Bank equity but no cash?
Ellen Brown from Web of Debt imagines a scenario close at hand. How accurate is it?
Can They Do That?
Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.
The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.” It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:
Well Ellen Brown is certainly getting her 15 minutes.
Is this the infinite horizon projection of stupid? If so, it must be the future. Dang those people who don’t pay enough fees to the skimmers. Payback time!
Reading through the joint paper dated December 2012 I am struck by the repeated use of the terms stockholders, debt holders and other unsecured creditors. I found no references to depositors nor deposits. My question is, what is the legal status of the depositors? Are they simply one of the creditors or did they some how morf into stock holders? I don’t remember being asked to vote as a stock holder by any bank that I have any assets on deposit. What is the legal status of the terfm “on deposit”?
Paragraph 16 of the paper,
“Resolving Globally Active, Systemically Important, Financial Institutions” seems to sum up my uncertainties about the entire paper. Who is who and what is what
in regards to differentiating between the depositors, the term is not used in the paper, and all the other descriptors that are used in the paper?
16. “Title II of the Dodd-Frank Act provides the FDIC with new powers to resolve SIFIs by establishing the orderly liquidation authority (OLA).”
“Title II requires that the losses of any financial company placed into receivership will not be borne by taxpayers, but by common and preferred stockholders, debt holders, and other unsecured creditors, and that management responsible for the condition of the financial company will be replaced.”
Isn’t the right way to fix a broken bank to split the bank in two, compiling good loans to make a good bank and bad loans to make a bad bank — just like any other firm would sell off or close losing components — make depositors whole with FDIC, too bad for stockholders, goodbye management? Isn’t this the way all the progressive commentators, and some not so progressive, say is the way to go instead of rewarding bad management with keeping their jobs and going right on extracting billions in bonuses?
This particular author seems to have written about every dark conspiracy except UFO coverups.
I’m reminded of the funny tv commercial “I saw it on the Internet so is has to be true” or something to that effect.
In the real world, never keep all of your money in one financial institution. At least one bank and one credit union.
I don’t know Ellen Brown…so you are saying such wording is not in the works Rusty?
I admit it is hard to imagine…but then, so are a lot of things going on now.
Take a closer look at paragraph 16, as an example. Does the class that I would refer to as depositors fit any of the several categories of interested parties listed in paragraph 16; “…but by common and preferred stockholders, debt holders, and other unsecured creditors,…” The but refers to who will take the losses other than the tax payers. What is a depositor if not an “unsecured creditor”? And is it valid, in a legal sense, to say that all deposits into a financial institution become assets of that institution?
It sounds a bit cavalier to simply blow the woman off because what she has posted seems far fetched. A government bailout without seeking retribution from the management of failed and bailed banks would have seemed a bit far fetched seven or eight years ago.
Educate me. Who are the secured creditors?
Thanks for the good article, has been very useful for me. Thanks for sharing.
The paper by the FDIC and BOE;”Resolving Globally Active, Systemically Important, Financial Institutions”
Federal Deposit Insurance Corporation and the Bank of England
is largely based on another, ”Key Attributes of Effective Resolution Regimes for Financial Institutions”
within which there are multiple statements regarding insured depositor safety, although I sense a small loophole which could allow appropriation of deposits.
http://www.financialstabilityboard.org/publications/r_111104cc.pdf [Oct, 2011]