Sunday, March 31, 2013

The Big Banks Are Still Getting A Pass


According to a widely distributed post last week by Ellen Brown at the Web of Debt Blog, It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors, the FDIC and Bank of England have plans on the books to deal with a bank meltdown the same way Cyprus has-- seizing deposits in return for worthless bank stock. [Note: I experienced something akin to this personally. As Steve Case and Jerry Levin were looting TimeWarner, they forced executives to take partial payment in stock options. I had approximately $10 million worth. When stock options go underwater, the value doesn't gradually decrease; it disappears. $10 million is worth zero dollars in one day. You don't want to be forced into taking bank stocks to make up for your deposits and savings.]

Another taxpayer bailout is not going to happen. So who will bailout the big banks that are still taking unacceptable (and unregulated) risks in garbage like derivatives that, as we've noted before, Congress seems willing to further deregulate (thanks Annie Kuster and Jim Himes)? The FDIC-Bank of England report says the depositors will-- "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." And that seems to include even insured accounts under $250,000. Nationalizing failed banks-- as Sweden had done in similar circumstances (and quite successfully)-- was rejected by President Obama in 2009. Unless we plan to elected Bernie Sanders, Sherrod Brown or Elizabeth Warren president, I don't see anyone else on the political horizon who would entertain such a notion. Instead... Cyprus:
An FDIC confiscation of deposits to recapitalize the banks is far different from a simple tax on taxpayers to pay government expenses. The government’s debt is at least arguably the people’s debt, since the government is there to provide services for the people. But when the banks get into trouble with their derivative schemes, they are not serving depositors, who are not getting a cut of the profits. Taking depositor funds is simply theft.

What should be done is to raise FDIC insurance premiums and make the banks pay to keep their depositors whole, but premiums are already high; and the FDIC, like other government regulatory agencies, is subject to regulatory capture.  Deposit insurance has failed, and so has the private banking system that has depended on it for the trust that makes banking work.

The Cyprus haircut on depositors was called a “wealth tax” and was written off by commentators as “deserved,” because much of the money in Cypriot accounts belongs to foreign oligarchs, tax dodgers and money launderers. But if that template is applied in the US, it will be a tax on the poor and middle class. Wealthy Americans don’t keep most of their money in bank accounts.  They keep it in the stock market, in real estate, in over-the-counter derivatives, in gold and silver, and so forth.

Are you safe, then, if your money is in gold and silver? Apparently not-- if it’s stored in a safety deposit box in the bank.  Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it’s a matter of “national security,” which a major bank crisis no doubt will be.
And speaking of Bernie Sanders... he's offering a bill that would lead to breaking up banks that are literally too big to fail. The situation hasn't gotten any better since the TARP bailout; it's gotten worse, much worse. "U.S. banks have become so big that the six largest financial institutions in this country (J.P. Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley) today have assets of nearly $9.6 trillion, a figure equal to about two-thirds of the nation's gross domestic product. These six financial institutions issue more than two-thirds of all credit cards, over half of all mortgages, control 95 percent of all derivatives held in financial institutions and hold more than 40 percent of all bank deposits in the United States." What Sanders' legislation proposes to do about this mess is to give Wall Street shill and Treasury Secretary Jacob Lew "90 days to compile a list of commercial banks, investment banks, hedge funds and insurance companies that he deems too big to fail. The affected financial institutions would include 'any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance.' Within one year after the legislation became law, the Treasury Department would be required to break up those banks, insurance companies and other financial institutions." Bernie:
If an institution is too big to fail, it is too big to exist. No single financial institution should be so large that its failure would cause catastrophic risk to millions of American jobs or to our nation's economic wellbeing. No single financial institution should have holdings so extensive that its failure could send the world economy into crisis. We need to break up these institutions because they have done of the tremendous damage they have done to our economy.
I'm really happy that Hillary Clinton, Kay Hagan, Mark Warner, Rob Portman, John Tester, and Mark Begich now agree that it's none of the government's business if two adults of the same gender want to marry each other. Hip, hip hooray! You can't be considered a "progressive" unless you feel that way-- but feeling that way doesn't make you a progressive. Backing economic justice plans like Bernie's does. Hillary Clinton for president? Do we never learn?

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