Slight of hand in the Digital World
We discussed that the banks feel safest speculating when someone else will rescue them. Who wouldn’t? After 2008, it became clear and unlikely that taxpayers would be supportive of a 2nd round of bailouts. “First time shame on you, 2nd time, shame on me”, my dad used to say. So, they cooked up a crafty safety net that involves using your money and my money to offset their gambling losses. The banks test-drove this in Cyprus when it looked like they were going to take a big hit They called it a “Recapitalization”, but we can call it a Bail-In. Even simpler, it means “Using Depositor’s Segregated Money to Bail Out Bank Losses”. You can see that Recapitalization is a far more politically correct phrase than “Stealing Customer’s Money”.
This seems preposterous and beyond possible. Well, I’d direct you toward our TRUTHpo!nt 103 – Are Your Savings Safe in the Bank? (truthpoints.org) People who are drunk and addicted and desperate think of some pretty wacky things. The world that they are living in isn’t rational, so there are equally irrational justifications to explain it to us. The sad part is, we don’t stand up to them. Go ahead, hit me. Hit me again. (maybe it will feel good when they stop)
Along the way, while we were worried about Ferguson in the news in 2014, Congress passed laws in the last-minute December Omnibus bill that kept the country’s economy on life support for another season, and also pledged our deposits as collateral if banks should need help from their gambling losses. So there, it is already in place. The G20 leaders all endorsed it too, in case you thought that banks didn’t have a chokehold on other world governments.
US Bank Derivatives Exposure
So what is the risk? The top 4 US banks have about $1 trillion in deposits each. They also each have from $25 to $50 trillion each in derivatives and speculation exposure. To put that into perspective, which is next to impossible, remember that the annual GDP (work output) in the US is about $17 trillion, and the GDP of the world is about $60 trillion. So, the $220+ trillion that banks have at risk is troublesome. Our paltry $8 trillion of consumer funds on deposit won’t make much of a “bailout” dent if one of these banks goes belly up, but it is enough to give a last round of bonuses and to pay off cronies and friends.
And that huge back room of risk, my friends, is the unspoken shaky foundation that undermines the "Security and Trust" of our banking system.
Thanks for reading, I welcome your comments! Mark