Confiscation Scheme Planned for US
Ellen Brown. Author, Web of Debt; President, Public Banking Institute Original Link GET UPDATES FROM Ellen Brown .. It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors Posted: 04/03/2013 11:11 am …
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By Matthias Chang Global Research, April 24, 2013 Future Fastforward Region: Europe, USA Theme: Global Economy I challenge anyone to prove me wrong that confiscation of bank deposits is legalized daylight robbery Bank depositors in …
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Ellen Brown.
Author, Web of Debt; President, Public Banking Institute
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It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors
Posted: 04/03/2013 11:11 am
JPMorgan Derivatives , Bank Nationalization , Cyprus Bailout , Deposit Confiscation , Fdic , Financial Stability Board , Business News.
Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few eurozone troika officials scrambling to salvage their balance sheets. A joint paper by the U.S. Federal Deposit Insurance Corporation (FDIC) and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds. New Zealand has a similar directive, discussed earlier here.
Few depositors realize that legally, the bank owns the depositor's funds as soon as they are put in the bank. Our money becomes the bank's, and we become unsecured creditors holding IOUs. (See here and here.) But until now, the bank has been obligated to pay the money back as cash on demand. Under the FDIC-BOE plan, our IOUs will be converted into "bank equity." The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.
Reading the Fine Print
The 15-page FDIC-BOE document is called "Resolving Globally Active, Systemically Important, Financial Institutions." It begins by explaining that since the 2008 banking crisis, it has become clear that some other way besides taxpayer bailouts are needed to maintain "financial stability." Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors present this alternative:
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. [Emphasis added.]
No exception is indicated for "insured deposits" in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a "resolution process," defined elsewhere as a plan that "would be triggered in the event of the failure of an insurer and would facilitate [the failed bank's] resolution in a controlled manner, avoiding systemic disruption and use of public funds." The only mention of "insured deposits"is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.
An Imminent Risk
If our IOUs are converted to bank stock, they will no longer be subject to insurance protection but will be "at risk" and vulnerable to being wiped out, just as the Lehman Brothers shareholders were in 2008. That this dire scenario could actually materialize was underscored by Yves Smith in a March 19 post titled When You Weren't Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives. She writes:
In the U.S., depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren't even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders. [Emphasis added.]
One might wonder why the posting of collateral by a derivative counterparty, at some percentage of full exposure, makes the creditor "secured," while the depositor who posted collateral at 100 cents on the dollar is "unsecured." But moving on — Smith writes:
Lehman had only two itty bitty banking subsidiaries, and to my knowledge, was not gathering retail deposits. But as readers may recall, Bank of America moved most of its derivatives from its Merrill Lynch operation [to] its depositary in late 2011.
Its "depositary" is the arm of the bank that takes deposits. At B of A, that means lots and lots of deposits. The deposits are now subject to being wiped out by a major derivatives loss. How bad could that be? Smith quotes Bloomberg:
… Bank of America's holding company… held almost $75 trillion of derivatives at the end of June…
That compares with JPMorgan's deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm's $79 trillion of notional derivatives, the OCC data show.
$75 trillion and $79 trillion in derivatives! These two mega-banks alone hold more in derivatives each than the entire global GDP (at $70 trillion).
Smith goes on:
… Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs… Lehman failed over a weekend after JP Morgan grabbed collateral.
But it's even worse than that. During the Savings & Loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.
Perhaps, but Congress has already been burned and is liable to balk a second time. Hence the need for the FDIC-BOE resolution. When it is implemented, the FDIC will no longer need to protect depositor funds; it can just confiscate them.
Note that an FDIC confiscation of deposits to recapitalize the banks is far different from a simple tax on taxpayers to pay government expenses. The government's debt is at least arguably the people's debt, since the government is there to provide services for the people. But when the banks get into trouble with their derivative schemes, they are not serving depositors, who are not getting a cut of the profits; and by no stretch of the imagination are the depositors liable for the losses. Taking depositor funds is simply theft. What should be done is to raise FDIC insurance premiums and make the banks pay to keep their depositors whole, but premiums are already high. The FDIC is a government agency, but like other regulatory agencies it is subject to regulatory capture. Deposit insurance has failed, and so has the private banking system that has depended on it for the trust that makes banking work.
