Bail-Ins are Fraudulent

April 4, 2013

In condemning the open criminality of Western regimes as they planned (well in advance) and then executed the robbery of funds from peoples’ bank deposits in Cyprus; it’s important to understand that such condemnation is not based merely on sentimental/populist grounds. Rather, the entire premise of the “bail-in” (as it was perpetrated in Cyprus) is fundamentally flawed.

The bank-robbery committed in Cyprus was based upon blatantly fraudulent reasoning; and thus the Western regimes in Europe which have already carried out this crime, and the North American regimes which have already made it their own, official policy are being intentionally dishonest in “marketing” it to their own peoples.

Specifically, there is no possible basis (either in contract law or logic) where bank depositors should be expected to indemnify the reckless gambling of the banks in which they have stored their savings. There is a glaring and inexcusable fiction being pedaled by the mainstream media and our governments here: that bank shareholders (i.e bank investors) and bank depositors (i.e. savers) are somehow equivalent classes of Sheep to fleece in “bailing-in” the reckless gambling and gigantic losses produced by Western Big Banks. They are not.

There is a direct and legitimate basis in both logic and contract law for assigning losses to bank investors foolish enough to entrust their risk capital to the world’s most-notorious gamblers. When one “invests” in any company; one implicitly assumes the risk of some or all of their capital being consumed by claims against the company, in the event the company experiences serious losses.

There is absolutely no legal or factual parallel with respect to bank depositors, i.e. savers. By definition; savers are individuals who have chosen not to “invest” their wealth – meaning they have chosen not to expose it to risk. Indeed, these same, criminal Western regimes have all created laws which explicitly recognize this legal Principle: depositor’s insurance.

Why do our governments (supposedly) provide “100% insurance” of our bank deposits (up to a considerable level)? In recognition of the Principle that such wealth should be entirely immune from any risk/loss - other than being eaten up at a voracious rate by the “inflation” being created by these same Big Banks and governments.

Do bank shareholders received such protection? No. Has anyone ever suggested that bank shareholders should have such protection (other than bank shareholders)? No. Why not? Because it is explicitly understood they have chosen to expose themselves to such risks (in return for enormously greater potential to profit from their investment).

So why have our governments suddenly chosen to pretend (contradicting their own, earlier laws) that “bank shareholders” and “bank depositors” are now essentially two peas in a pod when it comes to stealing from them? Why are bank depositors getting 0% of the “gain” of being a shareholder, but 100% of the pain when it comes to stealing their wealth?

This becomes simple to understand the moment one proposes financing these “bail-ins” 100% through shareholder equity (as it should be). What would be the unanimous response of the gambling, thieving bankers and the lying politicians? 

“There isn’t nearly enough shareholder equity we can squeeze out of these fraud-factories to come close to funding any bail-in.” Presumably the bankers and politicians would use somewhat different language to communicate this point.

What does it mean when the “equity” of a bank is absurdly inadequate when it comes to even partially financing a “restructuring”? It means that we are not dealing merely with some moderately insolvent institution, but rather with a hopelessly bankrupt entity. We are dealing with banks which are so completely/obviously bankrupt that they only way they can temporarily delay immediate bankruptcy is by stealing large amounts of money from Victims who could never/should never be legally exposed to any risk in these circumstances.

Put another way, the mere suggestion in any such scenario that bank depositors would/should/could be part of any “bail-in” is conclusive proof that the bank involved is so obviously bankrupt that it must immediately be put out of its (our) misery. To borrow Monty Python vernacular, it is the proverbial Dead Parrot.

However, let me play Devil’s Advocate here. Let me assume that during my three years in law school that I missed some legal “justification” for stealing from savers to indemnify the losses of gamblers. Let me assume that “Too Big To Fail” is not just a euphemism from the Corporate Media for allowing a financial crime syndicate to blackmail entire societies into permanently indemnifying all of their gambling losses, but rather is actually legitimate public policy.

How would/could the Cyprus Steal have been perpetrated in at least a slightly less-offensive and blatantly-criminal manner? To start with; if you’re going to suddenly start treating bank depositors like “shareholders”, then obviously you need to give them some shares. New shares, dollar-for-dollar for every dollar of their savings which has been “converted to equity.”

But they wouldn’t obtain those shares at the current share price of the financial institution (as was done with the Cyprus Steal). Obviously they would have to obtain their shares at a rate equal to the cheapest options or warrantspossessed by any current executive or officer within the bank. One could never allow the Gamblers who perpetrated the robbery from their own depositors to be allowed to create new shares for themselves at a better price than their victims.

If Bank Executives decided that such a price was “too generous” (for the Little People), that’s no problem. Simply declare that any/all cheaply-priced warrants and options held by all officers and senior executives are immediately null-and-void – up to whatever price-level those Executives would be comfortable issuing shares to their depositors.

Speaking of the executives and officers who perpetrated the bank robbery to ward-off the immediate bankruptcy of their own bank; obviously we need “more provisions” to govern how they are rewarded for their conduct.

It would be illegal to pay-out any “bonus” or non-salary incentive to any officer/executive of the bank for some suitable period after the bail-in takes place (Five years? Ten years?). It would be illegal to award any bank executive any raise in pay, until sometime after the bank has become genuinely profitable for two, consecutive quarters.

Naturally all severance packages for those same executives would also instantly become null-and-void. No Golden Parachutes for Gamblers who bankrupt their own companies to such an extreme degree.

To those Bank Apologists (i.e. the mainstream media) who would argue that such minimal justice would make it impossible for these banks to “retain and attract” competent personnel, the retort is obvious. To manage to bankrupt themselves to such an outrageous degree (despite receiving preferential treatment from government every day of their existence) proves quite conclusively that these fraud-factories never had any “competent personnel” to begin with – at least not in senior management.

Handing out carrots to bankers in the hope that these fraud-factories would suddenly begin hiring responsible/competent personnel in senior management is obviously not a “luxury” to which these welfare recipients are entitled. Show me a Western regime proposing to perpetrate their own “bail-ins” with similar provisions in place, and I’ll show you a government which hasn’t entirely forgotten the Rule of Law.

I’m not holding my breath.
 

Jeff Nielson

www.bullionbullscanada.com

Jeff NielsonJeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers/investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.

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