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Saturday, July 04, 2015

Bail-ins are partial bank defaults

Or if you prefer, involuntary borrower-declared debt relief:
Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday. The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.
Three things. First, as predicted, the bail-ins weren't limited to Cyprus, and they won't be limited to Greece. Second, notice that the amount of deposits immune to bail-ins has fallen from €100,000 to €8,000. Third, this is now entirely legal in most jurisdictions; banks around the world are preparing for just this scenario in your country, everywhere from Australia to the USA.

Remember, a deposit is just an unsecured loan to a bank. So, a bail-in is simply the bank unilaterally telling you that it is not going to pay back a percentage of the loan and will no longer be paying interest on the portion that it will not be paying back.

Why anyone would want to loan to such a borrower without collateral for the paltry amount of interest available, knowing that the borrower can decide at any time how much they want to pay you back (if they want to pay you back at all), is an interesting question to contemplate.

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51 Comments:

Anonymous Jeff Wood July 04, 2015 12:15 PM  

I think I am right in saying this was always the position, disguised by the fact that in the past, when an individual bank went over, the central banks in advanced countries would organise a lifeboat whereby the other banks in the system rescued the depositors; all to maintain confidence.

Going further back in time, when an individual bank went bust, the depositors lost everything.

In Cyprus, the depositors got the benefit of a recent arrangement where the first €100,000 was safe, but that guarantee was backed by the taxpayer.

In the face of general collapse, all bets are off.

Anonymous BGS July 04, 2015 12:16 PM  

30% haircut on top of taxes that has to be getting near French President Francois Hollande's 75% tax plan

OpenID RambleAround July 04, 2015 12:24 PM  

Where does one put their cash? Stocks and options? That seems just as exposed. A money market account??

Blogger Mr.MantraMan July 04, 2015 12:25 PM  

Isn't this a hit on businesses more than individuals who might have removed most of their cash?

Anonymous Jourdan July 04, 2015 12:29 PM  

I still don't understand why the Greeks don't take the obvious solution on offer: invade and re-capture Constantinople, loot all the Muslim garbage, profit.

Blogger HickoryHammer #0211 July 04, 2015 12:30 PM  

Smart money all said Cyprus was a test case to see if people would get lynched for that kind of thievery. People didn't revolt, so now other people are paying the price. Fiat cash is trash, but it sure beats fiat deposits in a bank account.

Blogger Salt July 04, 2015 12:39 PM  

So, a bail-in is simply the bank unilaterally telling you that it is not going to pay back a percentage of the loan and will no longer be paying interest on the portion that it will not be paying back.

Key words above italicized. Paying of interest is a hallmark of a loan. This is different from mere storage where one pays a fee for said storage. Two different forms of contract.

Remember, a deposit is just an unsecured loan to a bank.

If it's an interest bearing account, absolutely, and loans can go bad. Now, if it's a non-interest bearing, fees-paid (storage) account, can what's in the account be lawfully loaned out?

Anonymous old man in a villa July 04, 2015 12:50 PM  

The bank cannot repay it's debt to? Who exactly is the creditor that gets dibs? Another bank? And the solution to their insolvency is theft? Certainly this was not planned in advance, was it? This is simply a contingency plan to deal with something unexpected, right? No conspiracy to do exactly what they are doing was ever planned in advance, was it?

How can this not work out to the benefit of everyone.

Anonymous KC9ZNR July 04, 2015 12:51 PM  

Where does one put their cash?

I convert it into "tangible assets". What that actually means is I keep buying more guns and ammunition and other useful things. For a rainy day...

Anonymous Aeoli Pera July 04, 2015 12:51 PM  

If I cut off 30% of a person, it would not be described as a haircut and I would not be able to get a job as a barber.

Anonymous Jourdan July 04, 2015 1:02 PM  

When I lived in the UK I had to show that I had a valid bank account to perform all kinds of necessary business: the obtain a residential lease, to apply for a job, to enroll a child in school, to enroll in a community gym/rec center, to sign up to pay for garbage removal, to obtain electric service, to obtain natural gas service.

It was endless.

Anonymous bgs July 04, 2015 1:05 PM  

.If I cut off 30% of a person, it would not be described as a haircut and I would not be able to get a job as a barber.

Perhaps in a moslem nation.

