August 30, 2015
Bankers Win Both Ways: Now They Can Take Both Taxpayer and Depositor Money
Posted on Mar 29, 2014
By Ellen Brown, Web of Debt
This piece first appeared at Web of Debt.
As things stand, the banks are the permanent government of the country, whichever party is in power.
On March 20, 2014, European Union officials reached an historic agreement to create a single agency to handle failing banks. Media attention has focused on the agreement involving the single resolution mechanism (SRM), a uniform system for closing failed banks. But the real story for taxpayers and depositors is the heightened threat to their pocketbooks of a deal that now authorizes both bailouts and “bail-ins”—the confiscation of depositor funds. The deal involves multiple concessions to different countries and may be illegal under the rules of the EU Parliament; but it is being rushed through to lock taxpayer and depositor liability into place before the dire state of Eurozone banks is exposed.
The bail-in provisions were agreed to last summer. According to Bruno Waterfield, writing in the UK Telegraph in June 2013:
Square, Site wide
As noted in my earlier articles, the ESM (European Stability Mechanism) imposes an open-ended debt on EU member governments, putting taxpayers on the hook for whatever the Eurocrats (EU officials) demand. And it’s not just the EU that has bail-in plans for their troubled too-big-to-fail banks. It is also the US, UK, Canada, Australia, New Zealand and other G20 nations. Recall that a depositor is an unsecured creditor of a bank. When you deposit money in a bank, the bank “owns” the money and you have an IOU or promise to pay.
Under the new EU banking union, before the taxpayer-financed single resolution fund can be deployed, shareholders and depositors will be “bailed in” for a significant portion of the losses. The bankers thus win both ways: they can tap up the taxpayers’ money and the depositors’ money.
The Unsettled Question of Deposit Insurance
But at least, you may say, it’s only the uninsured deposits that are at risk (those over €100,000—about $137,000). Right?
Not necessarily. According to ABC News, “Thursday’s result is a compromise that differs from the original banking union idea put forward in 2012. The original proposals had a third pillar, Europe-wide deposit insurance. But that idea has stalled.”
European Central Bank President Mario Draghi, speaking before the March 20th meeting in the Belgian capital, hailed the compromise plan as “great progress for a better banking union. Two pillars are now in place”—two but not the third. And two are not enough to protect the public. As observed in The Economist in June 2013, without Europe-wide deposit insurance, the banking union is a failure:
All deposits could be at risk in a meltdown. But how likely is that?
Pretty likely, it seems . . . .
What the Eurocrats Don’t Want You to Know
Mario Draghi was vice president of Goldman Sachs Europe before he became president of the ECB. He had a major hand in shaping the banking union. And according to Wolf Richter, writing in October 2013, the goal of Draghi and other Eurocrats is to lock taxpayer and depositor liability in place before the panic button is hit over the extreme vulnerability of Eurozone banks:
When the ECB becomes the regulator of the 130 largest ECB banks, says Richter, it intends to subject them to more realistic evaluations than the earlier “stress tests” that were nothing but “banking agitprop.” But these realistic evaluations won’t happen until the banking union is in place. How does Richter know? Draghi himself said so. Draghi said:
Richter translates that to mean:
Only after the taxpayers—and the depositors—are stuck with the tab will the curtain be lifted and the crippling insolvency of the banks be revealed. Predictably, panic will then set in, credit will freeze, and the banks will collapse, leaving the unsuspecting public to foot the bill.
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