The Savings Heist

By Sell on News, a macro equities analyst. Originally posted at MacroBusiness.

One of the puzzles of the global financial crisis has been that there has been no push for debt to equity swaps. In previous crises, most notably the Latin American debt crisis of the 1980s, arguably the beginning of the modern era of hyper usury and financial debauch from globalising Western banks, the situation was solved by at least the appearance of debt for equity swaps. The obvious difference being that with equity the risk lies with the creator of the funds and with debt the risk lies with the recipient of the funds. When there is a risk to the whole system, this is a way to reduce the overall peril.

I wonder as we look to Cypriot savers taking a “haircut”, if we are seeing the shape of what will happen in the next crisis. The essence of a debt for equity swap is that the obligation that goes with debt is taken away. Calling the confiscation of bank deposits equity instead of theft would be a way to prettify the actions of the hyper-usurers. Michel Chossudovsky thinks that Cypress is a dress rehearsal  for things to come. A “savings heist” in European and American banks deemed too big to fail.

“According to the Institute of International Finance (IIF), “hitting depositors” could become the “new normal” of this diabolical project, serving the interests of the global financial conglomerates.

This new normal is endorsed by the IMF and the European Central Bank. According to the IIF which constitutes the banking elites mouthpiece, “Investors would be well advised to see the outcome of Cyprus… as a reflection of how future stresses will be handled.” (quoted in Economic Times, March 27, 2013)

“Financial Cleansing”. Bail-ins in the US and Britain

What is at stake is a process of “financial cleansing” whereby the “too big to fail banks” in Europe and North America (e.g. Citi, JPMorgan Chase, Goldman Sachs, et al ) displace and destroy lesser financial institutions, with a view to eventually taking over the entire “banking landscape”.

The underlying tendency at the national and global levels is towards the centralization and concentration of bank power, while leading to the dramatic slump of the real economy.

Bail ins have been envisaged in numerous countries. In New Zealand a “haircut plan”was envisaged as early as 1997 coinciding with Asian financial crisis.

There are provisions in both the UK and the US pertaining to the confiscation of bank deposits. In a joint document of the Federal Deposit Insurance Corporation (FDIC) and the Bank of England, entitled Resolving Globally Active, Systemically Important, Financial Institutions, explicit procedures were put forth whereby “the original creditors of the failed company “, meaning the depositors of a failed bank, would be converted into “equity”. (See Ellen Brown, It Can Happen Here: The Bank Confiscation Scheme for US and UK Depositors,Global Research, March 2013).

What this means is that the money confiscated from bank accounts would be used to meet the failed bank’s financial obligations. In return, the holders of the confiscated bank deposits would become stockholders in a failed financial institution on the verge of bankruptcy.

Bank savings would be transformed overnight into an illusive concept of capital ownership. The confiscation of savings would be adopted under the disguise of a bogus “compensation” in terms of equity.”

There is little doubt that the problems of the crisis have not been addressed. The central issue is that governments no longer govern the financial system, they have instead allowed private actors, traders and banks mostly, to make up their own rules – all under the guise of “financial de-regulation” which is a logical nonsense because money IS rules.

Until that absurdity is addressed the problems will linger. A second crisis is highly likely and this time governments will have little left to fight its effects. Extreme measures like debt for equity swaps seem likely.

But there are differences. The Latin American debt crisis was a conventional banking crisis. It was basically American and European banks shoveling petro dollars into the pockets of corrupt Latin American politicians and officials, who promptly invested the money back in European and American banks. It was a fairly common form of greed that could be partially solved by reconfiguring debt into equity.

This crisis is a lot more deadly. The debt, or leverage, is mostly created at the meta-level – on derivatives, which are transactions derived from more conventional forms of capital (such as debt, equity) That type of debt is used to amplify the returns from relatively small changes in pricing. The stock of derivatives is over $700 trillion, more than twice the value of the conventional forms of capital from which it is derived.

That leverage is a form of debt, and as the crisis demonstrated when that debt goes wrong it can potentially destroy the whole system. It was something seen as far back as 1998 when LTCM almost brought down the world financial system after it made a highly leveraged play on the rouble that went horribly wrong.

After this bail out I rather monotonously wrote about the looming crisis for a decade in BRW, Australia’s national business magazine (to precisely no effect). It was obvious the problem had not been addressed. It is still obvious that it has not been addressed, although there is at least an understanding that something is seriously wrong.

The trouble is, that kind of leverage is in the realm of meta money: the layer of financial activity that goes on above the level of  conventional banking and government finances and GDP.

