Home » Creeping Fascism » Money In The Bank? No Thanks

Money In The Bank? No Thanks

by John Rubino on March 22, 2013 · 23 comments

In Niall Ferguson’s Civilization: The West and the Rest, he presents a list of institutional arrangements that turned a bunch of ignorant, “malodorous” Europeans into the world’s dominant culture in the space of a couple of centuries. One of those institutional arrangements was property rights. That is, when something is yours it’s yours, not the king’s or the clergy’s or the local lord’s. A contract, once agreed to, is sacred before the law and is enforced by the powers-that-be.

This institution hasn’t always been perfectly respected, of course, but in the West’s more successful capitalist democracies it has been solid enough to allow citizens to work, save, create and innovate, reasonably secure in the knowledge that they’ll get to keep most of what they earn and all that they save.

The centrality of property rights is why Cyprus is sending shock waves through the global financial system. Smaller than Greece, difficult for most Europeans (and for virtually any American) to locate on a map, this pretty little island (the home, I just discovered, of Mt. Olympus) was the scene of an attempted crime that, had it succeeded, would have produced bank runs in a dozen countries and pretty much vaporized the financial systems of Italy, Greece, and maybe Spain.

As everyone knows by now, the European Union, in return for a rounding-error-tiny bailout of 10 billion euros, coerced Cyprus’ leaders into trying to confiscate 6% – 10% of every local bank account. Universal outrage stopped the theft in its tracks, but not before the world got a glimpse of their leaders’ true natures. To “the Troika” what’s theirs is theirs and what’s yours is theirs, and quaint concepts like private property are always subordinate to the maintenance of power.

This isn’t the first assault on property rights since the financial system seized up in 2009. In the US, contracts governing bond seniority were abrogated when General Motors went bankrupt. A case could also be made that the US bank bailouts were a blatant theft of taxpayer cash — and that inflation itself violates property rights by secretly stealing savers’ wealth.

But taking the bank accounts of people who had no role in their bank’s bad decisions or the economic policies that led to the bailout is the first theft that’s visible and understandable for the average person. As such it risks changing mass psychology in a way that no other financial crime of the past thirty years has done.

We now know that in a pinch the guys in charge will come after our assets. And since black swans are lined up like jets waiting to land at Heathrow, it’s a safe bet that some future crisis will be big enough to lead Congress or the ECB or some other predator to try to plunder broad categories of financial accounts. Trillions of dollars are sitting in US IRAs and 401(K)s, for instance, untaxed and just waiting to be converted to Treasury bonds for the greater good.

But a raid on 401(K)s is a while away. More immediately, like on Monday, what Italian in their right mind will leave money in their local bank after seeing what happened to Cypriots this week? Probably not many. Which means bank runs, followed by capital controls, followed by another euro-crisis eruption.

And even if some adroit policy deception prevents a bank run on Monday, our conception of a savings account – or any other financial account – has changed. What’s ours might not really be ours, if the government wants it.

  • Jason Carter

    Hey, at least it was an honest, straight-forward attempt at theft, unlike the deceptive methods used here in the U.S.

  • Davinci Jeremie

    One word sums up your conclusion… Duh!

  • QEternity

    Bennie & the (ink)Jets are robbing us every day now. With every dollar they print they rob us. With every manipulated interest rate, gold suppression scheme, blind eye to the fraud of the banksters — they rob us.

  • http://www.facebook.com/dick.taytorship Dick Taytorship

    Mount Olympus is in GREECE, located in the Olympus Range about 100 kilometres away from Greece’s second largest city.

    • PaperIsPoverty

      There are apparently 6 different mountains named Mount Olympus in Greece plus the one on Cyprus… enough to confuse anyone. But the one you mention seems to be the famous one.

  • SelfGov

    Right on – let’s join in the Cyprian protest and place big black NO’s on all our palms too.

  • Roy Cobden

    In some senses the Cyprus situation should be seen as a good thing. The measures to which the central bank types will resort are now crystal clear. There should no longer be any doubt, in anyone’s mind, about how far they’re prepared to go to preserve the financial status quo.

    Perhaps Cyprus is a trial balloon of sorts. Time will tell.

    The Cypriot government, knowing full well how much Russian money is on deposit, and the murky origins of some of it, decided probably more out of mortal fear than any sense of moral duty, that they wouldn’t go down that road. Yet.

