Monthly Archives: March 2013

It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors

Truthout has the article It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors by Ellen Brown.  I’ll give you a small snippet here to try to give you the gist of the story.  You’ll have to follow the link above to get an full idea of the horrifying picture.

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 anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.

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. The FDIC is an insurance company funded by premiums paid by private banks.  The directive is called a “resolution process,” defined elsewhere as a plan that “would be triggered in the event of the failure of an insurer . . . .” The only  mention of “insured deposits” is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.

Would someone with more expertise than I please read the article and tell me that this story is way overblown.  Otherwise, this article published today could start a bank run on Monday.

Calm down, maybe. Here are two sections I found in the joint FDIC-BOE paper linked to above in the original blog post. Ellen Brown may be right that there is no mention of the U.S., but at least this is what is discussed for the U.K.

17 In the U.K., the Banking Act provides the Bank of England with tools for resolving failing deposit-taking banks and building societies. Powers similar to those of the FDIC are available, including powers to transfer all or part of a failed bank’s business to a private sector purchaser or to a bridge bank until a private purchaser can be found. The Banking Act also provides the U.K. authorities with a bespoke bank insolvency procedure that fully protects insured depositors while liquidating a failed bank’s assets. These powers have proved valuable; for example, during the crisis they allowed the authorities to transfer the retail and wholesale deposits, branches, and a significant proportion of the residential mortgage portfolio of a failed building society to another building society.
34 The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI’s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors. That is consistent with the contribution requirement that is already imposed on the Financial Services Compensation Scheme in the U.K. in the exercise of resolution powers10 and simulates the losses that would have been incurred by those deposit guarantee schemes during bank insolvency. But insofar as a bail-in provides for continuity in operations and preserves value, losses to a deposit guarantee scheme in a bail-in should be much lower than in liquidation. Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

The authors of the joint report obviously are fully aware of the issue of insured depositors. I can interpret the lack of mention of the U.S. in two ways. Either they didn’t mention the U.S. insured depositors because they would be handled in a way similar to those in the U.K. Or, they didn’t mention the U.S. insured depositors because they specifically would not be handled in the same as their U.K. counterparts.

Doing a little more searching in the document, I find the following comforting section:

47 Similarly, because the group remains solvent, retail or corporate depositors should not have an incentive to “run” from the firm under resolution insofar as their banking arrangements, transacted at the operating company level, remain unaffected. In order to achieve this, the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.

Since I am searching the document for relevant sections rather than reading the document in its entirety from beginning to end, I do run the risk of missing the context in which these paragraphs appear. This is to warn you, that if you really care, you ought to read the FDIC-BOE document thoroughly yourself.

Commentary: Iraq war taught us a lesson

McClatchy News has the interesting editorial piece Commentary: Iraq war taught us a lesson.

But while the consensus now is that Iraq was a mistake, will we have the sense to apply that lesson to the next proposal for regime change, the next cakewalk? We hear cries for greater U.S. involvement in the Syrian uprising, for a pre-emptive strike to destroy Iran’s capability to create a nuclear weapon.

We should recall the assumptions about Iraq, the complacency and the unwillingness to question those prodding us to go to war. Don’t forget history, lest we repeat it.

No politician today dares pose the possibility that if we took another path other than imposing the strictest sanctions that are humanly possible on Iran we might actually make more progress to our supposed goal of a non-nuclear weapon Iran.

No politician today dares mention the possibility that a different tack on North Korea might get them to turn in a different direction than the one they are taking as we impose stricter and stricter sanctions.

No politician dares ask the question as to whether the strategy we used in Cuba, Venezuela, and now in Iran and North Korea so unsuccessfully might be trying to teach us a lesson that we might want to learn.

So what lessons have we actually learned?

Paul Krugman: Treasure Island Trauma

The New York Times has the article Treasure Island Trauma by Paul Krugman.

But it also reflects Cyprus’s own reluctance to accept the end of its money-laundering business; its leaders are still trying to limit losses to foreign depositors in the vain hope that business as usual can resume, and they were so anxious to protect the big money that they tried to limit foreigners’ losses by expropriating small domestic depositors. As it turned out, however, ordinary Cypriots were outraged, the plan was rejected, and, at this point, nobody knows what will happen.
But step back for a minute and consider the incredible fact that tax havens like Cyprus, the Cayman Islands, and many more are still operating pretty much the same way that they did before the global financial crisis. Everyone has seen the damage that runaway bankers can inflict, yet much of the world’s financial business is still routed through jurisdictions that let bankers sidestep even the mild regulations we’ve put in place. Everyone is crying about budget deficits, yet corporations and the wealthy are still freely using tax havens to avoid paying taxes like the little people.