Meta debt can bring down banks and governments, as we have seen. But it can’t be swapped in any obvious way into equity in order to reduce the risk. The only solution is to stop it, by setting rules that take it away. But that would require governments to govern, and that seems to be something they refuse to do – perhaps because they have been bought off, or perhaps because they cannot think clearly enough about their role in global capital markets.

* * *

Lambert here: Or perhaps there as been a change in the Constitutional order such that “governments” do not and perhaps cannot govern as they once did.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. mmckinl

    Of course they are going to grab cash and yes, the entire world banking system is consolidating into money center TBTF banks. The entire fiasco in the EU was to create more debt in Euros that would have to be paid back in Euros.

    The reason for the cash grab is to create a deflationary crisis. By grabbing cash and loaning money to insolvent countries money is taken out of the system. The less money in the system the greater the demand.

    By using deflation the banksters can loot economies through bankruptcy paying pennies on the dollar for real assets. Inflation wouldn’t have this advantage … Loans would be easier to pay and real returns for banks evaporate.

    So you see the demise of the dollar is a bit premature. The dollars’ value is based on demand for trade and to pay back debt as well as paying domestic taxes and everyday liquidity. It is all about demand for the dollar.

    There are tens of trillions in dollar denominated debt that can only be satisfied in dollars themselves. Then there are the dollars needed for trade especially to buy oil. By squeezing supply TBTF banksters are sitting pretty.

    1. mmckinl

      “”By grabbing cash and loaning money to insolvent countries money is taken out of the system. “”

      This needs more explanation …

      The countries getting those loans never actually saw any of those funds … those funds went directly to bail out bad loans made by TBTF banks in Paris, London, Frankfurt and New York …

      And the conditions on these loans contracted these economies by slashing public spending so that money would get even tighter. So the TBTF banks got bailed, the public got nailed
      and these economies and their common weal got looted.

      And by doing all this the banksters can now cut back on credit and squeeze everybody with “dearer” money. The Plutocrats know that capitalism as we know it is over thanks to resource depletion and climate destruction. They are going to grab every last piece of real wealth they can.

  2. Yan

    All of these “elites”. Any “elites”, for that matter, tend to underapreciate the tipping point. All is bad and dandy until it is bad…and not dandy. At that point, and deposits being thieved might do it, a bloodbath must ensue. Then the syrian “freedom fighters” eating rotten hearts will make you reminisce of culinary collages. The “elites” do not seem to understand that their power is all but a perception. If that perception fades away but for one second they are no more. Ask Mubarak.

    1. mmckinl

      You are indeed correct … but it all depends on how the elites manage their theft. Look at Greece … protests, riots and yet the “powers that be” are still in charge.

      In most Western Countries public relations have solved this problem by dividing the populace on the answers.

      In Greece they now have a powerful fascist presence for the status quo against the left and the anarchists. Greece is now a police state.

      In England they have employed a massive video surveillance structure and tightened their laws on protest to the draconian.

      In the US everything is under surveillance, the police have been militarized and the PR dividing the country is well established.

      What we are looking at is the entire world headed for police states to support the bankster plutocracy at the expense of the vast majority of the public.

      Will the populations in these countries understand what is needed for justice? In most countries all the political parties are bought.

      1. Nathanael

        The US is going to go down.

        Greece is actually experiencing revolution, and the status quo will not survive. Golden Dawn will probably win, but it’s important to recognize that they are NOT the status quo.

        Hitler was popular because the people were fed under Hitler… until the end.

        The reason the US is going to go down is that our elites seem to have forgotten that it’s important to keep the proles fed.

        The UK? For everything they’re doing, they ARE keeping the proles fed. The UK — since Cromwell — has actually had a long history of managing to just barely escape revolution by giving enough concessions at the right point, and perhaps it will do it again.

      2. Nathanael

        I’d like to elaborate on something I said.

        Fascist parties are NOT the same as status quo “leisure class” elitist parties. Yes, the fascists generally coddle the prior elite, just as Mussolini coddled the Italian nobility and just as Hitler coddled the Junkers and the corporations.

        But fascists are qualitatively different in policy from the status-quo “leisure class” elite. While violently oppresssing minorities and dissenters, fascists offer a vision of full employment and guaranteed income for the preferred ethnic group. And they spend gobs of money on infrastructure projects — Hitler built railroads, Autobahns, subway systems, etc. etc.