    An interesting week is shaping up, and we should soon see who Cypriot politicians fear the most. Eurobankers, Russian mobsters or the Cypriot people.

  • Walther11

    Governments will act in whatever way is best for the organization, of that you can be sure. I would not advise anyone to put more money in 401ks or SEP accounts. Your just asking to get screwed if you do. Only bank what you absolutely need to in order to pay your bills conveniently, keep the rest outside the banking system. They aren’t paying you anything in interest anyway.

  • Rich

    As far as I know, the Cypriot banks paid higher interest rates than other European banks before the bust. That means depositers should have known that they are taking risks. But of course, there was the promise that deposit insurance would keep them whole. That certainly would have been the case, if only some banks had gotten in trouble, but that is not how it went down. And at the end of the day, depositers are nothing more than creditors to the bank; and when the bank gets in trouble they are taking a hair cut.
    This is the takeaway from the episode. Deposit insurance is nothing more than a fig leaf behind which banks have engaged in risky speculation. When systemic problems develop, there is not enough capital in the insurance fund to cover the losses. Ths is not confined to Cyprus. It is a global probelm.

    I received the message loud and clear and I have been arranging my financial affairs accordingly

    • PaperIsPoverty

      These were the Cypriots’ local banks, though. It’s not like UK savers speculating by transferring their deposits to Iceland to take advantage of high interest rates. These were just the banks down the street, so I don’t think they ever looked at opening a simple savings account as an investment that required risk assessments. Especially, as you say, with the deposit insurance guaranteeing they couldn’t lose money. Alas….

      • PaperIsPoverty

        Your point is taken re: Russian money, I was just thinking of the common people who really can’t afford to lose their money.

  • Chris

    Trillions of dollars are sitting in US IRAs and 401(K)s, for instance, untaxed and just waiting to be converted to Treasury bonds for the greater good. Please correct that to be ‘for the greater crooks’.

  • PaperIsPoverty

    An excellent post, thanks John. The violation of property rights feels all the more surprising because of deposit insurance, which was supposed to protect the common people in case of bank failures (i.e. in exactly this sort of situation). Meanwhile in the US we have $33 billion in FDIC insurance to cover $10.8 trillion in deposits, according to Greg Hunter.

    Now they’re going to limit withdrawals in Cyprus, which I think they’ve already done in Italy (for cash withdrawals at any rate). I remember some Americans having trouble removing cash in late 2008 / early 2009 if they wanted to take out (say) $10,000 or more. Maybe in the US they won’t legislate withdrawal limits, they’ll just allow banks to have a “policy” that limits cash withdrawals. In any case, I’m not waiting to find out.

  • Bill johns

    Fifty minute after open on Friday, March 22. A quick check of MSM/CNBC shows not one bit of “good” news on the front page. The markets soar on the rumor that Cyprus “might” be saved, yet virtually everyone admits that there is no “saving” solution. If the EU”wins, Cyprus loses, if the EU loses, Cyprus loses, If Russia wins, the EU loses, etc. The disconnect between reality and the markets is unreal. Welcome to the “New Abnormal”.

  • http://twitter.com/FrankHollenbeck Frank Hollenbeck

    “And since black swans are lined up like jets waiting to land at Heathrow,”.that has to be the best line I have ever read!

  • Bruce C.

    First of all, I want to congratulate JR on such a well written piece. It’s one of the best I’ve read here.

    It’s a little ironic that most of the readers at sites like this can only experience the shock and awe of the mainstream vicariously. When half the readership is expecting any day now the proverbial taxi drivers of the world to be talking about owning gold at all costs, how surprised can we be about this?

    More than a little, I’ll wager. It’s one thing to talk about the various stages of collapse of the global financial system and quite another to actually witness, if not experience, them. As a “Constitutionalist”, basically mistrustful of governments in general, I have to admit that I was surprised by the decision of the EU and IMF, but not for what they did but when they did it and the reasons given for it.

    It seemed petty and penurious, and so not the full story either. Still all the world under Draghi’s grandiloquent spell, suddenly Cyprus is asked to pay 5.6 B euros in order to receive 10 B euros in bank bailout funds. That’s a heady 4.4 B euros of wealth transferring accounting gimmickry, more than one hundredth the cost of bailing out little Greece. Why go off script so quickly and completely for pocket change? Perhaps the answer is within the question itself: Not the Russian government nor the EU nor the IMF wants to save Cyprus, and in that order. To the Russians, Cyprus enables tax avoidance and decontrol, and the EU needs Russia as an ally, and the IMF needs the EU to remain intact.