Blogger JartStar July 04, 2015 1:09 PM  

Stocks might actually be the safer option because if the market declines 30% even for years it might rebound. If you get your deposits confiscated they are gone for good.

Also the PTB have a vested interest in the market recovering, your bank account? Not so much.

Anonymous The other robot July 04, 2015 1:15 PM  

OT, but how they reacted to Defense Distributed.

Anonymous p-dawg July 04, 2015 1:18 PM  

@ramblearound: I recommend pokemon cards and beanie babies*.

*not literally, I just mean things you can easily sell for cash if you need it, and/or things you can't live without.

Anonymous Neguy July 04, 2015 1:20 PM  

The USA is not going to experience bail-ins of FDIC insured deposits because the USA controls its own currency and can print the money to bail out banks and depositors. The USA equivalent of a bail-in is debasing the currency.

Anonymous Jourdan July 04, 2015 1:38 PM  

German Finance Minister says that even if Greece leaves the Euro, it would only be temporary: (Full Reuters Story: http://www.reuters.com/article/2015/07/04/us-eurozone-greece-idUSKBN0P40EO20150704)

Finance Minister Wolfgang Schaeuble of Germany, Greece's biggest creditor and toughest critic, said any so-called Grexit, Greek exit from the euro zone, might only be temporary.

"Greece is a member of the euro zone. There's no doubt about that. Whether with the euro or temporarily without it: only the Greeks can answer this question. And it is clear that we will not leave the people in the lurch," he said.

Blogger bw July 04, 2015 1:46 PM  

Or if you prefer, involuntary borrower-declared debt relief

As far as I could go. One has to hand it to them and their assault on and recognition of the average on this occulted, Alchemical Holi-Day of lies and hypocrisy and ignorance:

MPAI.

Language vs Meaning: "I'll take 'Language over Meaning' for $19Trillion and $60T in Outlays, Vox"

Blogger Bard July 04, 2015 1:59 PM  

3# RambleAround
You don't have to put it anywhere. Just don't keep it in the bank. Starve the beast. It is much safer at home in cash. They are not paying interest anyway. Precious metals are a safe way to preserve your wealth and purchasing power. A year's supply of food (easier said than done) is another great way to beat inflation. New car tires, land, rental property...Why give your money to a complete stranger who only has his best interest in mind to gamble in the market. Or, 401Ks/IRAs...sure, your money will be there when you retire. I can't fathom how people still go for this crap.

Anonymous Anonymous July 04, 2015 2:17 PM  

In the case of a widespread meltdown, the presses couldn't run fast enough...

Anonymous The other robot July 04, 2015 2:25 PM  

Seems to be massive numbers for the No vote ...

Blogger Cataline Sergius July 04, 2015 2:32 PM  

Precious metals are a safe way to preserve your wealth and purchasing power.

Not that safe. Not really.

Keep in mind, private ownership of gold will be high on the SJW list of things to be outlawed, once things get really tight.

They don't really have a sane reason for this you understand. It's just that Saint FDR outlawed owning gold and eventually the Republicans legalized it again. So getting it outlawed again is priority for them.

Never forget, governments can legally steal anything.

I am not saying don't do it. I am saying plan accordingly.

Anonymous p-dawg July 04, 2015 2:32 PM  

@Anonymous: The "presses" don't need to run at all. Cash is an insignificant portion of the economy. All they have to do is type numbers on a screen, and how could you possibly ever run out of those, or outrun typing?

Blogger Bard July 04, 2015 2:37 PM  

22
More safe in my possession than money in the bank. Come and get it!

Anonymous Jourdan July 04, 2015 2:38 PM  

Friends of mine who work in Caracas, Venezuela, where both the currency and the government are highly unstable report to me that people are putting their cash in durable goods of necessity and then simply storing them away from prying eyes without even opening the boxes.

Things like refrigerators, freezers, washing machines, dryers, televisions, computers, monitors and even autos.

Anonymous p-dawg July 04, 2015 3:14 PM  

@Jourdan: I don't recommend computers, monitors, or autos. Those depreciate extremely quickly and are obsoleted each year. Televisions are similarly risky, although to a lesser degree.

Anonymous BGS July 04, 2015 3:21 PM  

Might I recommend the looters choice Big Screen TVs. Leftists called people stealing big screen TVs survivalists. Funny I know how to safely eat a lot of plants but not how to eat a big screen TV.

