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Archive | July, 2013

Warning Of Global Systemic Crisis 2.0 In Second Half 2013

There are many who take careful notice of the GlobalEurope Anticipation Bulletin (GEAB). I too, have often found it interesting, and insightful.

The latest GEAB is certainly worth reading, and heeding. But not for the obvious, headline reason.

It may be flagging in advance a “reform” agenda, to be triggered as a response to a new, bigger crisis. A reform that some, including myself, have long expected (excerpt-only below):

A situation which is now out of control

The illusions which have still blinded the last remaining optimists are in the process of dissipating. In previous GEAB issues we have already laid out the world economy’s grim picture. Since then the situation has got worse. The Chinese economy confirms its slowdown (1) as well as Australia (2), emerging countries’ currencies are disconnecting (3), bond interest rates are rising, UK salaries are continuing to fall (4), riots are affecting Turkey and even peaceful Sweden (5), the Eurozone is still in recession (6), the news filtering out of the United States is no longer cheerful (7)…

Nervousness is now clearly palpable on all financial markets where the question is no longer knowing when the next record will be but succeeding in getting out soon enough before the stampede. The Nikkei has fallen more than 20% in three weeks during which there have been three sessions with losses exceeding 5%. So, the contagion has now reached the “standard” indices such as the stock exchanges, interest rates, and currency exchange rates… the last bastions still controlled by the central banks and, therefore, totally distorted as our team has repeatedly explained.

In Japan this situation is the result of the over-the-top sized quantitative easing programme undertaken by the central bank. The Yen’s fall has brought about strong inflation in the price of imported goods (particularly oil). The huge swings in the Japanese stock exchange and currency is destabilising the whole of global finance. But the implementation of the Bank of Japan’s programme is so new that its effects are still much less pronounced than those of the Fed’s quantitative easing. It’s primarily the Fed which is responsible for all the current bubbles: real estate in the United States (8), stock exchange record highs, bubbles in and destabilisation of emerging countries (9), etc.

It’s also thanks to it, or rather because of it, that the virtual economy has got going again with even greater intensity and that the necessary balancing hasn’t taken place. The same methods are producing the same effects (10), an increased virtualisation of the economy is leading us to a second crisis in five years, for which the United States is once again responsible. The central banks can’t hold the global economy together indefinitely; at the moment they are losing control.

A second US crisis

If the months of April-May, with a great deal of media hype, seem to agree with the US-UK-Japanese method of monetary easing (to put it mildly) against the Euroland method of reasoned austerity, for several weeks now the champions of all-finance have had a little more difficulty in claiming victory. The IMF, terrified by the global impact of the economic slowdown in Europe, doesn’t know what else to come up with to force Europeans to continue spending and make deficits explode again: even empty boutique World must continue to give the impression that it’s still in business, and Europe isn’t playing the game.

But the toxic effects of central bank operations in Japan, the United States and the United Kingdom now demolish the argument (or rather propaganda) touting the success of the “other method”, supposed to allow recovery in Japan, the US and the United Kingdom (incidentally, the latter has never even been mentioned).

The currently developing second crisis could have been avoided if the world had taken note that the United States, structurally incapable of reforming itself, was unable to implement other methods than those which had led to the 2008 crisis. Like the irresponsible “too big to fail” banks, the “systemically” irresponsible countries should have been placed under supervision from 2009 as suggested from the GEAB n° 28 (October 2008). Unfortunately the institutions of global governance have proved to be completely ineffective and powerless in managing the crisis. Only regional good sense has been able to put it in place; the international arena producing nothing, everyone began to settle their problems in their part of the world.

The other crucial reform advocated (11) since 2009 by the LEAP/E2020 team focused on taking a completely new look at the international monetary system. In 40 years of US trade imbalances and the volatility of its currency, the dollar as the pillar of the international monetary system has been the carrier of all the United States’ colds to the rest of the world, and this destabilising pillar is now at the heart of the global problem because the United States is no longer suffering from a cold but bubonic plague.

Absent having reformed the international monetary system in 2009, a second crisis is coming. With it comes a new window of opportunity to reform the international monetary system at the G20 in September (12) and one almost hopes that the shock happens by then to force an agreement on this subject, otherwise the summit risks taking place too soon to gain everyone’s support.

——–
Notes:

(1) Source: The New York Times, 08/06/2013.

(2) Source: The Sydney Morning Herald, 05/06/2013. Read also Mish’s Global Economic, 10/06/2013.

(3) Source: CNBC, 12/06/2013.

(4) Source: The Guardian, 12/06/2013.

(5) Read Sweden’s riots, a blazing surprise, The Economist, 01/06/2013.

(6) Source: BBC News, 06/06/2013.

(7) Read Economic dominos falling one by one, MarketWatch, 12/06/2013.

(8) A bubble in current market conditions; normally this would be considered a thrill. Market Oracle, 10/06/2013.

(9) On the consequences of worldwide QE in India: Reuters, 13/06/2013.

(10) The return of financial products at the origin of the 2008 crisis is not insignificant. Source : Le Monde, 11/06/2013.

(11) Cf. GEAB n°29, November 2008.

(12) Source: Ria Novosti, 14/06/2013.

Hmmmmm.

September 2013.

That would be convenient timing.

