Picture these scenarios:
1. You go to buy groceries and when you use your credit or debit card the
transaction is denied despite the fact you have money in your account.
2. You are a public official, such as a school business
administrator, county treasurer, municipal finance manager, pension fund
administrator, or anyone who has responsibility for protecting public money.
You try to access the money and the transaction is denied.
Under either scenario, you investigate why you
cannot access money you know is in your account and you find out that the bank
has failed and has been closed until further notice by the authorities. You also
discover that the government will be confiscating part of your savings in order
to "stabilize" the bank.
So you think that "cannot happen here"? You think
you are safe because the FDIC "protects" your money? You placed your money into one of the big banks
and believe it is safe because it has large vaults and is insured by the
government. Perhaps you placed the public monies you are charged with into a
large bank because they are properly "collateralized" and therefore you believe
these funds are safe. If you truly believe any these previous statements, you
really need to read the rest of this article because your money is at serious
risk.
So you think your money is safe? Let's examine why
that assumption could cost you all or part of your savings. Would you be
surprised to learn that money sitting in everyday peoples' savings accounts in
Cyprus was confiscated in order to "stabilize" the banks? If you are surprised
by this news, hopefully this article will provide you with an incentive to do
some research. This article is filled with links to more information, and I
encourage you to follow them. If you are aware of this bank confiscation, do
not make the mistake of believing that it is an isolated event that "cannot
happen here".
by Michael Fleshman
In a nutshell, what actually happened in Cyprus was
that the banks were overleveraged and the size of the liabilities of the banks
exceeded the Gross Domestic Product (GDP) of the entire country of Cyprus. Given
the fact that the "bail outs" of the large banks in 2008 were so politically unpopular,
the European "troika"
imposed a "bail in", where customers with savings accounts were to have some of
their savings seized (read: stolen) in order to stabilize the banks. The losses
to some accounts were as high as 60%. The banks were closed for 12 days, so
people had
no access to their money and once the banks reopened, they had only limited
access to their money in order to protect the banks.
Was this plan by the "troika", just a one-time event
or was this something more? It turns out that this eventuality had actually
been planned
in advance in 2012 at the G20 Financial Stability Board in Basel
Switzerland where the US FDIC and the Bank of England created a joint paper
outlining a confiscation scheme. Under the FDIC/BOE
joint paper, accounts of $250,000 or less could be seized by the failing
bank and converted to stock equity as part of a "bail in" scheme. The stock
would of course be essentially worthless because the bank has already failed.
There is also a plan to confiscate savings in New
Zealand if necessary to save the banks. Canada
also has a confiscation plan in the wings should their banks falter. The European
Union has just reached an agreement where shareholders and depositors will
be tapped to "bail in" any bank in trouble.
So you still think that this "cannot happen here"
because the FDIC will protect your money? Consider that our largest banks have derivative
contracts with a notional value of more than $700 trillion (think $700,000
BILLION!). The entire world GDP is only $70 trillion, therefore the liabilities
of the big banks could not be covered by the entire GDP of the United States.
Does this sound similar to what happened in Cyprus? Does this sound similar to
the gambler at the beginning of this article? What is very important to keep in
mind is that Cyprus is a small country and that much larger outside forces came
in to "stabilize" the banks. If one (or more) of the large U.S. banks experiences
a derivative
failure, there is not enough money on the planet to "stabilize" them.
These derivatives
are really nothing more than "bets"
placed by the banks, and when (not if) these "bets" start going bad, the banks
will be on the hook for their value. You need to know that these derivative
"bets" have been given super-priority
status in case of a bank bankruptcy. What this means is that the holders of
these derivative contracts will have first priority for payment and that you either as an individual or government
entity will be placed at the back of line - as a bank creditor should a large
bank fail. This means that you will probably get little or nothing back. Most people do not understand that once you
give a bank your money, the money legally is no longer yours. Under the law,
you are an unsecured
creditor to the bank and are treated as such in any bankruptcy proceeding. As
an individual or as a public official, if you have money in one of the big
banks, you have essentially given your money to that gambler and now you are a
creditor to the gambler.
This sort of loss has already happened with the MF
Global collapse. While this was a futures trading company and not a bank,
the blueprint for confiscations was tested here and with the Sentinel
case the legal
system upheld the customer losses. These trading accounts were supposed to
be "segregated" accounts that belonged to the account holders, not MF Global. As
an analogy, think of a "segregated" account as a safe deposit box at a bank,
the contents belong to you, not the bank. Yet in the MF Global collapse, in
this analogy it essentially gambled with the assets in the customers' safe
deposit boxes, and the legal system placed the creditors of the bank above the
safe deposit box holders.
Still think the FDIC will protect the derivative and
account holders? JP Morgan Chase has
$1.1 trillion ($1,100 Billion!) in deposits
and Bank of America also has over $1 trillion ($1000 Billion!). Again, remember
that gambler, JP
Morgan Chase has about $70 TRILLION in bets out there, but is holding only
about $1 Trillion in deposits and another Trillion in assets. It has made bets
with a value approximately 35 times all the money it has access to. Again, this
is YOUR money they are betting with, not their money. Bank of America also has about 30 times its
assets in derivative bets. Citigroup and Wells Fargo each have over $900
billion each in deposits and also have many times their assets in derivative
bets. Once these bets start going bad, there is no way the banks can cover
them. The FDIC has only $33
billion available to insure deposits. That means that once any one of these
banks fails, the FDIC has less than 3% of the money needed to cover the
depositors. If any one of these big banks fails, these banks are so interconnected
that it is also likely to bring down the other large banks. In fact both Bank
of America and JP Morgan Chase have moved
their riskiest derivatives from their uninsured trading houses to the FDIC insured
subsidiaries, which are their retail banks, putting the funds in those accounts
at a significantly increased risk. Once
even one of these biggest banks experiences a derivative meltdown, there is not
enough money in the FDIC or probably even the U.S. Treasury to cover the
losses. Still think Cyprus cannot happen to you?
If you are a public official who has responsibility
for protecting public money, you probably have that money deposited into an
account with one of the largest banks. Do you still believe that money is safe?
Are you doing your fiduciary duty to
protect that money in the public interest? So as a government official in
charge of finances, what are your options?
One option is to start a public bank such as
the Bank of North Dakota. First public banks do not gamble with derivatives and
the Bank of North Dakota thrived
during the crisis of 2008. Not only will you get the safety of the money for
which you have responsibility for, but other advantages to this approach
include: the ability to provide interest
free or low interest loans for public infrastructure projects, the ability to
create jobs, generate revenue, and build up the local community. This article clearly
explains some of the huge advantages of financing your projects using a public
bank.
Consider this - if you buy a home for $100,000, by
the time you have paid the mortgage in full, the total cost will have been
close to $300,000. Consider the absurdity of paying those who build the home
and provide the raw materials $100,000, and paying the financiers $200,000 for
money that was not even theirs. This makes little sense. The same principle applies
if a state, county, or municipality wants to build a road, school, bridge, or
other infrastructure. They need to go to Wall Street for financing at high
interest rates. However they could form their own bank and finance the project
at zero or near zero interest. The
projects would cost less than half and the finance costs would not be siphoned
out of the community, impoverishing it, and ending up on Wall Street or in Cayman
Island tax shelters. The finance costs would stay in the community.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
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