        This is why fascists offer a compelling alternative when the status quo “leisure class” is starving everyone.

    2. banger

      No, the power of elites is not just perception. There is muscle behind their power. If you f–k with them they’ll hurt you whether you are some small fry or the POTUS.

      As for Mubarak that’s an unusual situation that is not necessarily what it appears to be just as the Syrian crisis is even more definitely not what it appears to be. In fact, no major political issue is reported realistically by the U.S. mainstream media.

      Power is the same as it ever was–different personalities and interests groups vie for influence and power–some get hurt others thrive. What is different today is that most power is wielded by networks of elites rather than the “big man” sort of politics that may have been the case in the past during simpler times. But, either way, it is physical force that keeps the powerful in power ultimately.

      1. Roland

        Governing power is a ratio of one part physical to many parts perceptual. Just as a bank doesn’t have cash on hand to meet any large number of depositors’ claims, a government doesn’t have enough power to answer any large number of challenges.

        If a government can meet a number of challenges, that boosts its credibility and discourages other challengers. If it fails to suppress a challenge, the government’s power loses credibility, and a “run on the bank” can ensue.

        Mubarak considered using the army to crush the revolution in Egypt, but his generals told him they wouldn’t do it. The generals themselves weren’t sure that the conscripts in the ranks, if they were pushed into a dilemma, wouldn’t join the revolution instead. Unlike in Syria, in Egypt entire units might very well have gone over to the revolution. An Egyptian civil war would have developed into a large, formal, armed conflict rather quickly.

        Mubarak, let it be said to his credit, did not want to risk an all-out civil war to save his regime, so he stepped down. Further to his credit, he remained in the country. Ask yourself how many in today’s Western elites would show a similar amount of personal courage under the same circumstances.

  3. allcoppedout

    So far they have only taken money from “people who don’t matter”. We don’t care that a prestigious US university invests in African land seized through a Mayfair hedge fund after being ‘cleared’ by burning out tenant farmers. Who cares that Argentinians have been kept poor for 60 years and more by dodgy deals between their oligarchs and British interests via loans. Now it’s a few Greeks and Cypriots. This is a very old story that ends with the question ‘who will stand up for you when they come for you’?

    This financialisation stuff has happened just as technology should render most financial services routine and money transparent. What’s the connection between this very peculiar finance and war?

    1. nonclassical

      …historically accurate TRUTH, as documented here:–Updated/dp/1567512526/ref=sr_1_2?s=books&ie=UTF8&qid=1368889521&sr=1-2&keywords=killing+hope+us+military+and+cia+interventions+since+world+war+ii

      …and which as we should be aware, is reason for “security-surveillance state”
      being implemented today, on the false basis of “terrorism”…

  4. Middle Seaman

    “Until that absurdity is addressed the problems will linger.” This statement itself is absurd. Our, and the EU’s, political system is now controlled fully and closely by the Oligarchs. It’s not only banks. It’s also health insurance companies, Pharma, oil companies and of course companies are people. Our last two presidents were elected by the oligarchs.

    The absurdity, therefore, can be only addressed by the people taking back their government. OWS started to establish the right approach, now need to continue.

    1. banger

      Agreed–the statement is absurd because there is no way the current system can be reformed and thinking it can be is naive. On the other hand the OWS style activism doesn’t work either as can be seen from the results. What does work is communities unite to oust the tyrants and that is difficult in this world governed by disinformation, incantations, stage magic and sorcery. To break the spell we must tune in, turn on and drop out–to put it another way, be aware of how we are manipulated by the 24/7 PR regime, fight for your right to party which is the essence of community building, i.e., live to celebrate life not to “work” and begin to construct a parallel structure that is based on positive vibrations not this BS sh-t eating regime based on fear.

      We live in a potential paradise in which human creativity could deal with most of our problems now (amazing ideas out there in all areas that are systematically repressed by the regime) if we could just begin to say “no” to fear and isolation and “yes” to cooperation and community. It’s up to us isn’t it? In the end if life was a party then even perverts like Jamie Dimon might join in eventually.

      1. AbyNormal

        “On the other hand the OWS style activism doesn’t work either as can be seen from the results.”

        interesting, i just completed nc link: Report: Canada could see indigenous uprising

        “A large number of poorly educated, unemployed young men – a “warrior cohort”, as Bland put it – provide fertile recruits for militant groups, the report says.

        Using a formula first developed by researchers at Oxford University, Bland argued that the “feasibility” of unrest, rather than just root causes, could determine outcomes. Most of Canada’s resource industries, including mines, dams and oil facilities, are located on land claimed by indigenous people – and attacking such facilities is easily feasible, the report said.”

