Saturday 27 February 2016
While the majority of people go about their business, falsely relying upon their government to protect them, the exact opposite is occurring. Governments are the main protectors of the elite’s world-wide banking system that has been legally enabled to steal any money you have on deposit in any bank, and we defy anyone to name a single bank that is not already insolvent.
The following article led to the Ellen Brown article following. This condensed version explains things quite simply: [Source is at end of quoted portion]:
It has been well-documented by others that the Cyprus-style bank “bail-in” scheme that is presently being prepared right across the G20, is really all about derivatives — those “financial weapons of mass destruction” that were at the heart of the GFC in 2008.
To briefly summarise, a critical aspect of what the bail-in scheme is intended to do, is to prioritise the payment of banks’ derivatives obligations to each other, ahead of depositors. In other words, it is about stealing the public’s bank deposits, to pay out at least some of the big banks’ Death Star-massive — and toxic — derivatives positions.
Yves Smith of Naked Capitalism explains:
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 depositories to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.
Note carefully that last point about the “collateral” for derivatives exposures, which means that derivatives counterparties are deemed “secured” creditors, making them “senior” to unsecured “lenders”.
In layman’s terms, what all that means is that when banks take out a derivatives bet, the bank on the other side of that bet (the “counterparty”) requires some collateral to be put up. Thanks to deregulation of the financial system over the past couple of decades, banks have — unbeknown to the public — been putting up their customers deposits as collateral for their derivatives bets.
Now, because collateral (or “security”) has been put up for those derivatives bets (or “positions”), this means that those bets are considered “secured”. And in a bank “resolution” (ie, a “bail-in”), the secured creditor has seniority (ie, priority) over “unsecured” creditors (ie, depositors).
The big banks are all counterparties to each other on their derivatives bets. They have pledged “collateral” — often, your deposits — as “security” on those derivatives bets. When a bank fails, and is “resolved” under the new, FSB-directed bail-in regime, payouts on those “secured” derivatives bets get priority over paying you back your deposit.
Full article from Austrailia: http://barnabyisright.com/2013/08/08/australian-banks-demand-protection-from-derivatives-losses-under-bailin-plan/
Derivatives Managed by Mega-Banks Threaten Your Bank Account. All Depositors, Secured and Unsecured, May Be at Risk
[We take exception to the last part of that title. “May be at risk” should read ARE at risk.]
Winner Takes All: The Super-priority Status of Derivatives
[We have edited [shortened] the following article by Ellen Brown and also emboldened certain sentences for emphasis. The full version can be read at http://www.globalresearch.ca/derivatives-managed-by-mega-banks-threaten-your-bank-account-all-depositors-secured-and-unsecured-may-be-at-risk/5330700]
Cyprus-style confiscation of depositor funds has been called the “new normal.” Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk. Derivatives have “super-priority” status in bankruptcy, and Dodd Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.
Shock waves went around the world when the IMF, the EU, and the ECB not only approved but mandated the confiscation of depositor funds to “bail in” two bankrupt banks in Cyprus.
The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the US, UK, EU, Canada, New Zealand, and Australia, as detailed in my earlier articles here and here. “Too big to fail” now trumps all. Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks.
Why Derivatives Threaten Your Bank Account
The big risk behind all this is the massive $230 trillion derivatives boondoggle managed by US banks. Derivatives are sold as a kind of insurance for managing profits and risk; but as Satyajit Das points out in Extreme Money, they actually increase risk to the system as a whole.
In the US after the Glass-Steagall Act was implemented in 1933, a bank could not gamble with depositor funds for its own account; but in 1999, that barrier was removed. Recent congressional investigations have revealed that in the biggest derivative banks, JPMorgan and Bank of America, massive commingling has occurred between their depository arms and their unregulated and highly vulnerable derivatives arms. Under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.