    But who knows or cares of any of this? Not many. Which to my mind explains the political miscalculation. The law of unintended consequences never sleeps, and insiders forget that. Taxing “Russian tax evaders and corrupt KGB largesse” seems terribly clever and no one will pity them, unless you’re wired to think in dumbed down sound bites, that is: You can’t take money from depositors because they’re insured!

    Not that I think the mass interpretation of this episode is wrong, it’s just right for the wrong reasons, and for reasons that have still not been integrated.

    JR writes: “But taking the bank accounts of people who had no role in their bank’s bad decisions or the economic policies that led to the bailout is the first theft that’s visible and understandable for the average person.”

    I think that’s a key point, and it illustrates several things, regardless of how germane it is to the Cyprus complex. First of all, it shows how insidious and successful stealth taxation is. Inflation is a universal example as some readers point out, as is the withholding of payroll income tax, but their pernicious effects remain invisible to most people. (And as for having to pay for things one doesn’t think they should, the list is potentially endless…) In the US, for example, money is deducted from people’s pay in small amounts at a time and – crucially – before they ever “see” it via the withholding requirement by employers. Skimming 6-10% of a bank depositor’s account balance in one swoop was a big tactical error for those who haven’t embraced communism fully. It possibly could have worked had the money been taken more gradually over time, though ZIRP has made any further leeching difficult.

    The heist also could have been more successful had the excuse been different. Claiming that depositors were financially liable for bad banking practices was too comprehensible and conflicted too directly with the concept of deposit insurance (even though that is precisely the purpose of said insurance). Too many ordinary people have been clued in to all the bail-out boondoggles. (When the EU offers bail-out money in return for money for bailing them out, everyone now knows that’s just an accounting gimmick to confiscate wealth.) American-minded people immediately interpret the attempted extortion as a violation of property rights but we are dealing with Europeans here. Europeans are more steeped in collectivism than elsewhere in the West so I suspect they’re reaction was based more upon the notion of a broken “social contract”. That may be splitting hairs but I think had the excuse for the money being taken been for some more insipid reason then the reaction could have been different, but certainly not to protect “the rich” and big financial interests from losses.

    Another take away is a kind of reality check for readers of websites like this. Based upon the comments I read, corruption in the financial world, nefarious vested interests among institutions, Ponzi financing, central banking and the need to protect the core at the expense of the periphery, etc. are taken for granted. So it may come as a surprise to many that the mainstream is so shocked that an arbitrary confiscation by “financial authorities” could occur. It just goes to show how non-conceptual and compartmentalized so many people’s thinking is. All of the various forms of confiscation are institutionalized by the same financial authorities – inflation, fractional reserve lending, mandates by central planners (e.g., ZIRP by the Fed), income taxes, etc. – so why would an occasional sweep of one’s money by those same authorities be such a game changer?

    Finally, note that cash itself is not (yet) being questioned. Just the protection of one’s cash is the issue du jour. Gold did not shoot up in price as some might have expected. That will come later.

    • Bruce C.

      P.S. Things don’t happen at high political levels by accident. The mainstream media’s message is that depositors are being ripped off and that this should not happen. The truth is that the depositors’ insurance system in Cyprus (analogous to the US’s FDIC) is as insolvent as everyone else so things can’t play out as they should (i.e., that bank deposits are consumed in a liquidation process and the depositor accounts are then reimbursed by the insurance agency, all transparently “over the weekend”, as happens every week in the US.) Everyone is caught in this big web of derivatives that has check-mated everyone. That is what Cyprus really represents. That insolvency is being masked by the “depositors must bail out the banks” red herring mass-media message to avoid precisely that, so not to expose the insolvency of the insurers, which really would ignite contagion.

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  • http://www.facebook.com/people/Karl-Mcdade/1170918404 Karl Mcdade

    It is my understanding that personal accounts, in Spanish banks that were bailed out by the government, were converted to stock in the bank. Not guaranteed and the first in line to lose money in a bankruptcy.

  • http://twitter.com/nomadcapitalist Nomad Capitalist

    Governments can take whatever you want since, as the House of Lords established 160 years ago, you don’t own it once it’s handed over. Your 401k, IRA, SEP, and other accounts they have under the control will be next.

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