        1. traveler

          The return of the saboteur. Yes, that might have a chance to work. But first the surveillance would have to be neutralized. Not sure that’s any longer possible.

          1. Nathanael

            Nope. You don’t need to neutralize it.

            Surveillance has been *democratized* — everyone can do it — and as that fully sinks in, it’s going to *completely* change the face of rebellion and of warfare. It’s already happening in Afghanistan and Somalia.

            If you can see the government troops coming 50 miles away every time, guaranteed, it becomes very hard for them to crack down even if they can also see you…. the rules of guerrilla warfare apply, and whoever has the support of the locals wins.

          2. Lambert Strether Post author

            People tend to forget that we lost the Iraq and Afghanistan wars with exactly the same armory of petroleum-driven, road-bound, heavy-weight materiel we sold all the police departments. The National Security state went nuts, totally overboard, to bulldoze a few ragged encampments during Occupy. I hate the idea of the country going the route that posse comitatus was designed to prevent. But if it does, things don’t look all that great for the powers that be.

    2. nonclassical

      ..sorry, but disaster is moving in opposite direction:

      “While the Occupy movement has forced a public discussion of extreme corporate influence on every aspect of our lives, behind closed doors corporate America is implementing a stealth strategy to formalize its rule in a truly horrifying manner. The mechanism is the Trans-Pacific Partnership. Negotiations have been conducted in extreme secrecy, so you are in good company if you have never heard of it. But the thirteenth round of negotiations between the United States and eight Pacific Rim nations will be held in San Diego in early July.

      The TPP has been cleverly misbranded as a trade agreement by its corporate boosters. As a result, since George W. Bush initiated negotiations in 2008, it has cruised along under the radar. The Obama administration initially paused the talks, ostensibly to develop a new approach compatible with candidate Obama’s pledges to replace the old NAFTA-based trade model. But by late 2009, talks restarted just where Bush had left off.

      Since then, US negotiators have proposed new rights for Big Pharma and pushed into the text aspects of the Stop Online Piracy Act, which would limit Internet freedom, despite the derailing of SOPA in Congress earlier this year thanks to public activism. In June a text of the TPP investment chapter was leaked, revealing that US negotiators are even pushing to expand NAFTA’s notorious corporate tribunals, which have been used to attack domestic public interest laws.

      Think of the TPP as a stealthy delivery mechanism for policies that could not survive public scrutiny. Indeed, only two of the twenty-six chapters of this corporate Trojan horse cover traditional trade matters. The rest embody the most florid dreams of the 1 percent—grandiose new rights and privileges for corporations and permanent constraints on government regulation. They include new investor safeguards to ease job offshoring and assert control over natural resources, and severely limit the regulation of financial services, land use, food safety, natural resources, energy, tobacco, healthcare and more.

      The stakes are extremely high, because the TPP may well be the last “trade” agreement Washington negotiates. This is because if it’s completed, the TPP would remain open for any other country to join. In May US Trade Representative Ron Kirk said he “would love nothing more” than to have China join. In June Mexico and Canada entered the process, creating a NAFTA on steroids, with most of Asia to boot.

      Countries would be obliged to conform all their domestic laws and regulations to the TPP’s rules—in effect, a corporate coup d’état. The proposed pact would limit even how governments can spend their tax dollars. Buy America and other Buy Local procurement preferences that invest in the US economy would be banned, and “sweat-free,” human rights or environmental conditions on government contracts could be challenged. If the TPP comes to fruition, its retrograde rules could be altered only if all countries agreed, regardless of domestic election outcomes or changes in public opinion. And unlike much domestic legislation, the TPP would have no expiration date.

      Failure to conform domestic laws to the rules would subject countries to lawsuits before TPP tribunals empowered to authorize trade sanctions against member countries. The leaked investment chapter also shows that the TPP would expand the parallel legal system included in NAFTA. Called Investor-State Dispute Resolution, it empowers corporations to sue governments—outside their domestic court systems—over any action the corporations believe undermines their expected future profits or rights under the pact. Three-person international tribunals of attorneys from the private sector would hear these cases. The lawyers rotate between serving as “judges”—empowered to order governments to pay corporations unlimited amounts in fines—and representing the corporations that use this system to raid government treasuries. The NAFTA version of this scheme has forced governments to pay more than $350 million to corporations after suits against toxic bans, land-use policies, forestry rules and more.