It used to be that the government would backstop the FDIC if it ran out of money. But section 716 of the Dodd Frank Act now precludes the payment of further taxpayer funds to bail out a bank from a bad derivatives gamble. As summarized in a letter from Americans for Financial Reform quoted by Yves Smith:
Section 716 bans taxpayer bailouts of a broad range of derivatives dealing and speculative derivatives activities. Section 716 does not in any way limit the swaps activities which banks or other financial institutions may engage in. It simply prohibits public support for such activities.
All Depositors, Secured and Unsecured, May Be at Risk
The bail-in policy for the US and UK is set forth in a document put out jointly by the Federal Deposit Insurance Corporation (FDIC) and the Bank of England (BOE) in December 2012, titled Resolving Globally Active, Systemically Important, Financial Institutions.
In an April 4th article in Financial Sense, John Butler points out that the directive does not explicitly refer to “depositors.” It refers only to “unsecured creditors.” But the effective meaning of the term, says Butler, is belied by the fact that the FDIC has been put on the job. The FDIC has direct responsibility only for depositors, not for the bondholders who are wholesale non-depositor sources of bank credit. Butler comments:
Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors of failing institutions are to be arbitrarily, de-facto subordinated to interbank claims, when in fact they are legally senior to those claims! [This is precisely how the elites work, through purposeful deception.]
. . . [C]onsider the brutal, unjust irony of the entire proposal. Remember, its stated purpose is to solve the problem revealed in 2008, namely the existence of insolvent TBTF institutions that were “highly leveraged and complex, with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.” Yet what is being proposed is a framework sacrificing depositors in order to maintain precisely this complex, opaque, leverage-laden financial edifice!
If you believe that what has happened recently in Cyprus is unlikely to happen elsewhere, think again. Economic policy officials in the US, UK and other countries are preparing for it. Remember, someone has to pay. Will it be you? If you are a depositor, the answer is yes.
The FDIC was set up to ensure the safety of deposits. Now it, it seems, its function will be the confiscation of deposits to save Wall Street. In the only mention of “depositors” in the FDIC-BOE directive as it pertains to US policy, paragraph 47 says that “the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.” But protected with what? As with MF Global, the pot will already have been gambled away. From whom will the bank get it back? Not the derivatives claimants, who are first in line to be paid; not the taxpayers, since Congress has sealed the vault; not the FDIC insurance fund, which has a paltry $25 billion in it. As long as the derivatives counterparties have super-priority status, the claims of all other parties are in jeopardy.
That could mean not just the “unsecured creditors” but the “secured creditors,” including state and local governments. Local governments keep a significant portion of their revenues in Wall Street banks because smaller local banks lack the capacity to handle their complex business. In the US, banks taking deposits of public funds are required to pledge collateral against any funds exceeding the deposit insurance limit of $250,000. But derivative claims are also secured with collateral, and they have super-priority over all other claimants, including other secured creditors. The vault may be empty by the time local government officials get to the teller’s window. Main Street will again have been plundered by Wall Street.
Super-priority Status for Derivatives Increases Rather than Decreases Risk
In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences, David Skeel agrees. He calls the Dodd-Frank policy approach “corporatism” – a partnership between government and corporations. Congress has made no attempt in the legislation to reduce the size of the big banks or to undermine the implicit subsidy provided by the knowledge that they will be bailed out in the event of trouble.
Undergirding this approach is what Skeel calls “the Lehman myth,” which blames the 2008 banking collapse on the decision to allow Lehman Brothers to fail. Skeel counters that the Lehman bankruptcy was actually orderly, and the derivatives were unwound relatively quickly. Rather than preventing the Lehman collapse, the bankruptcy exemption for derivatives may have helped precipitate it. When the bank appeared to be on shaky ground, the derivatives players all rushed to put in their claims, in a run on the collateral before it ran out. Skeel says the problem could be resolved by eliminating the derivatives exemption from the stay of proceedings that a bankruptcy court applies to other contracts to prevent this sort of run.
[What’s in your bank? It is theirs, not yours]