Note too that imposing losses on depositors is not a "wealth tax" but is a tax on the poor, since wealthy people don't keep most of their money in bank accounts. They keep it in the stock market, in real estate, in over-the-counter derivatives, in gold and silver, and so forth.
Are you safe, then, if your money is in gold and silver? Apparently not — if it's stored in a safety deposit box in the bank. Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it's a matter of "national security," which a major bank crisis no doubt will be.
The Swedish Alternative: Nationalize the Banks
Another alternative was considered by President Obama in 2009 but was rejected: nationalize failed banks. In a February 2009 article titled "Are Uninsured Bank Depositors in Danger?," Felix Salmon discussed a newsletter by Asia-based investment strategist Christopher Wood, in which Wood wrote:
It is… amazing that Obama does not understand the political appeal of the nationalization option… [D]espite this latest setback nationalization of the banks is coming sooner or later because the realities of the situation will demand it. The result will be shareholders wiped out and bondholders forced to take debt-for-equity swaps, if not hopefully depositors.
On whether depositors could be forced to become equity holders, Salmon commented:
It's worth remembering that depositors are unsecured creditors of any bank; usually, indeed, they're by far the largest class of unsecured creditors.
President Obama acknowledged that bank nationalization had worked in Sweden, and that the course pursued by the U.S. Fed had not worked in Japan, which wound up instead in a "lost decade." But Obama opted for the Japanese approach because, according to Ed Harrison, "Americans will not tolerate nationalization."
That was four years ago. When Americans realize that the alternative is to have their ready cash transformed into "bank stock" of questionable marketability, moving failed mega-banks into the public sector may start to have more appeal.
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Bank Nationalization, Business News., Cyprus Bailout, Deposit Confiscation, Fdic, Financial Stability Board, JPMorgan Derivatives
By admin in Taxes
government, obsolete, revenue, tax, taxes
government, plunder, steal, taxes, thief
By Matthias Chang
Future Fastforward
Region: Europe, USA
Theme: Global Economy
I challenge anyone to prove me wrong that confiscation of bank deposits is legalized daylight robbery
Bank depositors in the UK and USA may think that their bank deposits would not be confiscated as they are insured and no government would dare embark on such a drastic action to bail out insolvent banks.
Before I explain why confiscation of bank deposits in the UK and US is a certainty and absolutely legal, I need all readers of this article to do the following:
Ask your local police, sheriffs, lawyers, judges the following questions:
1) If I place my money with a lawyer as a stake-holder and he uses the money without my consent, has the lawyer committed a crime?
2) If I store a bushel of wheat or cotton in a warehouse and the owner of the warehouse sold my wheat/cotton without my consent or authority, has the warehouse owner committed a crime?
3) If I place monies with my broker (stock or commodity) and the broker uses my monies for other purposes and or contrary to my instructions, has the broker committed a crime?
I am confident that the answer to the above questions is a Yes!
However, for the purposes of this article, I would like to first highlight the situation of the deposit / storage of wheat with a warehouse owner in relation to the deposit of money / storage with a banker.
First, you will notice that all wheat is the same i.e. the wheat in one bushel is no different from the wheat in another bushel. Likewise with cotton, it is indistinguishable. The deposit of a bushel of wheat with the warehouse owner in law constitutes a bailment. Ownership of the bushel of wheat remains with you and there is no transfer of ownership at all to the warehouse owner.
And as stated above, if the owner sells the bushel of wheat without your consent or authority, he has committed a crime as well as having committed a civil wrong (a tort) of conversion – converting your property to his own use and he can be sued.
