There is a golden rule in politics: Dont believe anything until it has
been officially denied.
Three or four moths ago I issued a warning to my clients that bank
deposits were now fair game, and I quoted the sources. One thing was
missing: an official denial. In fact there was quite the opposite. All
spokesmen agreed that depositors' money was fair game. Finally, the
denial we have all been waiting for has come, from the Portuguese
Perhaps those with local bank savings should now wake up, and wake up
fast. In case you guys didn't know it, there has already been a "very
clear and definitive statement of the rules", (Gaspar obviously was
asleep at the time) and that statement says your savings will be taken.
Here is what I wrote for my clients.
Over the past five or six years it has been obvious that savers are
expected to pay for debtors. That's the way the world has gone this
century. If you have been prudent, the government will come to you to
pay for those who have not been prudent.
It's happened time and time again. All the banks that have been rescued
have been recapitalised using tax payers' money. In Cyprus the entire
banking system has been bailed out by a scheme where one half of the
bailout funds has been quite outrageously stolen (there really isn't
any other word for it) by the government. (Those of you who subscribe
to my blogs will have been warned of this catastrophe in January before
it happened.) There is a new word to describe this: bail-in.
The officials back in Brussels have made it quite clear that the Cyprus
operation is a template for any further bailouts. This means that
anyone who has savings in a bank should remove those funds right now.
They are at risk of being stolen.
If anyone thinks it could not happen anywhere else, think again. The EU
functionaries have said that it will, and there is a proposal to write
it into EU law. Even Canada's latest budget document (Pages 144-5)
states alarmingly "The Government proposes to implement a ‘bail-in’
regime for systemically important banks. This regime will be designed
to ensure that, in the unlikely event that a systemically important
bank depletes its capital, the bank can be recapitalized and returned
to viability through the very rapid conversion of certain bank
liabilities into regulatory capital. This will reduce risks for
What this means in simple English is that if you have savings in the
bank the government can just take as much of those savings as it likes,
and use those savings to recapitalise the bank. Press secretary
Kathleen Perchaluk said Ottawa’s move is in line with recent
Were you aware of those agreements? I dont remember them being front
page news. Those countries which are financially up the creek are most
at risk. I no longer have a Portuguese bank account. Those who have
should make sure there is no more than a couple of thousand euros in it
at any one time, or you may wake up one morning to some nasty news.
That warning also goes for just about any country in the eurozone. I
would particularly worry about Spain and Italy, and I dont think France
and Luxembourg will be far behind in the panic stakes.
Some of you may think you are at least safe in the UK. If so let
me refer you to a document the Bank of England produced last December:
The Bank issued a paper called Resolving Globally Active, Systemically
Important, Financial Institutions. It says explicitly that depositors
are unsecured creditors, and that regulators should have the authority
to turn deposits of a “troubled” bank into stock: “The new equity would
become capital in one or more newly formed operating entities.”
In case you cant translate that let me put it in simple language. The
government can take your savings and give them to the bank, and you
cant do a thing about it. I mean, for heaven's sake, the cheek of that
language! Depositors are to be regarded as unsecured creditors. In
short, your deposits are not secure at all. In fact you are being told
in no uncertain terms that your deposits are at risk of being raided.
How about "turn deposits into stock"? That means, take your money and
give it to the bank. This is outrageous. It is also now public policy
in the UK, North America, and the EU. It is law in the USA and Canada,
and it is proposed to make it into law in the UK and EU later this year.
Oh yes, and did I mention that the document adds that securities lodged
with the bank either for safe keeping or as security for a loan could
be sold immediately to raise cash. That would mean that your loan would
now be recalled if it was only secured by assets held by the bank.
It's possible that you may eventually be compensated if you are covered
by a deposit guarantee scheme, but that would take time. In the
meanwhile your assets would be frozen pending an accountants'
resolution of the bank failure, and you may end up with your pension
scheme in ruins.
I take it you all read Federal Reserve governor Jeremy Stein's latest
statement: "I have little doubt that private investors will in fact
bear the losses--even if this leads to an outcome that is messier and
more costly to society than we would ideally like. Dodd-Frank is very
clear in saying that the Federal Reserve and other regulators cannot
use their emergency authorities to bail out an individual failing
institution. And as a member of the Board, I am committed to following
both the letter and the spirit of the law."
You will find copious references to the Dodd-Frank Act in the Bank of
England statement. (You can read it all online, just search on the
title quoted above.) What I am driving at here is that this is a global
response. All the major governments are acting in concert on this.
You guys out there need to wake up and get your funds out of the bank.
Go into overdraft mode, and make sure you never have more than the bare
minimum in any European bank (or indeed any other bank for that matter)
at any time, or you could find yourself suddenly a darn sight poorer
than you thought.
This is insane policy because the banks need deposits. What this is
going to do is to deplete those deposits even more, and worsen the
current situation. In short, banks are going to get even shakier. This
economic disaster is unfolding in alarming ways, and things are likely
to get considerably worse from here on.
We are also getting closer to capital controls. Those controls are
already in place in Cyprus. In Greece, several companies have closed
their bank accounts in that country, and have been bussing in money on
fridays to pay the wages, just in case something nasty happens and they
are caught with a large amount of wages sitting in the bank and cant
get the money out to pay staff.
My friends, this is getting way out of hand. You need to get capital
out of Europe before the capital controls come in, and you need to
empty those bank accounts. It is time for those of you who do like to
keep cash somewhere to start looking at other financial centres such as
Singapore. I am not able to advise you in this respect, but if you have
a lot of cash, you need to get it into something solid. That's a
difficult one, but with lending failing in all directions the two
things that will suffer most are businesses, and real estate.
Alternatively, get into a banking system that is not systemically
terminal (if you can find one). You have been warned.
To look at a visual representation of various debts, go to http://demonocracy.info/
and click on the various boxes. It's like entering a weird fairy story.