Looks like bad ideas travel fast. Now news out that alleges policymakers in New Zealand are considering hitting up bank depositor accounts for balances to make up for overall bank losses.
Story here at Scoop.
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.
While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.
“Bill English is wrong to assume everyday people are able to judge the soundness of their bank.I'm reminded of Warren's saying that the liability side of a bank balance sheet is not the place to exert regulatory discipline.
I'm sure our U.S. policymakers are probably currently considering the potential for use of this approach now that it seems to be gaining popularity within the moron cohort.
13 comments:
Beyond moron. We need a new word for this level of crazy.
I'd say idiot, as next down on the list, but I don't want to compliment them. U
Tom,
Again what I see underlying this is how govt officials in the west just seem incapable of seeing the fact that they possess the authority to just credit any bank account ex nihilo via an appropriation...
It's like they get together and ask: "Where can we get the money?" .... "Oh I know, we can get the balances out of the depositors accounts as we all know: the govt has to get the money from the non-govt... might as well just go right to the source..."
This continues to be embarrassing/humiliating to think we are human beings in many ways similar to these disgraced morons...
rsp,
Again what I see underlying this is how govt officials in the west just seem incapable of seeing the fact that they possess the authority to just credit any bank account ex nihilo via an appropriation
Yeah, but where's the fun in that Matt? It's not painful enough.
Now that the politicos have run out of suspected bad guys to waterboard, they have to move the torture machine onto the rest of us.
See Michael Perelman — The Power of Economics vs. The Economics of Power
There is method in this madness. It's called "control."
It's time for governments to start opening their own banks to compete with the private banking system. Why should private banks have the power to create money and be outside the law when it comes to dealing with their errant lending habits. At least they should have some competition from the state. I think I'll move to North Dakota, the only state with their own bank.
The New Zealand government is quite right – though it’s scheme needs a few adjustments and tweeks. This is far from “moronic” as Tom calls it.
Under the existing shambolic banking system, when things go seriously wrong, taxpayers foot the bill. Why should taxpayers subsidise investments done via banks but not subsidise investment done via the stock exchange, or investment done by a family that sets up a small business funded from its own savings?
The only adjustment the NZ government needs to do is to adopt full reserve banking lock stock and barrel, and that involves giving depositors a choice as follows. First, depositors can have 100% safe accounts, in which case they would not be hit when a bank has problems. To ensure their money REALLY IS 100% safe, it isn’t invested – e.g. it’s just lodged at the central bank, plus it earns no interest. But IT IS instant access.
Second, depositors can elect to have their money loaned on or invested. In that case they take a hair cut if things go wrong. Plus their money is NOT instant access. In fact in the case of Laurence Kotlikoff’s full reserve system, their money goes into a mutual fund of their choice.
If someone wants to act in a commercial manner, i.e. have their money invested, then bully for them. I admire people who take commercial risks. But I don’t admire people who try to have their cake and eat it: that’s people who want to take a profit when things go OK, and expect the taxpayer to cough up when things go wrong.
Ralph,
Not familiar with the UK but here in the US banks can issue Preferred Shares with dividend yields that perform that way.
I dont think they are doing much issuance lately (!) but these Preferreds were going strong pre-GFC over here...
Here is a recent one that a super-regional bank has over here:
http://www.forbes.com/sites/dividendchannel/2013/03/12/mt-bank-series-c-preferred-stock-yield-pushes-past-5/
So this one is yielding 5% which is pretty juicy when you can get less than one-half of one percent in term deposits... and it is "perpetual" like a govt consol.
So that approach is available here in the US anyway... but if the whole system goes down again due to fiscal idiots, and this bank is resolved, you are wiped out (!).
Winterspeak took the loose cannon Yglesias to task (link down thread) in a post related to this view that bank deposits are an act of "lending" from the depositors to the bank.
To me this view comes from a belief that "banks lend out the deposits" or "banks lend out the reserves" a la the old George Bailey "Building and Loan" paradigm learned from watching the old movie "It's a Wonderful Life" rather than trying to achieve a more professional understanding of modern commercial banking.
Look, all people want is a deposit account to do their business in. These are just working people and businesses who have other responsibilities and dont want to have to read annual reports and attend shareholder meetings in order to feel that their balances are "safe" in a transaction account.... this is not unreasonable.
Like we should be telling a doctor to take time off from performing life saving procedures so he can research his bank's operations?
This is idiocy of the highest order.
We should identify all of these policymakers and round them up and exile them to Guantanamo Bay for humane incarceration (even let them take their booze and hookers for all I care) ... or else radio frequency ankle bracelets so we can keep track of their whereabouts at all times... or perhaps tatoo or brand a big 3 inch "M" for "moron" right on the front of their foreheads so we know who we are dealing with when they walk in....
rsp,
Matt,
I fully agree that “all people want is . . . accounts to do their business in..”. And I agree that people have a right to a 100% safe bank account. And that is exactly what is offered by the full reserve systems advocated by Laurence Kotlikoff, Positive Money and other groups.
Plus under the latter systems, depositors do not need, as you suggest, to “read annual reports and attend shareholder meetings..”.
Under the latter systems, GOVERNMENT would take responsibility for backing 100% safe accounts, and would only give that backing in the case of well run banks. And given that government audits banks anyway, there shouldn’t be a huge additional cost there.
Moreover, money put in accounts advertised as 100% safe is simply lodged at the central bank. So there is a minimal chance of it being lost. There is no taxpayer exposure there – or put another way, no taxpayer funded subsidy of banks.
As to accounts where the money is loaned on, that’s a different matter. Depositors are on their own there.
In a fiat currency system, what on earth is the "reserve fiat" and where is it kept in reserve? In your subconscious? Maybe in some part of your globus pallidus and substantia nigra, the same nuclei key for initiating voluntary actions?
Is Maxwell's Demon floating down in your substantia nigra, holding some of your fiat in reserve?
Is that what causes fixation on full-reserve-fiat, and other forms of OCD?
Can one be obsessive about not doing anything? That's one way to actively run out of fiat.
On the other hand, if utilization of dynamic assets is far more rate limiting than access to static assets, the smarter procedure is to keep static assets running full tilt, while you practice regulating your dynamic assets through practice & feedback themselves.
And please don't say that by using fiat now we're depriving our grandchildren of future fiat.
The new big trick of neoliberal bankdebtocracy:
http://failedevolution.blogspot.gr/2013/03/the-new-big-trick-of-neoliberal.html
"unbalanced evolution" of homo sapiens?
Who said evolution should ever balance? What does that even mean?
Check back in a million years to see if our ongoing "balance" led to survival.
Seems more useful to discuss more- vs less-adaptive rates of evolution, which still involves data streams that never stop proceeding.
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