      The slight mainstream media coverage the TPP has received repeats the usual mantra: it’s a free-trade pact that will expand US exports. But trade is the least of it. The United States already has free-trade agreements that eliminated tariffs with most TPP countries, which highlights the fact that the TPP is mainly about new corporate rights, not trade. Besides, under past free-trade agreements, US export growth to partner countries is half as much as to countries with which we do not have such agreements. Since NAFTA and similar pacts went into effect, the United States has been slammed by a massive trade deficit, which has cost more than 5 million jobs and led to the loss of more than 50,000 manufacturing plants.

      How could something this extreme have gotten so far? The process has been shockingly secretive. In 2010 TPP countries agreed not to release negotiating texts until four years after a deal was done or abandoned. Even the World Trade Organization, hardly a paragon of transparency, releases draft negotiating texts. This means that although the TPP could rewrite vast swaths of domestic policy affecting every aspect of our lives, the public, press and Congress are locked out. Astoundingly, Senator Ron Wyden, chair of the Senate committee with official jurisdiction over TPP, has been denied access even to US proposals to the negotiations. But 600 corporate representatives serving as official US trade advisers have full access to TPP texts and a special role in negotiations. When challenged about the conflict with the Obama administration’s touted commitment to transparency, Trade Representative Kirk noted that after the release of the Free Trade Area of the Americas (FTAA) text in 2001, that deal could not be completed. In other words, the official in charge of the TPP says the only way to complete the deal is to keep it secret from the people who would have to live with the results.

      The goal was to complete the TPP this year. Thankfully, opposition by some countries to the most extreme corporate demands has slowed negotiations. Australia has announced it will not submit to the parallel corporate court system, and it and New Zealand have rejected a US proposal to allow pharmaceutical companies to challenge their government medicine formularies’ pricing decisions, which have managed to keep their drug costs much lower than in the United States. Every country has rejected the US proposal to extend drug patent monopolies. This text was leaked, allowing government health officials and activists in all the countries to fight back. Many countries have also rejected a US proposal that would forbid countries from using capital controls, taxes or other macro-prudential measures to limit the destructive power of financial speculators.

      However, we face a race against time—much of the TPP text has been agreed on. Will the banksters, Big Pharma, Big Oil, agribusiness, tobacco multinationals and the other usual suspects get away with this massive assault on democracy? Will the public wake up to this threat and fight back, demanding either a fair deal or no deal? The Doha Round of WTO expansion, the FTAA and other corporate attacks via “trade” agreements were successfully derailed when citizens around the world took action to hold their governments accountable. Certainly in an election year, we are well poised to turn around the TPP as well.”

      Read more:

      1. Banger

        Great presentation of the issue. This agreement has been in the works since the end of WWII and will probably come to pass unless we can drag it out. You pointed out the chief Eason for this which is a complicit mainstream media which is even more toxic than a billion Jamie Dimons. The single most important thing each of can do is to try to break the spell of the media narrative whether it’s Fox, MSNBC, NPR, CNN, Comedy Central, or the major networks and great newspapers–all of them have created lying narratives that serve the corporate neo-liberal agenda.

        Many things that are part of this agreement are already virtually in place through informal agreements, btw.

        Sadly most people in this country used to many years of doing as their told will probably do nothing particularly because the left in this country is moribund.

      2. MaroonBulldog

        “The NAFTA version of this scheme has forced governments to pay more that $350 million…” Really? $350 million? Since the inaguration of NAFTA? Now, if all of this fell on the United States government, the total version would work out to about one dollar and fifteen cents for every man, woman, and child in the country. Less than 10 cents per person per year over the life of NAFTA. The $350 million issue is not your strongest point.

      3. Nathanael

        The “formalization” of the European right-wing elite’s vision of the world, at the Congress of Vienna, was the beginning of the end for that vision.

        As Wikipedia says:
        “Although, the Congress of Vienna preserved the balance of power in Europe, it could not check the spread of revolutionary movements across the continent some 30 years later.”

        1. Nathanael

          It’s worth noting that it’s very straightforward to repudiate treaties.

          Bush repudiated one.

  5. financial matters

    In his 2004 introduction to R.T. Naylor’s book ‘Hot Money and the Politics of Debt’ I think Michael Hudson was pretty prescient..

    “”This poses a question: Are hot-money ‘centers’ merely anomalous enclaves, or are they to become truly the new centers of the global economic system?

