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Monday, March 18, 2013

Bank deposit insurance doesn't cover big new taxes

The bank crisis in Cyprus is a cautionary tale of major proportions. The government is apparently going to bail out the banksters with new "taxes" suddenly imposed on depositors' accounts. A run on the banks over there now seems likely. And honestly, with bank accounts paying virtually no interest, the mattress looks pretty good by comparison.

In any event, read the script, America -- this could be a "pilot project" for some "public-private partnerships" headed our way soon.

Comments (18)

I share your concern about the implications; but that's no tax, that's out-and-out confiscation. We used to call it stealing. You're next, Italy... can't wait to hear Beppe Grillo's manic takedown of the EU leadership.

My family vacationed on Cyprus when I was a kid and I thought it was a fantastic country. For one thing, we had to move from one part of the island to another in a military convoy and that made quite an impression on me as a youngster. So it had the ancient ruins combined with a modern Greek-Turkish standoff that really charged up the atmosphere.

As usual our business channel dingbats are looking at this current situation with no apparent awareness that we are seeing the derivatives drama playing out. The desperate measures, the mind-numbing debts...all part of those wonderful financial instruments. Here's a little glimpse of the insanity: JP Morgan's derivative exposure is now greater than the GDP of all the countries in the entire world combined. I think it's unconscionable for our TV people to berate Greece, etc.. for not having it together when Goldman Sachs - under Henry Paulson - helped put them in trouble. Key phrase in the Greek deals: "Fictional exchange rates."

The scary thing about governments seizing private savings is that bank runs can happen very quickly. We've been looking at these numbers for years, knowing that it would take a miracle to avoid a collapse. I've seen predictions that the US financial system will implode by April...next month.

Let's hope to God they're wrong.

Too late - we have the option of deficit spending. So congress passes CRs and the treasury issues more debt which is great for banks.

Meanwhile banks invest in great things like the stock market which may tank and wipe out the value of those funds, but leave behind the debt we sold to the rest of the world. Meanwhile, for all of this capitol injection by the geniuses at the Fed average guy has nothing to show for it.

I mean each $1T puts us $3500 per capita in debt and we're about $16T total in the hole.

I can tell you I don't know anyone since Clinton (last balanced budget) who feels about $50K richer due to the deficit.

".. put the risk where it belongs—on wealthier, presumably more sophisticated, investors who have the capacity to assess the soundness of different banks."

One of the problems we discovered in the 2008 meltdown is that money managers for investment and pension funds, people whose business it was to seek out sound, safe investments, invested in AAA assets that were falsely rated by rating firms. There is no way for anyone except an insider like Paulson who is actually manipulating the financial schemes to know what is going on. The system was stacked against the investor and we don't know if anything has fundamentally changed. Scary times.

At this point, spreading cash between multiple FDIC insured banks is easier than investing in the elusive "sure thing" or buying gold and hiding it in the attic. Plus, wealthy individuals might know a lot about the business that made them their wealth (being a lawyer or inventor for example) and still not know a thing about the finer points of financial markets today. Gone are the days when the nonprofessional can rebuild the engine of their newer car or save and invest money in the financial markets. When even the pros are fooled, what chance does anyone have?

Much of the Cyprus money is from Russia. Putin is now objecting to the "tax"...This strikes me as interesting as I would guess much of that money has been laundered a few times before coming to rest in bank accounts in Cyprus where banking laws have been lax to say the least.

Sad that the failure (or near failure) of these banks forces the capital structure to be turned upon its head. Used to be that equity holders were wiped out, then bond holders, THEN depositors. Now we just cut straight to the depositors and steal their money - because wiping out equity and bond holders would 'blow up the world'.

Hell, our attorney general Eric 'place' Holder admits he can't / won't enforce EXISTING laws:

"But I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large."


And for some humor...

Here's a nice English chap summing up the situation in Cyprus rather nicely:


People need to recognize this for the trial balloon it is. Banks are still levered at 25 or 30 -1.

In countries like Spain, when banks fail the depositors get shares of that bank for their confiscated funds.

Our FDIC is woefully underfunded, but at any one time a bank only has 250-300k on hand so they could not possibly pay every demand and that is what is being relied on.
Make your own decision on how this plays out.