This is the kind of thing that happens when “little people” refuse to take the fall for the “big people.”

If we get Ed Markey as our next Senator, he can work with Elizabeth Warren to start making the “big people” pay the consequences for their greed.  Perhaps this way, we can prevent the destruction of that part of the international banking system that we, the “little people”, depend on.

Thanks to RichardH for sending the link to this article in response to my previous post Cyprus: Has the Next Phase of the Global Crisis Arrived?

Commentary: Sen. Rob Portman’s gay marriage ‘change of heart’

McClatchy DC has the article Commentary: Sen. Rob Portman’s gay marriage ‘change of heart’ by Leonard Pitts Jr.

But true compassion and leadership require the ability to look beyond the narrow confines of one’s own life, to project into someone else’s situation and to want for them what you’d want for your own. Portman’s inability to do that created hardship for an untold number of gay men and lesbians.

It never ceases to amaze me how the religiously oriented conservative Republicans can look into the mind of an imaginary God to figure out what he wants, but they cannot look into the mind of a fellow human being to figure out what he or she might want.

Perhaps my years of writing software, for other people to use, strengthened my ability to sometimes see the world through someone else’s eyes.  Sometimes, when designing software, it takes just a little extra effort to make it possible for the user to do something with the software that you don’t immediately see the use for.  An observer might come along (and often did) and say something like, “Why would someone ever want to be able to do that?”  After years of helping people use my software, I often found them doing imaginative things with the features that I had put in that I could never have anticipated in advance.  I guess this is not even being able to see the world through someone else’s eyes.  It is the ability to realize that my own imagination might fall short of what someone else might be able to imagine.  Unless there is a darn good reason, it is better not to close off opportunities that lead to freedom for someone else (or even yourself at another time).

Cheney Marks Tenth Anniversary of Pretending There Was Reason to Invade Iraq

The New Yorker has the story Cheney Marks Tenth Anniversary of Pretending There Was Reason to Invade Iraq from The Borowitz Report.

“Making up a reason to invade a country is the easy part,” Mr. Cheney told them. “Sticking to a pretend story for ten years—that is the stuff of valor.”

I did tell you this was from The Borowitz Report, didn’t I?  Its tag line is “The news, reshuffled.”

Fixing Washington From The Outside In

This is what many supporters have been trying to tell Obama during his first 4 years. I would like to believe that he really understands the words he is speaking. In the last few days with Republican taunts that Obama is trying to politicize politics, he seems to be already backing away. It is up to us, to keep Obama’s feet to the fire.

It is discouraging to hear reports from Republicans that in a meeting with them Obama said that he understands the need to balance the budget, but many of his supporters do not.

That’s hogwash, and Obama should not ever say things like this unless he unfortunately actually believes this. If he actually believes this, that is even worse.

This supporter believes in balancing the budget when it is the correct thing to do during the right time in the economic cycle. Now is not that time.

This supporter believes that we need to balance the budget in a way that turns-around the tremendous shift of wealth in the last 30 years from the middle-class to the extremely wealthy. We need to shift some of that wealth back to the middle and lower classes.

We need to bring the budget to balance by growing the economy in such a way that each segment of the economy including the government can afford to do its necessary part.

Cyprus: Has the Next Phase of the Global Crisis Arrived?

I was reading headlines such as Asia stocks dive on Cyprus deposit levy plan .  So by the time I got to the Minyanville artcle Cyprus: Has the Next Phase of the Global Crisis Arrived?, I decided to check into it.

In a stunning shift from previous aid packages, EU Finance Ministers—the folks up north, primarily German—asked Cypriot savers to forfeit a portion of their deposits in return for a $13 billion bailout.
One could intelligently argue that both of those situations were symptoms rather than the cause of those respective crises, and the same can be said of Cyprus, which is seemingly a guinea pig for a new approach from those pulling the policy strings.  Cue the unintended consequences (the potential for bank runs across Europe) and moral hazard (word on the street is that wealthy Russian oligarchs have size holdings in the heretofore stealth, sunny island); in an interwoven finance-based global economy, credit of a different breed—that of credibility, as posited in 2007—is the issue at hand for markets at large.

Should I panic? I haven’t the foggiest idea. This is the second item I have read this week about the coming apocalypse. The previous one was trying to sell a book.