    As matters stand, offshore tax and banking havens are not a peripheral anomaly but have been central to our epoch’s economic polarization. The fact that any multinational firm or domestic entity with an offshore office can avoid taxes (and even meaningful accountability) by use of such havens forces the following question. If these havens are permitted to survive why not simply stop taxing the wealthy and businesses outright? That is the effect of the present situation.

    The result can only be an outright collapse of the debt system. This can occur either voluntarily or through a process of default and repudiation that threatens to tear the world economy apart and ultimately to re-establish the role of national governments. At such a point the role of offshore hot-money centers probably will be part of the old skin that is shed by the emerging new set of international arrangements – ones that will be quite different in structure from the present-day meaning of ‘reform’ designed to destroy the power of governments to regulate their economic and financial, credit and debt arrangements.””

    Also I think Dan Kervick wrote a great piece..

    with some references to ‘hot offshore money’

    “”Think about how inherently absurd it is for a country to reason like this: “A bunch of rich people left the country and took a lot of the pieces of paper and bits of metal with politician’s faces on them, and won’t let us move the electrons around in their bank accounts, so we’re paralyzed.”””

  6. Paul W

    Canada has already tipped its hand. Select banks will be allowed to refinance themselves in a crisis by confiscating their deposits. Naturally the big five chartered banks who are first class members of the Country Club. The credit unions and smaller banks will not be allowed to do this.

    Several points:
    1) Canada, a longtime US puppet state, is no world leader. The reason Canada is the first to bring in legislation is because our propaganda has been the most effective at convincing the public our banks are 100% solid. Thus Canadians are the least likely to be alarmed by such legislation. Hardly anyone has even noticed what’s happened. It also helps when the CBC reports on it and refers to bank liabilities without once mentioning the word deposits. Report on the issue without informing. MSM at its best/worst. This is a G20 strategy and shall be used in all our countries eventually.

    2) As the law only applies to select banks it is clearly a strategy to wipe out smaller banks and credit unions.

    3) This is what I don’t get: if the big banks steals all its depositors money and the small banks are wiped out then, after the dust settles, who among the general populace will have money to put back into the banks? Those in the system will be broke and those out of the system obviously never trusted the banks and won’t now. What kind of a banking system will we have going forward after this? Or does upper management simply steal the deposits for themselves and run for their off shore accounts as all banks collapse?

    4) If this is the plan going forward, then how can it not be massively deflationary? Even though they claim to be fighting deflationary forces, do the elites actually want deflation? Gold and silver seem great to protect against massive inflation, however given the Cyprus model shall be imposed upon us, it may be that money under the mattress is even more golden!

    Honestly it makes little sense to me. If someone better versed on economics could explain I’d appreciate it.

    1. financial matters

      This devaluation shrinks the domestic market, leading to a further dependency and more sell-offs of public resources and government enterprises. This does risk further concentration of wealth in the global off shore centers.

      “”The problem with this financial imperative is its tendency to create a political, military, and ideological backlash that may end up rejecting the overall system.””

      Many people are on the road to serfdom.

      “”This makes criticism of financial malstructuring neither left nor right wing. It spans the political spectrum, because the entire economy is threatened by the austerity that results form financial dynamics operating unchecked – and ultimately bankrupts the banking sector as well.”” (Bubble and Beyond)

    2. Susan the other

      It’s the corporate raider model. This demolition has nothing to do with bank restructuring. It is theft by insiders. Now stealing deposits.

      Something really confusing about this article is the claim that 700 trillion represents double the existing global “capital” or maybe collateral. I thought it represented 10 times the global real value of 70 trillion. That nominal derivative values were not considered dangerous. Unless everything goes bankrupt at once. But that already happened,

    3. Nathanael

      Regarding (3), Paul: they haven’t thought it through.

      They quite simply have not thought it through. They have not thought through the consequences of their idiotic policies.

  7. Calgacus

    Meh. If there’s anything I would bet against, it would be seizures of bank deposits a la Cyprus in the USA, the UK or any monetarily sovereign state by the bad guys.

    Not because they don’t want to, but because it wouldn’t work. And is entirely unnecessary. And because it might finally wake up the marks to the fact that they are being robbed every minute of their lives by moronic parasites.

    And because a lot of those bad guys have these things called, uh, bank accounts. It would inconvenience them. So it counts a lot more than killing a few million people and impoverishing a few billion. Insolvent banks can be run forever, backed by a monetarily sovereign state. In fact, that is preferrable, as it is aids and is a consequence of looting.

