' won't be blackmailed.
- *STYLIANIDES SAYS ANASTASIADES DEPARTS FOR BRUSSELS 7:15 AM
- *STYLIANIDES SAYS ANASTASIADES WILL MEET WITH IMF'S LAGARDE
- *CYPRUS EUROGROUP MEETING TO BEGIN AT 7 P.M., SPOKESMAN SAYS
- *SCHAEUBLE SAYS WRONG DECISION NOW WOULD DO EURO A DISSERVICE
- *SCHAEUBLE SAYS CYPRUS MUST RESPECT THE RULES: WELT AM SONNTAG
Via Welt am Sonntag (Google Translate),
SourceThe euro zone crisis has seen in her many dramatic hours. But never before, the situation was so critical as this weekend, never had the political fronts so hardened - and never was the risk of a euro exit as high as in the case of Cyprus.
Finance Minister Wolfgang Schaeuble said the "Welt am Sonntag", "We want to avoid possible that Cyprus slips into insolvency." The framework for a utility change but nothing, and the European Central Bank could guarantee their relief to Cypriot banks only until Monday. Schaeuble made clear that Cyprus itself - and not Germany or the EU - to blame for its precarious situation.
"Cyprus is a hard road to go -. Either way but that is not the result of European stubbornness, but a business model that no longer works," said the CDU politician.
...
Before the crucial meeting of euro finance ministers, which is scheduled for Sunday evening, Schäuble was adamant: he was known that he was "[I won;t allow myself to be blackmailed]" He was aware of his responsibility for the stability of the euro.
...
Economists see the wrangling over a compulsory charge concerned. "The danger of a European bank runs is latent because the banking world of Southern Europe is tarnished," said Hans-Werner Sinn, president of the Munich-based Ifo Institute, this newspaper. "Some countries and many banks are actually already broke and held only by the special loans to the ECB on life. The disaster has occurred long ago, but the public closes their eyes."
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