Another way of looking at this is a transfer of wealth. The playing cards are tossed in the air and every time they come down the wealthiest players of the world are holding more of them. Another way of looking at austerity measures is just the forced sale of a nation's assets at bargain basement prices. Did you see the sale of those 6 incredible islands in Greece to the Emir of Qatar? The previous owner said,

"The islands have been in my family for over 150 years but we are not rich enough to be able to keep such valuable properties any longer."

Why? Because of soaring real estate taxes caused by the economic crisis. Now, the circle would be complete if some Bilderberg group elite had bought them, but that is also happening around the world. This crisis is a transfer of wealth where huge chunks of what formerly would be known as the citizens' property is marked way down and unloaded to provide bargains for the people who created the crisis in the first place.

And it's not just saddling America with foreign debt. Our Federal Reserve - a century old this year - is vacuuming wealth from the unborn children of the future. Of course, it's not really federal - it's owned by banks here and abroad, and America is sitting there like Greek Islands in the Mediterranean sun, waiting to be snapped up. All the wealthy need is a trigger for things to go bad. So why not make a bunch of bets with derivatives? That would be good for the world, right?

Oh, and along the way the derivatives orgy has increased the financial exposure if things go wrong - if the triggers go off and these insane risky bets go bad - to 700 trillion dollars. 700 trillion. Anyone got that lying around in their sofa cushions?

There's no way this will end that is not ugly.

This could be the answer to the City of Portland's problems.

For the most part the U.S. is in a far better position because it has its own money printing press at a time when there is global glut of labor, the primary driver of most inflation cycles. Ben Bernake, federal reserve chief, is more powerful than president Obama. Fiscal stimulus didn't do much of anything, but really easy money stabilized the banking sector.

But the way the U.S has a climbing debt to GDP ratio, there's growing risk we could end up like Greece or Cyprus. It's too hard to figure out whether the wheels can't come off our economy such that "humpty dumpty" can't be put back together.

As a result, I think a wise individual looks at putting a fraction of their portfolio of assets into real and productive assets. One financial expert, Marc Faber, talks of accumulating gold bullion deposited in Switzerland (a foreign rich person's traditional safe haven.)

The Oregonian claims that the problem with Portland is: "Too many liberal arts degrees." The Salem legislature thinks the answer is: "tax marijuana sales."

This is how excessive borrowing ends up. And there is much more to come.

Either devalue the currency, or take property from citizens... or both.

It's a good look at OUR future but a lesson that is unlikely to be learned.

If a better position is:
25 Billion in FDIC insurance with 9,283 Billion in deposits, well then we can all sleep at night. That's less than 1%. Well maybe that is better than some EU banks so true in that sense.

What will be relied on is that banks cannot possibly supply the funds needed for any run, much less insure deposits for 250k as advertized. Capital controls would kick in and all those millions of bullets and armored vehicles that Homeland Security is buying would then make sense.

Bernank can print but unless you've been asleep, the nominal gains in the market to date correlate with the devalued buying power of our $.

Jack have you started making videos?



This is spreading fast. From New Zealand:

"The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today."

And as many have pointed out, there is no safe haven if there is no longer a rule-of-law. The only solution is to force the banks to go out of business and put those that made this mess, go to jail.

Since that ain't going to happen, a world-wide general strike is the only option left to get things back in order.

Bernank can print but unless you've been asleep, the nominal gains in the market to date correlate with the devalued buying power of our $.

Yep. You can print all the money you want, it won't create a penny's worth of wealth. What it will allow you to do is steal wealth from the rest of the economy. The first guy to spend that money gets full value. Then as the additional money gets into the economy, prices rise until John Q. Citizen finds that his money won't go as far as it used to. All you've done is rob everyone for the benefit of the government and its cronies.

it won't create a penny's worth of wealth.

Tell that to the Boomers who paid off their Ford-era mortgages with Clinton/Bush dollars. It's pretty much the only way we're going to be able to get out of our current mess. Let the Me Generation and Gen X-ers pay off their underwater mortgages with inflated dollars and watch the economy really take off.

Well, that's my point. Those Clinton/Bush dollars didn't create any new wealth. They merely transferred wealth from one set of pockets to another. The wealth that the boomers you mention enjoyed was stolen from other people, even if those other people didn't know it. "Inflation" (or "quantitative easing") are just other words for stealing the value of other peoples' money incrementally over time.

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