Let me use another analogy. If a cashier in a supermarket removes $100 from the till on Friday to have a frolic on Saturday, he has committed theft, even though he may replace the $100 on Monday without the knowledge of the owner / manager of the supermarket. The $100 the cashier stole on Friday is also indistinguishable from the $100 he put back in the till on Monday. In both situations – the wheat in the warehouse and the $100 dollar bill in the till, which have been unlawfully misappropriated would constitute a crime.
Keep this principle and issue at the back of your mind.
Now we shall proceed with the money that you have deposited with your banker.
I am sure that most of you have little or no knowledge about banking, specifically fractional reserve banking.
Since you were a little kid, your parents have encouraged you to save some money to instil in you the good habit of money management.
And when you grew up and got married, you in turn instilled the same discipline in your children. Your faith in the integrity of the bank is almost absolute. Your money in the bank would earn an interest income.
And when you want your money back, all you needed to do is to withdraw the money together with the accumulated interest. Never for a moment did you think that you had transferred ownership of your money to the bank. Your belief was grounded in like manner as the owner of the bushel of wheat stored in the warehouse.
However, this belief is and has always been a lie. You were led to believe this lie because of savvy advertisements by the banks and government assurances that your money is safe and is protected by deposit insurance.
But, the insurance does not cover all the monies that you have deposited in the bank, but to a limited amount e.g. $250,000 in the US by the Federal Deposit Insurance Corporation (FDIC), Germany €100,000, UK £85,000 etc.
But, unlike the owner of the bushel of wheat who has deposited the wheat with the warehouse owner, your ownership of the monies that you have deposited with the bank is transferred to the bank and all you have is the right to demand its repayment. And, if the bank fails to repay your monies (e.g. $100), your only remedy is to sue the bank and if the bank is insolvent you get nothing.
You may recover some of your money if your deposit is covered by an insurance scheme as referred to earlier but in a fixed amount. But, there is a catch here. Most insurance schemes whether backed by the government or not do not have sufficient monies to cover all the deposits in the banking system.
So, in the worst case scenario – a systemic collapse, there is no way for you to get your money back.
In fact, and as illustrated in the Cyprus banking fiasco, the authorities went to the extent of confiscating your deposits to pay the banks' creditors. When that happened, ordinary citizens and financial analysts cried out that such confiscation was daylight robbery. But, is it?
Surprise, surprise!
It will come as a shock to all of you to know that such daylight robbery is perfectly legal and this has been so for hundreds of years.
The reason is that unlike the owner of the bushel of wheat whose ownership of the wheat WAS NEVER TRANSFERRED to the warehouse owner when the same was deposited, the moment you deposited your money with the bank, the ownership is transferred to the bank.
Your status is that of A CREDITOR TO THE BANK and the BANK IS IN LAW A DEBTOR to you. You are deemed to have "lent" your money to the bank for the bank to apply to its banking business (even to gamble in the biggest casino in the world – the global derivatives casino).
You have become a creditor, AN UNSECURED CREDITOR. Therefore, by law, in the insolvency of a bank, you as an unsecured creditor stand last in the queue of creditors to be paid out of any funds and or assets which the bank has to pay its creditors. The secured creditors are always first in line to be paid. It is only after secured creditors have been paid and there are still some funds left (usually, not much, more often zilch!) that unsecured creditors are paid and the sums pro-rated among all the unsecured creditors.
This is the truth, the whole truth and nothing but the truth.
The law has been in existence for hundreds of years and was established in England by the House of Lords in the case Foley v Hill in 1848.
When a customer deposits money with his banker, the relationship that arises is one of creditor and debtor, with the banker liable to repay the money deposited when demanded by the customer. Once money has been paid to the banker, it belongs to the banker and he is free to use the money for his own purpose.
I will now quote the relevant portion of the judgment of the House of Lords handed down by Lord Cottenham, the Lord Chancellor. He stated thus:
"Money when paid into a bank, ceases altogether to be the money of the principal… it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it.
