Bankers: a Handful of Gimme and a Mouthful of Much Obliged
- April 02, 2013
The original Cyprus bailout package caused shockwaves that reached far beyond the island itself, with its proposed levy on all individual savings. Some economists warned that this measure undermined the principle of trust that makes people want to put their money in banks in the first place. Other commentators expressed shock that the ‘troika’ could even consider taking money from individual bank accounts.
That proposal has now been shelved – for the time being – but it may be a sign of things to come, and not only in Cyprus. According to Bill Russell, co-founder of the New Zealand Green party, the New Zealand reserve bank is preparing a series of measures for managing bank failure called the Open Bank Resolution (OBR), which will involve a ‘Cypriot-style solution’ in which small depositors will be obliged to contribute some of their savings to fund future bank bailouts.
And an alarming and important piece by Ellen Brown on the Counterpunch website discusses a joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, on ‘Resolving Globally Active, Systemically Important, Financial Institutions‘ (G-SIFI) which moots the prospect of a similar ‘solution’ to a repeat of the 2008 crisis. Brown cites the following excerpt:
An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself, thus the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.
So not only are the leading financial authorities in two of the world’s largest economies considering the possibility that customers of failed banks ( banks, which these same authorities should have been regulating, were they doing their job properly), will be forced to help pay for their ‘unsecured debt’, but these ‘bailed-in creditors’ will then become shareholders in a putative ‘resolved firm’ so that they can ‘take on the corresponding risk of being shareholders in a financial institution’ – regardless of whether they want to or not.
Well thank you very much. For the time being, these scenarios are hypothetical, but in the current climate there is nothing to suggest that they will always be so. Capitalism may not be dying, but the version that we now have is clearly in serious trouble. And the fact that governments and banks are now prepared to consider taking cash from ordinary savers – something that was once thought sacrosanct – is perhaps an indication of how desperate they are to keep afloat the corrupt, discredited and inherently unstable financial system that has been built up over the last three decades.
Since 2008 this system was saved – or at least put on life support – by huge injections of government money. This process has been accompanied by the imposition of brutalist ‘austerity’ economics on the population in the name of debt reduction, in a scandalous political sleight-of-hand that may one day go down as one of the greatest con-tricks in history.
However, despite the reassurances of the governments who effectively rewarded the banks and financial institutions responsible for the crisis, there is nothing to guarantee that another disaster isn’t waiting round the corner.
And when it hits, there might not be enough cash to keep the choking, gasping patient alive. So don’t be surprised if, like the Cypriots, you wake up one day to find that some of the cash you once deposited in your local bank has been removed, not by a thief or an embezzler or a cyber-heist, but by the bank itself.
But never mind, you could also find that you have become a shareholder, taking on the burdens of ‘corresponding risk’.
Now won’t that be something to look forward to?