Cyprus-style confiscation of depositor funds has been called the “new normal.” Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk. Derivatives have “super-priority” status in bankruptcy, and Dodd Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.Web of Debt
Winner Takes All: The Super-priority Status of Derivatives
Ellen Brown | Attorney
More to be incensed about.
3 comments:
Nice to see everyone fumbling their way towards full reserve banking. FR solves the whole problem as to “who to shaft when a bank faces disaster”.
Under FR depositors have to choose between first, having their money kept in a 100% safe fashion (e.g. having it lodged at the central bank), where it will earn little or no interest, and second, having their money loaned on or invested by their bank, in which case they get interest, but they also foot the bill if it all goes wrong.
In that scenario, Cyrpus would have been a storm in a tea cup. Depositors who had opted for safety would have been safe. And depositors who elected to have their money put at risk would have had a hair cut: but that would have been no more than they signed up for when first lodging their money.
Problem solved.
Full reserve banking or least the removal of all government privileges for the banks (e.g. government-provided deposit insurance instead of the monetary sovereign itself providing a risk-free fiat storage and transaction service for its citizens, the lender of last resort, etc.) is needed but that will require lots of new reserves to back deposits.
So in addition to lending reform, we need a universal and equal bailout of the entire population, including non-debtors, with new fiat, to continue at least until all deposits are 100% backed by reserves.
Price inflation risk? Not really, since the bailout could be combined with at least a temporary ban on new credit creation and metered to just replace existing credit as it is repaid for no net change in the money supply.
F.Beard,
You're quite right. The initial effect of introducing full reserve is certainly deflationary because it restricts what banks can do. But that's no problem because a dose of simulus (e.g. a helicopter drop) takes care of that.
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