Winner Takes All: The Super-Priority Status Of Derivatives [View article]
Very interesting Randyjb! Could you explain this further? Do you have a cite or reference for their being able to convert to equity automatically? Thanks!
"Given the very limited capital positions of these mega banks, it seems very likely that a large amount of depositor monies will be rapidly converted to equity in the new surviving entity, thus automatically bypassing any FDIC guarantees or protections and would immediately cease being "deposits" and thus no longer fall under the FDIC guarantee."
Winner Takes All: The Super-Priority Status Of Derivatives [View article]
And this is from Jim Sinclair today --
Basel Committee on Banking Supervision Report and Recommendations of the Cross-border Bank Resolution Group Click here to read the full report...
This is the policy that the central banks are following. Check out the list of central banks consulted on the formulation of this - last page. The Fed is represented, so it should not have come as a surprise to Mr B. or was it the tilt of the cards that provoked the "angry" reaction?
Underlining is mine in the below quote.
Recommendation 10
National authorities should adopt crisis management and resolution strategies that reduce moral hazard by minimising public expenditures. Losses should be allocated among shareholders and other creditors, where possible; and private sector resolutions rather than public ownership should be facilitated. Where temporary public ownership is necessary, authorities should seek to return assets to private ownership and management as soon as possible. At the time of public intervention, national authorities should seek to develop public understanding about the amount of fiscal support that may be necessary, estimates of the time horizon for intervention, risk sharing arrangements and the possible losses borne by the taxpayers.
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
The real problem is the capital requirement, again imposed not from within but without, by the Bank for International Settlements. The BIS says the bank has to have 10% capital. The bank doesn't have it. But it has lots of deposits. So it says fine, we'll turn some deposits into capital, by turning the "loan" into equity. When we get back on our feet, maybe we'll turn it back into deposits. Or not. They seem to be playing it by ear, seeing what they can get away with.
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
It's not a taking because they already own our money. We're just creditors. If they gamble and lose it, we get in line with the other creditors. If there's a big derivatives bust, and JPM or BOA is using their depositor money as collateral, the money is gone. They aren't "taking" it by not giving back; they just don't have it. All they can do is reduce the liability side of the balance sheet by converting debt to equity. It makes sense from that standpoint. If the bail-in plan works, the bank will remain a going concern and the stock might be worth something some day. It all turns on those holdings in the 1850s that say a bank deposit is not a bailment.
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
I'm under a deadline and unfortunately don't have time to read all these comments, but I will add a few more points. Para. 47 of the FDIC-BOE directive does say that "In order to achieve this [prevent bank runs], the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected." That refers to all deposits, not guaranteed deposits, and we already know all deposits won't be protected because the FDIC has taken the uninsured deposits before. As Mish points out, the ECB expressly guaranteed deposits before they went back on their word in Cyprus; and the Dutch finance minister has said that Cyprus will be the model in the future. The Canadian budget has bail in provisions, and NZ has very clear provisions for depositor haircuts across the board (no "insured" class). The G20 Financial Stability Board has set guidelines for bail in provisions everywhere, and Basel III has them baked in. Bernanke has said it won't happen here, UNLESS "depositors panic", which of course they will. The FDIC has $25 billion to protect outstanding deposits of $9 trillion. It can't possibly cover them, and Dodd Frank expressly says the government will not be responsible for a bank derivatives failure. JPM and BOA could each have derivatives crises of $1 trillion or so. It won't be a matter of "taking" the deposits. The deposits will be gone, gambled away and unrecoverable. The government won't pay, the FDIC can't pay. The only alternative is to reduce the bank's liabilities by converting "debt" to "equity" in the form of bank stock. If the FDIC-BOE meant to exclude deposits under $250K, why didn't it come out up front and make that clear?
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
But that's the whole point. The BOA or JPM will have lost the depositors' money. That's what they're gambling with. It's gone. Now the question is how to get it back. Congress has said it won't pay; FDIC is broke (Sheila Bair said so, and that was before any trillion dollar blowup); Bernanke has said "it won't happen here" unless "depositors panic," which of course they will. Most of the banks' creditors are insured depositors. You can't get blood out of a stone. You'll have to liquidate the deposits. We're just watching the "template."
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
The G20 Financial Stability Board has put out a directive for open resolution (bail in) policies; now we're seeing the first of them. The groundwork is being laid. The FDIC took the deposits of uninsured depositors in the Washington Mutual bankruptcy, so they're empowered to do it. Dodd-Frank gives them even more power. NZ's directive openly says they will give a haircut to depositors. The Canadian budget has a provision for bank bail-ins. The troika attempted to take the deposits of insured and uninsured in Cyprus and only backed down when they got 40% of the uninsured deposits. It was a shot across the bow. The Dutch finance minister has said it was the template for future bank failures. Cyprus is tiny in the scheme of things. When JPM or BOA has a massive derivatives crisis, they will go after our deposits; they won't have any choice. And they will point to Cyprus etc. as precedent.
