The savings heist

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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.

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Comments

  1. Yesterday I viewed a docco on Bilderberg.

    http://www.youtube.com/watch?v=3rrGyAbMCXE

    Been a while since I visited the subject and decided on impulse to have a look. It’s a shame that only the so called “fringe” element tends to dig around in this area. Of course no MSM elements will touch Bilderberg – they are under explicit instructions and threats not to do so.

    “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.”

    The forces present and represented by proxy at Bilderberg rule our lives , our futures and exert dominant control over Govts. That much is abundantly clear. I don’t see them coming together so much to plot, rather to be informed and align thinking , form alliances. All oars pulling in the same direction maximising their awesome powers? Endeavoring to chart courses for the future- specifically their future. The general population, us Billions, really are herds of sheeple to this ultra elite crowd. We are the economy from which they derive so much.

    We can all rest assured that when it comes to Bilderberger risks ,liabilities and futures, Govt’s (ie taxpayers) play a huge role in their risk management strategies. Given their most influential of positions I shouldn’t expect that to change. Making depositors or Govt’s pay is of no difference to them in that regard. The game that matters is THE GAME and keeping it all rolling along.

    After all, when the Game is rigged so that you win no matter what, order and systemic integrity become the prime concerns. Those same basic concerns align with all ours so we can continue to expect much to be done in their name. Including depositor haircuts, bail ins etc.

    • MichealMEMBER

      Yes and the larger the global population to play with, the riskier decisions they can take. People=fodder in the big game of ‘get as much as you can, with as little notice as possible’

    • I’m pretty sure you could make your fortune selling tin foil hats.

      Sell enough of those and eventually you too could also join to find out the real truth.

    • The poor protect the rich in this world. Always have. And should have you any confusion as to which category you actually belong to, then ask your Personal Assistant how many hotel rooms you have had to take at the Steigenberger Frankfurter Hof to accommodate your security detail.

      Which is why it is puzzling GSM, given your apparent concerns about a cabal of uber-rich and powerful, that you expend so much energy in attacking a political movement that has its basis in concern for the welfare of those who do the bidding of the rich, in providing safeguards for the most vulnerable in society.

      And that you argue so explicitly and vehemently for the removal of the mechanisms which enable people to take collective action against the most powerful: the ability of Unions to collectively bargain, the right to strike, and the legislation enacted by Government that enable this.

      If you truly believe that we are all just corks bobbing in the ocean in the wake of the Bilderberg fleet, then you should be throwing your support behind the Katter Australia Party or the Greens, not the Libs.

      • spleen,

        My “concerns” are more to do with understanding and gaining knowledge of how this complex world really does operate. I have no illusions of my minute place in it or my capacity to effect things on a larger scale than my family and some small parts of my community. But I can benefit from gaining understanding if only to avoid pitfalls. I don’t believe my interests lie in backing some neanderthal group whose only aim is to take my fees to expend on self gratification and their own job security. I don’t have “concerns” about the uber rich other than to learn their channels of thinking and planning. For these people move this world. And while you despise them, it is the “uber rich” that create more wealth for the general population than any Union or Leftist Govt has ever accomplished or likely to. Don’t however interpret that for my backing for them to run rampant.

        You delude yourself believing that Labor / Unions care a whit about people. I know you push that line constantly but it is delusional and I think you know this, but the Leftist facade must endure. Unions these days do not protect anyone save themselves. Unions now destroy far more than they save. Unions do not want to see widespread prosperity because that will reduce their membership as they become more irrelevant, which they already know they are.

        So please don’t lecture me on what I should or should not do or support. Unlike mindless Leftist automatons I’m happy to go with my own choices and decisions not needing rank envy and faux indignation to guide me.

        I hope that solves your puzzle.

      • Well that didn’t take long. Smells like the announcers booth at 2GB here again. You don’t believe your interests lie in backing some neanderthal group whose only aim is to take your money to expend on their self gratification and their own job security ? What, you mean every protected business cartel in this country ? Onya GSM. Go get ’em !

      • Op8,

        Snap!

        Let’s see. If you really do think you are effecting anything with your tiresome constant venting on usury ,then do enlighten us all.

      • spleen,

        I know, it sux to be a PS/Unionist right now, walking around with a big target on your back. Time to man up and earn a living?

      • You know, you’re allowed to cancel those Courier Mail subscriptions, GSM. Probably best if you do, champ. They do tend to pray upon the highly suggestible. Murdoch’s at the head table at those Bilderberg dinners, donchaknow ?