The money paid into the banker's, is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker's money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains himself,…
The money placed in the custody of the banker is, to all intent and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable TO THE PRINCIPAL IF HE PUTS IT INTO JEOPARDY, IF HE ENGAGES IN A HAZARDOUS SPECULATION; he is not bound to keep it or deal with it as the property of the principal, but he is of course answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands." (quoted in UK Law Essays, Relationship Between A Banker And Customer,That Of A Creditor/Debtor, emphasis added,)
Holding that the relationship between a banker and his customer was one of debtor and creditor and not one of trusteeship, Lord Brougham said:
"This trade of a banker is to receive money, and use it as if it were his own, he becoming debtor to the person who has lent or deposited with him the money to use as his own, and for which money he is accountable as a debtor. I cannot at all confound the situation of a banker with that of a trustee, and conclude that the banker is a debtor with a fiduciary character."
In plain simple English – bankers cannot be prosecuted for breach of trust, because it owes no fiduciary duty to the depositor / customer, as he is deemed to be using his own money to speculate etc. There is absolutely no criminal liability.
The trillion dollar question is, Why has no one in the Justice Department or other government agencies mentioned this legal principle?
The reason why no one dare speak this legal truth is because there would be a run on the banks when all the Joe Six-Packs wise up to the fact that their deposits with the bankers CONSTITUTE IN LAW A LOAN TO THE BANK and the bank can do whatever it likes even to indulge in hazardous speculation such as gambling in the global derivative casino.
The Joe Six-Packs always consider the bank the creditor even when he deposits money in the bank. No depositor ever considers himself as the creditor!
Yes, Eric Holder, the US Attorney-General is right when he said that bankers cannot be prosecuted for the losses suffered by the bank. This is because a banker cannot be prosecuted for losing his "own money" as stated by the House of Lords. This is because when money is deposited with the bank, that money belongs to the banker.
The reason that if a banker is prosecuted it would collapse the entire banking system is a big lie.
The US Attorney-General could not and would not state the legal principle because it would cause a run on the banks when people discover that their monies are not safe with bankers as they can in law use the monies deposited as their own even to speculate.
What is worrisome is that your right to be repaid arises only when you demand payment.
Obviously, when you demand payment, the bank must pay you. But, if you demand payment after the bank has collapsed and is insolvent, it is too late. Your entitlement to be repaid is that of a lonely unsecured creditor and only if there are funds left after liquidation to be paid out to all the unsecured creditors and the remaining funds to be pro-rated. You would be lucky to get ten cents on the dollar.
So, when the Bank of England, the FED and the BIS issued the guidelines which became the template for the Cyprus "bail-in" (which was endorsed by the G-20 Cannes Summit in 2011), it was merely a circuitous way of stating the legal position without arousing the wrath of the people, as they well knew that if the truth was out, there would be a revolution and blood on the streets. It is therefore not surprising that the global central bankers came out with this nonsensical advisory:
"The objective of an effective resolution regime is to make feasible the resolution of financial institutions without severe systemic disruption and without exposing taxpayers to losses, while protecting vital economic functions through mechanisms which make it possible for shareholders and unsecured and uninsured creditors to absorb losses in a manner that respects the hierarchy of claims in liquidation."(quoted in FSB Consultative Document: Effective Resolution of Systemically …)
This is the kind of complex technical jargon used by bankers to confuse the people, especially depositors and to cover up what I have stated in plain and simple English in the foregoing paragraphs.
The key words of the BIS guideline are:
"without severe systemic disruptions" (i.e. bank runs),
"while protecting vital economic functions" (i.e. protecting vested interests – bankers),
"unsecured creditors" (i.e. your monies, you are the dummy),
"respects the hierarchy of claims in liquidation" (i.e. you are last in the queue to be paid, after all secured creditors have been paid).
This means all depositors are losers!
Please read this article carefully and spread it far and wide.
You will be doing a favour to all your fellow country men and women and more importantly, your family and relatives.
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