Stanley Fisher is the former governor of the Bank of Israel, former chief economist at the World Bank, and current Vice Chairman of the Federal Reserve . According to the Daily Paul, (“The U.S. Plans To Bail-In The Banks—Federal Reserve Vice Chairman”) Mr. Fisher recently declared:
“. . . the United States is preparing a proposal to require systemically important banks to issue bail-inable long-term debt that will enable insolvent banks to recapitalize themselves in resolution without calling on government funding–this cushion is known as a ‘gone concern’ buffer.
“Mr. Fisher gave no details as to whom in the United States was preparing the bail-in proposal and what “bail-inable long term debt” is.”
• First, Mr. Fisher implies that the US government is preparing to pass a law that will require those banks, but only those banks, that are “systemically-important” to issue “bail-inable long-term debt” instruments.
What are “systemically-important banks”? They must be the major banks (such as Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan, Morgan Stanley, State Street, and Wells Fargo) that were previously described as “too big to fail”.
More, these “systemically-important banks”:
1) Must be insolvent; and,
2) Can’t expect help from government funding—before they can issue the “bail-inable long term debt” instruments.
These conditions imply that the Federal Reserve and federal government anticipate:
1) At least one, probably several, and perhaps all of the “too big to fail banks” are going to become openly and undeniably “insolvent” in the near future;
2) The federal government will be too broke to save these insolvent banks with more “Quantitative Easing” (government funds); and,
3) Since government can no longer save the “too big to fail banks,” those banks are will fail—unless they can find a “savior” other than government.
Get that? Federal Reserve vice chairman Fisher has implied that some or all of the “too big to fail” banks will soon become insolvent and government will be too broke to bail them out.
The result of another Lehman-Brothers-like bank failure could be a collapse of the US and/or global economies.
When might this happen?
You can bet that the gov-co will do everything it can to postpone the insolvency of one or more “too big to fail” banks until after this year’s election in November. But any time after that election—say, first or second quarter of A.D. 2015—we might expect to see significant bank failures and economic chaos.
• Second, in order to mitigate this coming economic chaos, the government is proposing a law that will “require” the “systemically-important banks” to “recapitalize” from a source other than government. What could that source be?
I can imagine only one possible answer: bank depositors.
Vice chairman Fisher’s remarks are evidence that the Federal Reserve believes a financial crisis may be approaching that is so severe that, as in Cyprus, the only way to keep the banks solvent is let them seize their depositor’s funds.
By passing a law that “requires” the “systemically-important banks” to seize their depositors’ funds, the government would give those banks a certain amount of plausible deniability.
I.e., if insolvent banks were required by law to seize their depositors’ funds, perhaps the depositors wouldn’t blame those banks for taking their funds and would instead blame the government for passing that law. If the depositors don’t blame the banks that seize their funds, those depositors might continue to do business with the insolvent (failed) banks and those banks might continue to hold enough customers to stay in business.
More, note that vice chairman Fisher’s description of the proposed law only appears to apply to the “too big to fail” banks. The biggest banks will be required to seize their depositors’ funds. The smaller banks might not be required to do so.
If the smaller banks aren’t required to seize their depositors’ funds, but do so anyway, those smaller banks won’t be able to blame the seizure on government laws. If the smaller banks have to take sole responsibility for the seizure, the smaller banks can expect to lose all trace of customer loyalty and perhaps be sued by virtually every depositor they have.
The costs of a plethora of lawsuits from depositors may be enough to destroy the smaller banks.
But if the “systemically-important banks” were “required” by law to recapitalize by seizing their depositors’ funds, they’d be protected by law from depositor lawsuits. Their depositors’ would have no remedy for the loss of their deposits other than to work against the reelection of the president, congressmen and senators who enacted the bill to legalize the taking of bank deposits by the “systemically-important banks”.
The result of this proposed law could very well be that the “systemically-important banks” will not only survive their insolvency by robbing their depositors, but may even be able to prosper by buying up smaller banks that are destroyed by depositors’ lawsuits if they seize depositor funds.
Get that? The result of this proposed law might tend to guarantee the survival and growth of the “systemically-important banks” that are insolvent and the destruction of the smaller banks. Banking services might thereby be consolidated into fewer and fewer, but bigger and bigger banks.
If that analysis were an accurate, then we could expect that the proposed law mentioned by Mr. Fisher to be supported and even initiated by the “systemically-important banks” as a means to not merely survive a coming economic calamity, but to emerge from that calamity with even more financial (and political) power than they had going in.
• Third, we’ve all heard “doom and gloom” reports about a coming economic debacle. Federal Reserve vice chairman Fisher’s statement verifies that those reports are, in general, reasonable.
Insofar as the proposed program warns that the big banks can’t count on government to bail them out, the Federal Reserve at least hints that they anticipate a systemic financial crisis so catastrophic that the Federal Deposit Insurance Corporation might be wiped out and unable to provide funds to insolvent banks.
• Fourth, if the biggest banks are allowed to issue “bail-inable long term debt” what does that term mean?
It means that the “systemically important banks” will be allowed to seize their depositors’ bank account funds and issue some sort of note in return that promises to repay those deposits someday, sometime in the distant future.
The bank’s depositors won’t be able to charge the biggest banks with theft because it will be declared by law that, in return for their savings, they’ll receive a genu-wine government-approved piece of paper (the “bail-inable long-term debt” instrument) that promises to repay those savings at some future (long-term) date.
This “bail-inable long term debt” instrument might even pay some modest level of interest.
Such a deal, hmm?
However, you can bet that before the day comes when the “bail-inable long-term debt” instruments are repaid, there’ll be a massive “reset” (devaluation) in the value of the fiat dollar. This devaluation will be legalized by government-enacted laws that declare, say, ten of your old dollars (that you had in your savings account before they were seized by your bank) to be worth only one new “dollar” paid back for your “bail-inable long-term debt” instrument.
If you had $100,000 in the bank when your funds were seized in return for a “bail-inable long-term debt” instrument, by the time (Two years? Three?) when it becomes legal for you to redeem that debt instrument, you might only receive $10,000 in purchasing power.
• Although I ran for Place One of the Texas Supreme Court in A.D. 1992, I’m not a licensed attorney. Therefore, my notions on the legal implications of vice chairman Fisher’s comments should be taken with salt. Even so, I have a smidgeon of common sense and an occasional capacity for logic. Common sense tells me that vice chairman Fisher’s remarks indicate that the gov-co and “too big to fail” banks are colluding to legalize the theft of billions, probably trillions, of depositors’ dollars from their bank accounts.
If I’m right, those of you who keep your savings in banks do so at increasing risk.
The banks and gov-co are about to treat you like so many Indians and trade you $23 in shiny beads for Manhattan Island.
You’re about to be robbed.
1) The concerns about our economy being fragile and subject to serious crisis are valid.
2) Those of you who store your savings in a bank that’s “too big to fail” may believe it’s wise to do since those banks are “special” and won’t be allowed to fail—and therefore, your deposits are safe. However, if the new “bail-inable long term debt” law goes into effect, those “special,” “too big to fail” banks may be the worst place to store your savings since those are the banks that will be “required” by law to seize you savings to in order to save those banks rather than you.
3) Those of you storing your savings in a bank that’s “too big to fail”—or in any bank, for that matter—in the form of a digital or paper currency may want to start moving some or most of your funds out of those banks and into some physical form of savings that can’t be “legally” confiscated by the banks under existing or soon-to-be enacted “laws”.