      • Frankly Spleen that is a lot of cobblers. GSM is correct re the Union movement. In Austrlai you can hardly place them amongst the less powerful and their main interest is in promoting the interests of those particular unions who can hold the community to ransom. The destruction of small enterprises and their workers goes on with the full co-operation and support of the unions. The destrruction of our farmers has gone one for decades with the full support and co-operation of the unions. Ordinary people everywhere have felt their wrath from time to time.

        Macrobusiness is a strange place. Whatever Leftist views you hold in here can pass without question or personal attack. The expression of any view which doesn’t fully support the Left cabal brings down uncontrolled demonising of the writer.
        What a bog!

        And if someone doesn’t figure out how one can get rid of stupid ads like that bloody Dettol lying rubbish I really will go nuts.
        Ads are fine. They go with the site. But ads that cover part of what you need and have no way of being turned off really are a pain in the arse!

      • @ gsm – actually Op8 has been a great catalyst for some of us looking to reassess the norms of debt and usury and the social norms associated with the debt structure we now have. I can confirm that this is gaining traction amongst my friends/peers – people are starting to look more closely as who all this debt benefits.

        i note that the party you are just an apologist for was actually responsible for tricking the australian population into a massive private debt hell and this same party sat back and let the Greenspan put f..k over the country and suck up the false growth of increasing private debt as some kind of political win.

        in most cases gsm you are the bore.

      • @ flawse – i really doubt the general unions have strength beyond their role in social balance these days. The unions that do have a destructive strength are the white-collar government unions – these protected species are playing their part in the epic destruction of productive economy that’s for sure.

      • drsmithyMEMBER

        Macrobusiness is a strange place. Whatever Leftist views you hold in here can pass without question or personal attack. The expression of any view which doesn’t fully support the Left cabal brings down uncontrolled demonising of the writer.
        What a bog!

        People with soundly reasoned opinions backed up by evidence or a solidly moral argument aren’t “demonised”.

        GSM’s extreme partisanship and parroting of far- to right-wing rhetoric with little basis in fact or reality is what gets him “demonised”.

        It is somewhat ironic – but mostly just hypocritical – that people who constantly blame the ills of the world on the “Left cabal” and “Unions” carry on about being “demonised”. The political Right’s rampant paranoia, interminable persecution complex and constant need to see dissent utterly crushed without compromise does it no favours.

      • ” And while you despise them, it is the “uber rich” that create more wealth for the general population…”

        I really hope you are not naive enough to believe that.

    • So looks to me that the banks/financial institutions/governments are devaluing gold to make people bail out of gold and deposit their wealth in the banks so that the banks/governments can then steal your money legitimately……time to buy gold again at least if it gets stolen its not by the banks or governments.

  2. “..with debt the risk lies with the recipient of the funds..”

    This goes to the core of my beef with the global monetary system, and the charging of usury (any interest) on loans of “money”. “Money” (ie, debt) is, in the cold light of day, completely costless, and riskless, for our modern-day financial gods (banks) to create ex nihilo. Tap, tap, click, click, VOILA! Sign here, debt slave. We now own your time. Why? Because we just sold you “our” time (ergo, the bogus “time-value” of “money” sophistry) … at compound usury.

    So, why should the recipient of those electronic digits be landed with “risk”, when the issuer of the digits (espec. now, in the TBTF era of epic moral hazard) has no risk? Indeed, what are LMI’s and CDO’s and the raft of other “financial products”, if not further proof that the issuers of digits-at-usury have been accorded the status of Great White Sharks of the world’s financial oceans, having absolutely zero risk to themselves personally as a result of their predatory base actions?

    “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.”

    Yes, we are. The G20 all agreed to this template, back in 2010 –

    http://barnabyisright.com/2013/04/01/g20-governments-all-agreed-to-cyprus-style-theft-of-bank-deposits-in-2010/

    “The only solution is to stop it, by setting rules that take it away”

    I mostly agree, but don’t believe it will happen. And if it did, the new “rules” would inevitably favour the same people who set the rules now.

    IMHO, the only hope is to undermine and (over time) replace the existing monetary system, by creating new, better ones, at the grassroots level. If you can’t beat the Beast, make it redundant, by walking away.

  3. Somewhat related tale with a British twist

    Mervyn King Mission Accomplished, Bankster’s Saved, Debt Monetized Via QE Stealth Inflation Theft

    http://www.marketoracle.co.uk/Article40476.html

    Note Nadeem Walyat doesn’t take account of the effect of tax on the impact of saver. IMO this is a major mistake in modern economic thinking.