Anonymous JimR July 04, 2015 3:25 PM  

@p-dawg do they depreciate faster than Venezuela's currency? As for autos, a 1930 Model A Ford, or a 1960 F-100 may be 'obsolete' in a technical sense. But they still get from A to B hauling a useful amount of stuff.

Anonymous Difster VFM #109 July 04, 2015 3:34 PM  

I hate the "haircut" terminology here. "Hey, no problem, it's just a little off the top. You'll look better, you'll feel better and women will throw themselves at your feet."

Decapitation is a false term for a haircut.

Anonymous A Reader July 04, 2015 4:02 PM  

Even if there was no threat of confiscation, a person shouldn't have much money in a bank account. Only enough for day to day expenses. The interest rate that a bank deposit receives is paltry. A person would do much better in other investment vehicles, such as mutual funds.
And mutual funds are liquid: if you put in an order to cash out, you'll get your money the next day.

This is another example of the failure of our education system. A 401(k) program was recently instituted where I work and quite a few of my younger co-workers don't know how to invest. One of them has a 401(k) account thats 100 percent in cash.

That is not only a failure of state run schooling. Nothing about money and finances were taught in the private grammar school I went to (except for doing math calculations on compound interest). In the private high school I went to, only one class had stuff about economics and finance, and that was a senior year elective.






Anonymous WillBest July 04, 2015 4:06 PM  

@19

Except that law enforcement now seizes any cash greater than about $500 under the guise of drug enforcement, and sends you on your merry way without so much as a citation. And at the moment that is by far and away a greater threat than a bail-in.

And really how much money are you talking about? I know some people have hundreds of thousands in which case, buy some land. But if you have less than $50k in liquid assets its easy enough to divide that over 3-4 banks, at which point it really will be a haircut when they come for 30% over 10k

Anonymous Mike M. (minion #315) July 04, 2015 4:15 PM  

What would worry me about multiple accounts is that they are all under the same name...and I can definitely see someone aggregating all your accounts.

Stocks? Mutual funds? Probably an OK investment. Cash? Need a thousand or so, more if possible. Paying off debts? Definitely, especially credit cards.

Anonymous TroperA July 04, 2015 4:18 PM  

This is another example of the failure of our education system. A 401(k) program was recently instituted where I work and quite a few of my younger co-workers don't know how to invest. One of them has a 401(k) account thats 100 percent in cash.

It wasn't a failure of the education system. The Education System is designed to keep kids completely ignorant of money matters--how else are you going to talk them into taking out $100,000 loans to get degrees in Trans-Lesbian Antediluvian Poetry?

If you're socking away durable goods, don't forget to buy and store plenty of booze and cigarettes. Keep some of the booze for "medicinal purposes", but trade the rest. (If you don't have moral qualms about enabling other people's addictions, you'll find booze and cigs become very valuable as trade/bribery items. And if you think they're expensive now, they'll be as valuable as platinum after the Collapse.)

Antibiotics/medicine will also be in high demand. I hear that fish antibiotics are the same as the stuff used for humans, only you can buy them over the counter. Not sure how long they last, though..

Anonymous Jack Amok July 04, 2015 4:21 PM  

Except that law enforcement now seizes any cash greater than about $500 under the guise of drug enforcement,

Well don't walk around with it. Stash it somewhere they won't find it.

As to how to think of banks, let's assume you're a coke smuggler. You need a bagman to pay your suppliers in Columbia. You'll need a bagman to collect payments from your dealers. And you'll need a bagman to pay your hush money to the DA (unless the DA's son is one of your dealers). Now, you'll need to trust your bagman to handle your money, but that doesn't mean you let him have any more of it than is necessary or that you let him hang onto it any longer than is necessary.

Treat your bank the same way.

Blogger Harold July 04, 2015 4:37 PM  

"And mutual funds are liquid: if you put in an order to cash out, you'll get your money the next day."

Until everyone sells them all at once.

Anonymous Geoff July 04, 2015 4:51 PM  

Where should you put your money? If you can't beat them, join them. Buy shares in U.S. Banks like Shitibank and Skank of America.

Blogger JartStar July 04, 2015 5:40 PM  

PMs are a good store of wealth but they aren't perfect as they could be confiscated as well, or heavily taxed when sold for a fiat.

