[P2P-F] Fwd: Bank Bail-Ins -

Michel Bauwens michel at p2pfoundation.net
Wed Dec 30 16:21:10 CET 2015

---------- Forwarded message ----------
From: Chris Quigley <cmqesquire at gmail.com>
Date: Wed, Dec 30, 2015 at 6:48 PM
Subject: Fwd: Bank Bail-Ins -
To: Michel Bauwens <michel at p2pfoundation.net>


For your attention.

Kind regards,


*A Crisis Worse than ISIS? Bank Bail-Ins Begin*Politics
<http://www.marketoracle.co.uk/Topic9.html> / Banking Stocks
<http://www.marketoracle.co.uk/News-catid-137.html>Dec 29, 2015 - 06:12 PM

By: Ellen_Brown <http://www.marketoracle.co.uk/UserInfo-Ellen_Brown.html>

[image: Politics] <http://www.marketoracle.co.uk/Topic9.html>

At the end of November, an Italian pensioner hanged himself
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

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
<http://www.larouchepub.com/other/2013/4022dodd_frank_us_bailin.html> 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
and unsecured, insured and uninsured.

The over-the-counter (OTC) derivative market
<http://www.fimarkets.com/pagesen/OTC_derivatives_CCP.php> (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
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
<https://www.fdic.gov/news/news/speeches/spsep0215.html> 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
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

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 developed her research skills as an attorney practicing civil
litigation in Los Angeles. In Web of Debt, her latest book, she turns those
skills to an analysis of the Federal Reserve and “the money trust.” She
shows how this private cartel has usurped the power to create money from
the people themselves, and how we the people can get it back. Her earlier
books focused on the pharmaceutical cartel that gets its power from “the
money trust.” Her eleven books include Forbidden Medicine, Nature’s
Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate
Health (co-authored with Dr. Richard Hansen). Her websites are
www.webofdebt.com and www.ellenbrown.com and
http://PublicBankingInstitute.org <http://publicbankinginstitute.org/>.

© Copyright Ellen Brown 2015

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