(Photo: mccmicb / Flickr)I think this is a huge story, and it takes very little to tell it. These are the basics on deposit confiscation and how we got there:
■ You know that the EU-forced solution to the failure of banks in Cyprus is to require the Cypriot government to confiscate (“tax”) deposits. That news is everywhere you look; it’s not in dispute or doubt. The latest has depositor losses at 60% due to the bailout-related “one-time” tax.
■ “Confiscating deposits” is exactly the opposite of “insuring deposits,” which is what is required in the EU, and alsooffered by the FDIC (as the ads say, “your deposits are insured up to $250,000″).
■ The next monster taxpayer-financed bank bailout could spark a revolution. Find me anyone who isn’t a friend of Big Money who doesn’t hate the Bush-Obama bailout. Dem, Republican, Libertarian, frog-on-a-rock — no one liked the bailout.
■ This takes a taxpayer-financed bailout off the table as the next way to make bankers whole when they stumble.
■ But bankers are going to stumble soon, and big. The derivatives market is huge, and they’re aggressively reversing the tepid Dodd-Frank derivatives regulations as we speak. Of course, friends-of-big-banks in Congress are helping (that’s you, Ann Kuster).
■ So the next big bailout (which is coming) will have to come from somewhere else.
Guess where that “somewhere else” is? Deposits.
Nations have already started to institute rules that enable deposit confiscation
There’s an international move by national governments to write regulations that permit deposit confiscation in the case of bank failure. This is exactly the Cyprus model, and if the news stories are correct, confiscating deposits was being considered or enabled prior to Cyprus bank-failures.
New Zealand (h/t a very alert reader last week; my emphasis and paragraphing):
National [Government] planning Cyprus-style solution for 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.
Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.
“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman. “The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.
“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat. …”
Here’s what the New Zealand government says about “Open Bank Resolution” (my emphasis):
What is an OBR?…