    1. financial matters

      It’s interesting to consider the outcome of money continuing to flow into the system in a ‘sterile’ way without being tied to productivity. This hot money tends to concentrate anonymously in off shore centers and chases return on such things as interest rate and currency swaps. Also it pulls money out of the productive economy in the form of interest and other rents and by appreciating asset values. The polarization continues as developed countries end up cutting back on social security and heath care and this money concentrates in off shore havens. It seems that in some way labor has to re-assert itself as the true lifeblood of an economy.

    2. Susan the other

      The big rich depositors in Cyprus had enough warning to transfer their funds into other banks and out of harms way.

    3. Moneta

      One thing you have to understand is that the 1% are typically paranoid. They will end up backstabbing each other… so some will get kicked out of the game.

      1. nonclassical

        …actually, they have been Jay Goulding-hiring one half to kill the other half..

  8. Yancey Ward

    Deposits are not cash, so there is no “cash to grab”. These are not custodial accounts where the depositor pays for storage.

  9. Cynthia

    The only difference between now and the years of old, is now they can say in the open what they are doing, i.e., the Fed admits its punishing savers and manipulating interest rates, and the people are too stupid to know what the consequences are so they can do it freely and openly.

  10. brian t

    I’m no economist, but I find myself asking: if there’s going to be a debt-to-equity swap, doesn’t there need to be equity to swap? Derivatives and toxic assets hardly qualify ..! 8)

    1. nonclassical

      “derivatives and toxic assets hardly qualify”; and yet, QE3 is $80 billion FED $$$$ per month, “given” (extorted) to Wall $treet banks, to “buy” bad MBS-“Toxic assets”…

      1. Susan the other

        Does make you wonder if the real agenda is to turn derivatives into the new global currency.

    2. MaroonBulldog

      “If there’s going to be a debt-for-equity swap, doesn’t there need to be equity to swap?”

      No, not really, but there have to be valuable assets.

      I’m no economist either, but I think I can explain. Imagine a corporation with assets worth 100X, liabilities of 95X, and, therefore, by subtraction, equity of 5X. Assume lower of cost or market accounting for assets. Assume disaster strikes, and the assets have to be written down by 20%. We now have a bankrupt corporation with assets of 80% which are insufficient to cover liabilities of 95X–and of course there is no equity left. But suppose Chapter 11 is in effect and the corporation has going concern value. The court will approve a reorganization that converts the debt to equity, so now we have a “new entity” corporation with assets of 80x and equity of 80x, and no liabilities. The old equity owners have their interests wiped out, the previous creditors become equity owners, but the value of their claims are limited to whatever the assets of the corporation are worth.

      Of course, the real world is more complicated, because all liabilities are not created equal. Some creditors will lend only on condition that their claims are “secured” by “collateral,” a “lien” or legal charge on specific assets. Other creditors are unsecured. So extend the hypothetical, assume the liablities to secured creditors was 25x and liabilites to unsecured creditors as 70x. The secured creditors may wind up as unsecured creditors of the new entity with claims of 25X, if their colloteral was of high quality, say, and the unsecured creditors might wind up with equity claims of 55X against the corporate assets of 80X.

      How does this apply to banks, in Cyprus or otherwise? It’s simple–depositors are unsecured creditors. The assets in their bank accounts is simply a claim against a debt the bank owes them. They have no collateral, no security. If there is no outside deposit insurer to back them up, and their thinly capitalized bank (low equity) has to be reorganized, they are first in line to have their accounts written down.

  11. F. Beard

    A monetarily sovereign government ITSELF is the only proper provider of a risk-free storage and transaction service for its fiat. That service should be free up to normal household limits on account size and number of transactions and should make no loans (leaving that to individual account holders if they so choose) and pay no interest.

    Most people are not intentional bank creditors; they simply wish to have a safe place to store their fiat and from which they can pay their bills. But instead, it appears they are hostages to a government-enforced counterfeiting cartel, the banking system.

  12. dannyc

    Cyprus as a “dress rehearsal” for the next planned “crisis” is why it has been imperative that the crimes of 2008 through 2013 be prosecuted, throughly! Macroeconomic ideologies are out of control; they run rampant over the way real people live. We need the law more than we need Rogoff and Reinhart. Eric Holder should’ve been fired a long time ago!

  13. Trev

    Re: Lambert here: Or perhaps there as been a change in the Constitutional order such that “governments” do not and perhaps cannot govern as they once did.

    Perhaps? Can anyone still doubt it?