A Safe And A Shotgun, Or Public Sector Banks? The Battle Of Cyprus [View article]
If Louisiana's banks went bankrupt, the Federal Reserve would bail them out at the Fed discount window with money created on a computer screen. The ECB has refused to do that. The ECB is keeping a tight leash on the EZ countries, their banks and their governments rather than extending the cheap credit they need, cheap credit that would readily be extended in places like China or even the U.S. that have sovereignty over their money. What allows a fractional reserve system to work is that it is backstopped by the central bank, which has the power to create extra reserves as needed. The ECB isn't playing that role.
A Safe And A Shotgun, Or Public Sector Banks? The Battle Of Cyprus [View article]
And what is M2? Cash in circulation plus the deposits of individual depositors. Where do deposits come from? Bank loans -- at interest. More money is always owed back than was created in the loan, so more loans must be taken out to cover the interest. It is a pyramid scheme, which must collapse in the end. The only solutions are either to get more non-debt money in the system, i.e. money issued directly by the government, or to nationalize the banks, so that the interest returns to the government and is pumped into the economy in lieu of taxes. Those are the only sustainable possibilities that I see, unless you want to go back to simple non-interest-bearing barter, but that would eliminate the credit on which modern economies depend.
A Safe And A Shotgun, Or Public Sector Banks? The Battle Of Cyprus [View article]
There would be no "credit" at all, and that's the problem. Businesses everywhere run on credit; you need an expandable credit system to run a thriving economy. The euro system itself is a fixed-money, non-expandable system, and that's why it has failed.
How the Fed Could Fix The Economy -- And Why It Hasn't [View article]
As Henry Ford said, he had to pay his workers enough to buy his cars. And they ALL drove Fords. My dad worked there and the whole parking lot was Fords.
Winner Takes All: The Super-Priority Status Of Derivatives [View article]
"Given the very limited capital positions of these mega banks, it seems very likely that a large amount of depositor monies will be rapidly converted to equity in the new surviving entity, thus automatically bypassing any FDIC guarantees or protections and would immediately cease being "deposits" and thus no longer fall under the FDIC guarantee."
Winner Takes All: The Super-Priority Status Of Derivatives [View article]
Basel Committee on Banking Supervision
Report and Recommendations of the Cross-border Bank Resolution Group
Click here to read the full report...
This is the policy that the central banks are following. Check out the list of central banks consulted on the formulation of this - last page. The Fed is represented, so it should not have come as a surprise to Mr B. or was it the tilt of the cards that provoked the "angry" reaction?
Underlining is mine in the below quote.
Recommendation 10
National authorities should adopt crisis management and resolution strategies that reduce moral hazard by minimising public expenditures. Losses should be allocated among shareholders and other creditors, where possible; and private sector resolutions rather than public ownership should be facilitated. Where temporary public ownership is necessary, authorities should seek to return assets to private ownership and management as soon as possible. At the time of public intervention, national authorities should seek to develop public understanding about the amount of fiscal support that may be necessary, estimates of the time horizon for intervention, risk sharing arrangements and the possible losses borne by the taxpayers.
Winner Takes All: The Super-Priority Status Of Derivatives [View article]
http://bit.ly/ZCxQOR
Winner Takes All: The Super-Priority Status Of Derivatives [View article]
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
http://bit.ly/14Ck3sm
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
achieve this [prevent bank runs], the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected." That refers to all deposits, not guaranteed deposits, and we already know all deposits won't be protected because the FDIC has taken the uninsured deposits before. As Mish points out, the ECB expressly guaranteed deposits before they went back on their word in Cyprus; and the Dutch finance minister has said that Cyprus will be the model in the future. The Canadian budget has bail in provisions, and NZ has very clear provisions for depositor haircuts across the board (no "insured" class). The G20 Financial Stability Board has set guidelines for bail in provisions everywhere, and Basel III has them baked in. Bernanke has said it won't happen here, UNLESS "depositors panic", which of course they will. The FDIC has $25 billion to protect outstanding deposits of $9 trillion. It can't possibly cover them, and Dodd Frank expressly says the government will not be responsible for a bank derivatives failure. JPM and BOA could each have derivatives crises of $1 trillion or so. It won't be a matter of "taking" the deposits. The deposits will be gone, gambled away and unrecoverable. The government won't pay, the FDIC can't pay. The only alternative is to reduce the bank's liabilities by converting "debt" to "equity" in the form of bank stock. If the FDIC-BOE meant to exclude deposits under $250K, why didn't it come out up front and make that clear?
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
A Safe And A Shotgun, Or Public Sector Banks? The Battle Of Cyprus [View article]
A Safe And A Shotgun, Or Public Sector Banks? The Battle Of Cyprus [View article]
A Safe And A Shotgun, Or Public Sector Banks? The Battle Of Cyprus [View article]
A Safe And A Shotgun, Or Public Sector Banks? The Battle Of Cyprus [View article]
Leonidas at Thermopolae to the Persians, who ordered the vastly outnumbered Greeks to surrender their weapons.
How the Fed Could Fix The Economy -- And Why It Hasn't [View article]