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Trading Lessons

Are Your Bank Savings Safe From Bail-Ins?

Personal_Finance / Credit Crisis 2014 Feb 13, 2014 - 03:20 PM GMT

By: Raul_I_Meijer

Personal_Finance

I know you thought you’d seen some crazy stuff, but it’s going to get better, promise!

On the one hand you have Greek politicians claiming their economy is doing so well, they’ll present the troika with a big feel good surprise. On the other, Greek unemployment reached a new high at 28%, with youth unemployment now at 61.4%. That’s almost 2/3 of young people. What is to become of them?


On the one hand Italy sold debt today at record low rates, on the other its bickering and infighting government is teetering on the edge. Wonder who’s been buying the debt. Could one of the super Mario’s be involved?

On the one hand folks claim that the emerging market problems will have little effect on US financial markets, on the other US companies are starting to feel serious pain from those same problems. Not only do sales in developing markets fall, they’ve also invested a lot of money in them, anticipating huge growth potential. Oops.

On the one hand the UK government boasts a strong recovery and claims that is due to their brilliant economic policies, on the other BOE Governor Carney says he can’t lift interest rates because the recovery is “neither balanced nor sustainable”.

On the one hand the Yellen Fed stays a tepid taper course despite all the US recovery stories, without daring to even ponder interest rate rises, on the other Chinese official powers have gotten so spooked by the size and leverage of the shadow bank system they get real about tightening and interest rates, in the face of a sharp fall in auto sales growth, and an ominous default of a shadow bank investment product backed by a loan to a flat broke coal company.

On the one hand the OECD has been pushing rosy forecasts about anything anyone wanted to hear, on the other they are now forced to admit those forecasts were, essentially, made up out of thin air. Still, what looks like a great way to disqualify oneself :“Challenges were compounded by the unusually high speed and depth of cross-country interconnections between real and financial developments, the increased variability of economic growth compared with the pre-crisis period, the lack of timely data on many important financial factors, and the limited understanding of macro-financial linkages … “, will instead undoubtedly only be used to keep on churning out the nonsense. That’s both its MO and the reason it’s so royally funded, after all.

But the grand crazy stuff prize for the day goes to the Reuters article that details a leaked European Commission report in which Brussels considers confiscating (not their word of choice) 500 million Europeans’ personal savings and use them “to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis.”.

“The economic and financial crisis has impaired the ability of the financial sector to channel funds to the real economy, in particular long-term investment ..”. That’s right, after all the bail-outs and nationalizations and stimuli, there’s still so much – bad – bank debt hidden in shady ledgers, there’s nothing left to lend out.

But wait, there is a source of wealth left. People have savings in bank accounts, and those are all registered digitally, so we know exactly what everyone has. We’ll take that, give them some sort of guarantee they will think is valid, and hand it to the banks. Who can then lend it out to the same people whose savings these are in the first place, and charge interest for the privilege. That’ll boost the economy!

Now, of course, if you’re like me, you first wonder what the root of the word “savings” is again, and then you’re also thinking, hold on, we’re talking about the same savings deposits the banks have used as collateral for their highly leveraged wagers, that they then lost. Right?

So those savings are already in the banks, but the banks’ “ability to channel funds to the real economy” is still “impaired”. But how can it be that Brussels, when it confiscates the savings, magically solves this impairment? What sleight of hand is this?

Well, they are talking about creating a secondary market for trading corporate bonds in the EU. But that doesn’t guarantee any trades will actually take place. The reason those bonds don’t sell is that not enough people want to buy them.

No, the real Brussels magic consists of reviving securitization markets. The banks will securitize loans and other “products”, which means they’ll slice and dice and tranche them, and sell them on to greater fools. Like you. Only this time, they’ll do so with the – implicit – backing of your savings. And let’s be fair: if you allow them to do this with your savings, you’re a prime candidate for them to sell their “securities” to (in finance, nothing means what it used to, “savings” are not safe and “securities” are anything but secure).

And no, you’re not mistaken: that is indeed the very model that broke the global financial system’s back in the first place.

There is no doubt in my mind that these ideas will be spun in ways that focus on triggering people’s feel good factors to such a degree the vast majority will actually leave their savings in the bank.

If I were you, I would think twice about going that route.

This article addresses just one of the many issues discussed in Nicole Foss’ new video presentation, Facing the Future, co-presented with Laurence Boomert and available from the Automatic Earth Store. Get your copy now, be much better prepared for 2014, and support The Automatic Earth in the process!

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

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