    “The nation state as a fundamental unit of man’s organized life has ceased to be the principal creative force: International banks and multinational corporations are acting and planning in terms that are far in advance of the political concepts of the nation-state.”

    Brzezinski, Zbigniew, Between Two Ages: America’s Role in the Technetronic Era (New York: Viking Press, 1973), p. 246.

    “The technotronic era involves the gradual appearance of a more controlled society. Such a society would be dominated by an elite, unrestrained by traditional values. Soon it will be possible to assert almost continuous surveillance over every citizen and maintain up-to-date complete files containing even the most personal information about the citizen. These files will be subject to instantaneous retrieval by the authorities. ”

    “In the technotronic society the trend would seem to be towards the aggregation of the individual support of millions of uncoordinated citizens, easily within the reach of magnetic and attractive personalities exploiting the latest communications techniques to manipulate emotions and control reason.”

    “This regionalization is in keeping with the Tri-Lateral Plan which calls for a gradual convergence of East and West, ultimately leading toward the goal of one world government. National sovereignty is no longer a viable concept.”

    1. Roland

      Some national states will still matter for a long time to come. The USA sovereign unit is currently indispensable as the “enforcer of last resort” in the globalists’ own current world order.

      But most national states will become like the countries in Europe. The dotted lines will always remain, and parliaments will still meet, but it’s not like it will actually mean anything. All the essentials of sovereign state policy, i.e. war and economics, will have been subsumed into an opaque and unaccountable global system.

      Opting out will be as impossible for countries tomorrow as leaving the Delian League was for the unfortunate “allies” of ancient Athens. Any country that tries to opt out will get hammered by disinvestment and sanctions. Any country stubborn enough to keep trying, will be called a “rogue state” and get bombed or invaded for “regime change.”

      Nuclear proliferation is the last hope for independent statehood on a scale consonant with popular access to the levers of government.

      1. Nathanael


        Most South American countries have already opted out. The disinvestment and sanctions… well, they dealt with it and it wasn’t that big a deal.

        South America is where to look for the future of governments. Is it any wonder that our media avoids talking about it at ALL?

        1. Nathanael

          (Actually, the South American countries have already dealt with bombing, being called “rogue states”, assassinations, foreign-sponsored coups, and invasions, mostly run by the US. It’s old hat for them now; it’s happened for over 150 years and they no longer consider it an existential threat, nothing to be afraid of.)

    2. Nathanael

      Brzezinski wrote in 1973. It was a good description of the then-rising world order, but that was 40 years ago.

      The world order he’s describing is in its death throes already. They may take 30 years, or it may collapse next week.

      What interests me is what comes NEXT.

      1. Nathanael

        It’s worth noting that, like many, he predicted ubiquitous government (and/or corporate) surveillance…. but did not predict ubiquitous *private*, *crowdsourced* surveillance.

        Which makes all the difference.

        1. Lambert Strether Post author

          The crowd-sourced surveillance goes through corporate cellphone towers, is stored on corporate servers, and ends up at NSA”s big data center in Utah. Just saying.

          During the Arab Spring, Mubarak shut the Internet down. That didn’t slow the activists down because they went to analog methods. However — speculating freely — it did blind US intelligence. Which is why SoS Clinton forced our client, Mubarak, to turn the Internet back on.

  14. Moneta

    The reality is that the capital markets are way too big for the size of GDP and those in control, the boomers and older, want it to get bigger because they wan their portfolios to grow so they can retire comfortably.

    Therefore, the owners of wealth in the Western world want the markets to get bigger and GDP to shrink… because they want to stop working and they don’t seem to see the conundrum.

    The reality is that either capital will shrink ( debt write-offs, market crash) or GDP will soar… inflation or boomers working?

    My guess is that it will be a mix of both.

    1. financial matters

      I agree that capital markets are way too big for GDP especially if you include the FIRE sector of real estate appreciation and derivatives. And that it’s important to euthanize the rentier class (figuratively speaking)

      A lot of capital now is fictitious capital anyway. And that is being forceably deleveraged. Since of lot of this fictitious capital is debt based this involves repudiation of debt. This is being done in a disorderly manner as there is not the political will to overcome the strong legal framework of international banking and corporations. So nations are watching their economies crumble as the elite benefit. This crumbling will eventually lead to the necessary crumbling of the FIRE sector which should allow the productive economy to resurface from under the yoke of this burden.

      This should restimulate a productive GDP. The money is available to make this transition. It just needs to focus on jobs rather than asset appreciation.

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