Financial sleight of hand puts Peoples savings at risk
The British bank depositor is very much at risk. ‘It is easier to rob by setting up a bank than by holding up a bank clerk’ Bertolt Brecht
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Our savings have been at risk for the last 2-3 years. And as a new recession spirals into an economic depression, central banks have a Hobson’s choice:
stop rapidly rising core consumer inflation, or stop national economic production deflation.
The Bank of England cannot do both, and,
like the U.S. Federal Reserve, it lacks the economic tools to deal effectively with either.
The British bank depositor is very much at risk.
The UK pound hit historic lows in value this month, and all major banks are suddenly predicting doom. Bank depositors would
do well to comprehend several inconvenient truths, the first being that depositors, when demanding their money, are not first in line. Nor second.
Since you are tertiary in this vital financial relationship, when your bank fails... don’t walk, run!
Since 2008, too-big-to-fail banks have consolidated to become much greater in size and power than ever. They
are financial and political powerhouses controlling world economies to their advantage.
Normally in any managed court-ordered business liquidation, such as before the bankruptcy of Lehman Bros in 2008, or Spain’s Bankia in 2013, a bank’s secured creditors - such as its depositors - are paid off first because theirs are hard assets when first deposited, not investments or speculation.
These secured creditors normally had legal priority during liquidation. However, under the new ‘bail-in’ definition, your cash deposit is now unsecured, with derivatives and other similar high- risk banking adventures to be paid
before the depositor’s savings, if any.
Today, worldwide exposure in derivatives by banks and financial houses has dramatically ballooned to more than a quadrillion dollars distributed over virtually all other financial sectors. In 2008, it was only the housing sector.
UK banks are currently required to hold a reserve of 18 per cent
of cash deposits. But this reserve is not applied to derivatives. Currently, UK banks hold trillions in derivative exposure. What this means for cash depositors is that all of these derivatives will be paid off first, using your savings, and your savings are now legally last in the minds of the banks.
With U.S. and UK banks holding $7 trillion and $1.4 trillion respectively in personal cash savings deposits, the U.S. Federal Deposit Insurance Corporation’s (FDIC) total war chest of $25bn will not be quite enough.
The latest Bank of England (BoE) data shows total gross derivatives assets and liabilities
at £5.17 trillion – a one per cent jump this year. In the U.S., it’ s $200 trillion plus. The Prudential Regulatory Authority (PRA) in the UK is underwritten by the Bank of England (which is similarly cash- strapped), well below this legal necessity to aid this newly defined bail-in.
The creators of the Dodd– Frank Wall Street Reform and Consumer Protection Act knew they were shifting this burden to the depositors before the Act was signed in 2010.
Run on the American Union Bank, New York City during the Great Depression, April 26, 1932
‘It is easier to rob by setting up a bank than by holding up a bank clerk’ Bertolt Brecht
As John Butler points out in an April 4, 2012 review in Financial Sense: “do you see the sleight- of-hand at work here? Under the guise of protecting taxpayers, depositors... are to be arbitrary, subordinated... when in fact they are legally senior to those claims.”
Millions across the world who had lost their homes, pension funds, retirement plans - and dreams - watched helplessly as the bail-outs did not trickle down from the “too-big-to-fail” (TBTF) banks to their dinner tables or petrol tanks. Regarding new bail-ins, however, in 2010, the previously bailed-out TBTF banks were also provided with a new, more hopeful definition: Globally Active, Systemically Important, Financial Institutions (G-SIFI).
By redefining bail-outs to bail- ins, Dodd-Frank gives new powers to the FDIC, and by extension,
the PRA, that allows for an even more draconian resolution: any deposited funds in a bank can, in lieu of a cash payback, be returned to the depositor in the form of bank stock.
An April 24, 2012, International Monetary Fund report also supported the conversion of bank deposits to stock using bail-Ins.
Such was the case post-2008 in Cyprus, Greece and Spain. For affected depositors, to retrieve the remaining cash value of what was formerly their cash account balance, the stock provided to them had to eventually be sold.
When Lehman Brothers failed, unsecured depositors eventually received only eight cents on the dollar. Over a million Bankia customers in Spain, who were forced by decree to become stockholders, were paid just five per cent when finally selling their stock.
Like Britain, America and most of the western EU nations, China now suffers from the conclusion of an economy based only on debt. On April 18, over 400,000 depositors of five regional banks in China’s Henan province
were prohibited from making withdrawals. Despite the massive outrage the Chinese authorities did little except to promise a
maximum paltry bail-out of 50,000 Yuan (US $ 7,445).
However, this week, China mobilised its military to protect these same banks from public outrage, after the CCP suddenly announced that the depositors’ remaining funds will now be repaid... with stock!
As the pound collapses, lay-offs begin anew, fuel reaches historic highs and with winter on the way, the bank depositor would do well to heed two other vital financial truths that the Chinese now consider self-evident. Never trust a banker, and...
when your bank fails, don’t walk... run!
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