Blogger pyrrhus July 04, 2015 7:17 PM  

Bail-ins are not "partial" defaults, they are defaults, period. It's like pregnancy....

Anonymous Amok Time July 04, 2015 7:26 PM  

Jon Corzine is laughing and his rubbing hands together in glee!!!

Who is worse? Darth Vader, Dark Lord Voldemort or Darkest Lord Banker?

Answer: The Banker steals from the poor and defenseless!

Anonymous WillBest July 04, 2015 7:53 PM  

A bank is a hell of a lot cheaper than a bagman.

Anonymous Jourdan July 04, 2015 9:19 PM  

Royal Crown purple bag equals the perfect bank.

@Jack Amok - Colombia. ColOmbia.

Columbia is some school for snotty chicks in New York...

Anonymous Not-So-Merry zen0 July 04, 2015 9:44 PM  

During the war in the Balkans, ammo was money. Plus, any goods in short supply. In WW2 you could get a BJ for a pair of stockings. Cigarettes, other drugs, water, stuff like that. As long as you can defend your supply.

Don't stay in one place too long. Join the looters when convenient. Watch your back. Stay low. Look before you leap. He who hesitates is lost. Make alliances. Betray your alliances. Hide in the basement. Get out of town.

It is not rocket science.

Blogger James Dixon July 04, 2015 9:48 PM  

> Where does one put their cash? Stocks and options? That seems just as exposed. A money market account?

There is no true safety anywhere in this world for your average person. IF the government wants to take what you have, they will find a way.

That said, the traditional answer used to be a Swiss band account, but I'm afraid even that is no longer an option, as even a few of them have given in to US government demands.

So it appears that the best answer remains diversification. Across investment types, across geographic regions, and with multiple accounts.

Blogger Rantor July 04, 2015 9:50 PM  

Talk radio discussing Greece tonight. They actually have it right, the real problem no one in the EU will admit is that more than a half century of socialism will bankrupt anyone.

Anonymous VoK July 04, 2015 10:05 PM  

Let's say a client gives me check for fifty thousand dollars. What the hell am I supposed to do with it if I don't put it in the bank? I can't just cash it in this day and age.

I also need an account to pay payroll. Or any number of other bills. I don't see a valid way to avoid doing daily business with a bank.

Anonymous WillBest July 05, 2015 1:02 AM  

@VoK

I find the people that are most afraid of banks are the ones that aren't going to clear the 10k threshold. I can't imagine that the accounts involved are business designated accounts, but then I know a lot of people that stupidly use personal accounts to run their business. Anyway, if the bank lopped 30% off my business account, the very first thing I would do is charge out the equivalent onto the revolving credit line they extend my company and default right back.

I doubt I would get away with that in the long run, but I am sure I could drag that process out 4-5 years.

Anonymous Eric the Red July 05, 2015 3:30 AM  

It is time for a parallel government to be set up by traditionalists and true Christians. Inclusive to that is a parallel banking system based on Christian principles, including Karl Denniger and his well-thought-out tactics for banking as my primary adviser. I would set up Christian courts in lieu of the corrupt state-federal system, and argue them on the basis of what has already been pandered to re the moslem sharia courts. I would have a new Christian church that preaches that religion is politics is religion, and our religion is the one that must prevail starting now with active opposition. There are so many things to set up with a parallel government that we should start immediately, forming committees and rights of exclusion, severance, and if need be ultimately secession from the OneWorldFedGov. True Christian churches must immediately voluntarily renounce any tax benefits, and team together to create an alternative society, starting NOW.

Anonymous clk July 05, 2015 8:42 AM  

"It is time for a parallel government to be set up by traditionalists and true Christians. "

not really a new idea.... and on on indepence day weekend...


"...That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness"

Anonymous Ghost of Harriman July 05, 2015 2:16 PM  

Eric the Red:

I agree, but where does one begin?

Anonymous Scrooge McDuck July 06, 2015 3:52 PM  

Consider gold jewelry. An Argentine wrote a guide for Bad Times based on the Argentine experience in 2001 (?). He said that gold bars were bad since you c I u lent get change for day-to-day transactions. He recommended gold jewelry: old rings, watches, broaches, etc. The government may swipe gold bars, but granny's wedding ring? Not likely. Yet dont collect too much in one place. During the depression when they were confiscating gold they required a government agent to be present whenever a safety deposit box was opened.

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