The posts Upcoming Thefts by Big Money and Update on Metals, Deposit Confiscation, and Capital Controls explained how the authorities have made is perfectly clear that their new Bail-In regimen would confiscate deposits from regular folks in an attempt–which will ultimately fail–to keep the bankrupt banks and bankrupt governments afloat. I enter as evidence the bankruptcy of the City of Detroit. Ellen Brown has written an excellent post on the topic that everyone should read, especially anyone who tends to think the current financial/legal/political system is a trustworthy custodian.
What’s happening is this: in the Detroit bankruptcy, the banks have been ruled to have “super-seniority,” that is, the banks get taken care of first, everyone else comes after that. Why? Because the banks sold Detroit derivatives and the banks got Congress to pass a law in 2005 that derivatives have seniority over all other obligations. So Detroit’s pensioners–the retired firefighters, police, water workers, garbage collectors, etc.–will get whatever crumbs might or might not be left after the super-senior derivative sellers and senior bondholders get their take. The first proposal had pensions being cut to ten cents on the dollar.
The banks convinced Congress that derivatives are “systemically important” so that’s how they got this super-seniority scam in place. Since there are over $700 trillion worth of derivatives out there in the world and that’s more than 10 times larger than then entire world economy, that means the banks will ultimately get all of everything before anyone else gets any of anything every time there is trouble. And there will be a lot of trouble. Particularly if they start a big war. Think about it: we have a system where money is debt and almost all countries and banks have way too much debt and the banking and government debt system is cross-linked to all financial institutions and pension funds and insurance companies across the globe. What will that look like when institutions in one country decide to not pay the institutions in another country because the two are at war, or since no one will be sure which countries will be left standing at the end of the war, everyone will gets suspicious about the value of everyone else’s currency? Trouble will take on entirely new dimensions. And we’ve all been told who has seniority in terms of dibs on assets, and that “who” is not you and me.
Or from another vantage point, please consider this: it has taken over a year for the bankruptcy trustee for MF Global, which stole $1.6 billion from its depositors, to even figure out where the money is. And he has only been able to figure out where 80% of it is. Not because anyone was hiding it, but because assets now get lent to someone who lends them to someone else who lends them to someone else…and so forth. This is how complicated the financial system has become. Think about what this will look like when the amounts are literally millions of times larger than MF Global and spread across the globe in countries which are no longer on speaking terms.
And as a friend just pointed out to me in an e-mail, it’s really now in the banks’ best interest to have cities like Detroit go bankrupt so that the banks can get all of their money from derivatives right away.
I wonder if that’s why Detroit isn’t getting a bailout from the State or Federal governments–that the banks want their money now.
And the City of Detroit gets relief from its debts. So government and banks bail in (steal!) the money from regular folks, game set and match. Ah, the public-private partnership in action!
It’s dangerous out there folks. Please take action accordingly. Soon!
From Ellen’s post, The Detroit Bail-In Template: Fleecing Pensioners to Save the Banks:
In Cyprus, the depositors were “bailed in” (stripped of a major portion of their deposits) to re-capitalize the banks. In Detroit, it is the municipal workers who are being bailed in, stripped of a major portion of their pensions to save the banks.
Bank of America Corp. and UBS AG have been given priority over other bankruptcy claimants, meaning chiefly the pensioners, for payments due on interest rate swaps they entered into with the city. Interest rate swaps – the exchange of interest rate payments between counterparties – are sold by Wall Street banks as a form of insurance, something municipal governments “should” do to protect their loans from an unanticipated increase in rates. Unlike ordinary insurance, however, swaps are actually just bets; and if the municipality loses the bet, it can owe the house, and owe big. The swap casino is almost entirely unregulated, and it is a rigged game that the house virtually always wins. Interest rate swaps are based on the LIBOR rate, which has now been proven to be manipulated by the rate-setting banks; and they were a major contributor to Detroit’s bankruptcy.
Derivative claims are considered “secured” because the players must post collateral to play. They get not just priority but “super-priority” in bankruptcy, meaning they go first before all others, a deal pushed through by Wall Street in the Bankruptcy Reform Act of 2005. Meanwhile, the municipal workers, whose pensions are theoretically protected under the Michigan Constitution, are classified as “unsecured” claimants who will get the scraps after the secured creditors put in their claims. The banking casino, it seems, trumps even the state constitution. The banks win and the workers lose once again.
Ellen’s full post is here.