  4. “What this means is that the money confiscated from bank accounts would be used to meet the failed bank’s financial obligations.”

    What an ironic concept. The bank deposits ARE the bank’s financial obligations. This is just a less than honest way of saying the bank will not be meeting its financial obligations which include back accounts.

    • They are talking about their obligations to other financial elites, the depositors don’t count.

    • Chriso,
      Somewhere, I read that depositors have now sneakily been reclassified as Creditors Not Depositors, which helps them out because we will be at the bottom of the pile of creditors in any wind up!

      Sorry I can’t find the link…

  5. chriso
    The whole damned system is a fairy story…what’s one more ‘obfuscation’

    obfuscation – what used to be known as a dirty deceitful lie from some dishonest scumbag.

    Somehow now it’s all acceptable!

    • flawse,

      “Somehow now it’s all acceptable!”

      I think that actually, it’s all become essential.

      • A classic from Doug Noland last week when commenting on Bernanke’s comment re Bubbles

        “keep in mind that as Bubbles become more systemic they actually become less conspicuous.”

  6. The middle class are just sleepwalking to their doom. This is the new debt feudalism – we don’t need savers anymore.

    When Cyprus stole their savers money they just applied the rules of the new feudal aristocrats. The US middle class thought they were all so so clever and ended up gifting generations of saved capital to the financial aristocrats in the last boom.

    The RBA have just set Australia on this path – but seriously who cares any more, the middle can have what they deserve.

    • “we don’t need savers anymore.”

      Yes! That seems to be the fundamental concept in modern economics. Sorry to say it also seems to be the governing concept around MB.(except for a few of us way out bods)

      • The saving tricks of the oppressed will soon become the saving methods of the middle.

  7. Ronin8317MEMBER

    Europe and the US cannot afford to let the ‘house of card’ fall, since the banking system is essential to maintain the trade deficit. By paying for imported goods with ‘funny paper’, the Western world is able to enjoy a standard of living much higher than what their economy can produce. This has created an entire generation of people who mistakenly believe that ‘funny paper’ is “wealth”. In a sense, it’s the greatest scam ever.

    The root of the problem is the global trade imbalance, and how it’s being paid for. Countries like China and Japan built an economy that must export to survive, allowing Western countries to live way beyond their means. This is where main stream economics have failed. All of the classical ‘Free Trade’ model uses goods as exchanges, and totally ignore the effect when goods are bought with debt.

    In the case of Cyprus, the correct decision is to follow Iceland’s example and default. Unfortunately, Cyprus needs to remain a part of the EU to prevent being taken over by Turkey, therefore they simply have to obey whatever EU decides. Confiscating the deposits is still better than being overrun by the Turkish Arm Forces. More than economics is at stake.

    • You are absolutely correct Ronin. The whole low (read negative RAT) interest rate financial BS environment has been built on cheap goods from Asia. The mountains of created money and credit did not result in inflation but in CAD’s. Effectively the more money you printed the lower your inflation became.

      “All of the classical ‘Free Trade’ model uses goods as exchanges, and totally ignore the effect when goods are bought with debt.”

      Yes! We trumpet GDP increases as growth even if it is just the result of debt. Nuts!

  8. Most of the current problems go away if we let banks and sovereign nations go bankrupt instead of providing unlimited bailouts.

    Yes there will be unemployment and misery as the system adjusts but it will be temporary as the businesses that survive now have more capital and labour available to employ in their businesses.

    Bailouts just sustain the inefficiencies and distort risk. They remove the punishment or disincentive and the problems compound further destabilising the system until the inevitable crash.

    • totally agree, we should just let them all fail.

      And really, what the hell happens if these big banks fail? Why are they too big to fail? At worst there will be a rapid, perhaps disorderly, redistribution of capital, it’s not like the capital will disappear. Some will win, others will lose in such a scenario, not unlike any other. God forbid that some citizens/consumers/depositors would be disadvantaged and lose their money, obviously we must avoid that scenario at all costs, even if it means taking their money so they lose it.. o wait..

      But I do wonder about leverage and it’s role in the whole mess. If the banks are leveraged, what about the govts? They issue bonds etc, and seem to be leveraged as well. To my uneducated thinking it seems there’s leverage on every level of the monetary system, and I think that’s the problem – the sums never actually add.

      But you can’t outlaw derivatives and leverage itself, that’s like outlawing the square root of -1, the system of rules (mathematics) needs it to work.

      Probably best to just print some money until the sums meet then. Do you think $85 billion per month will cut it?