Since we have now seen the irrefutable evidence that, as agreed at Seoul in 2010, the G20 nations — in particular, the EU, UK, USA, Canada, Australia, and New Zealand — are all now well advanced in their preparations to implement a Cyprus-style “bail-in” of banks.

See Timeline For “Bail-In” Of G20 Banking System.

I’ve said it before, and will again.

Any “new” monetary system that is suggested by the usual suspects — the internationalist IMF, World Bank, FSB, etc, which are all little more than elitist bankster covens — is NOT the new monetary system we should want.

Because it would only ever be, as now, their system. Of their design. For their benefit.

What the world needs is something very different to anything that the bankers would ever promote –

Imagine A World With No Banks

“Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”

– Napoleon, 1815

Tags: GEAB, GFC, IMF, leap2020, monetary system, reserve currency

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Labor’s Economic Plan: Copy Cyprus And Iceland

19 Jul

Your humble blogger was interested to watch new treasurer Chris Bowen’s speech at the National Press Club yesterday.

Readers may have noticed that resuscitated PM Rudd has immediately distanced his own economic narrative from that of former PM Gillard, and her imbecilic deputy PM and “World’s Greatest Treasurer” Swan. Rather than their mantra-like “Strongest advanced economy / mining boom forever / everything is fine / stop being so negative” tripe, Kevin Rudd has instead begun to offer the teensiest bit of honesty about the problems the economy faces, both now, and in the weeks and months ahead.

So in that vein, I wondered whether our new treasurer might just put a little bit more meat on the bone of Rudd’s rhetoric, by outlining (or even hinting at) just what this “new Labor” under Rudd might have in mind in terms of economic policies. One could be forgiven for expecting so, considering that the title of Bowen’s speech was “Labor: Managing The Economic Transition“.

Now I grant you, unlike any appearance of Wayne Swan on TV, I was able to quite easily watch all of Bowen’s speech without feeling an immediate boiling of the blood and red mist descending. So that’s something to be said for our erstwhile new treasurer.

Shame then, that nothing good can be said for the content of his speech.

Indeed, it would appear Labor’s grand economic plan is to copy Cyprus and Iceland, by turning Australia into a “financial services centre” (my bold added):

The estimated net contribution of the resource sector to real GDP growth is expected to fall – from contributing to roughly half of Australia’s economic growth over the past two years to around a third by the end of the forecast horizon.

The production phase of the resource boom will also be significantly less labour-intensive than the investment phase.

This brings me to the second transition we face.

That transition is to growth being driven by the non‑resource sectors.

It’s not surprising to see Treasury forecasting that the non-mining economy will make a larger contribution to Australia’s economic growth.

These transitions will occur inevitably.

The question is: will they be smooth or bumpy? Will the Australian economy benefit from them or suffer?

Our challenge is in improving our productivity and competitiveness to assist in this transition.

This is the key economic challenge for the next three years – and lies at the core of Labor’s positive plan to promote competitiveness to spur jobs and investment.

This will mean working with the manufacturing and services sectors to promote investment.

I’m not talking about picking winners or subsidies – I’m talking about breaking down barriers to competitiveness.

What we’re doing in financial services is a good example of what can be done.

Financial services

The financial services sector has seen incredible growth in the last 20 years and it is this growth that we need to harness.

Despite the strength of the local industry, our exports and imports of financial services are low by international standards.

There is a great opportunity for the financial services industry to become more outwardly focused.

Encouraging competition and efficiency would improve the range and choice of financial products available to consumers and promote increased exports of financial services.

Improved economies of scale would reduce the costs of financial products for Australian consumers and businesses.

As our track record shows, only Labor is interested in taking advantage of these opportunities.

In 2009 and 2010, it was pretty unfashionable for Governments around the world to announce that they wanted to promote financial services.

But in January 2010, as Minister for Financial Services and Superannuation, I released the Australian Financial Centre Forum’s report on Australia as a Financial Centre – the Johnson Report as it became known – and four months later, the Government started implementing the key reforms.

Stages 1 and 2 of the signature reform – the Investment Manager Regime – have passed the Parliament.

We have taken steps to create a deep and liquid corporate bond market in Australia. Legislation to simplify corporate bonds issuance has passed the House of Representatives.

The Government has passed legislation to enable the retail trading of Australian Government Bonds.

And the Government recently announced that Australia will be the third major currency in the world to be able to trade directly against with the Chinese Renminbi, after the US dollar and the Japanese Yen, in China’s foreign exchange market.

Why have we done this?

Because Labor knows that increased trade in financial services will increase Australia’s growth prospects and standard of living.

We know positioning Australia as a financial services centre in the region means that we would be able to offer increased job opportunities for a range of skilled workers in the financial sector.

And there is potential to do so much more.

Yes, I can just see all those tradies coming back from the mining construction boom, shedding their Consciences, donning white collared shirts, and learning how to become peddlers of usury products.

Aspiring to be a “financial services centre” is nothing more, and nothing less, than aspiring to copy the economic model of Iceland and Cyprus, both of whom enjoyed an initial “boom” from doing this.

Followed by another one.

If this is what Labor have to offer in terms of “managing the economic transition”, then we really are in deep, deep doo doo.

A final comment.

It is interesting to this blogger to note the complete absence of criticism of Bowen’s speech in the mainstream press, either yesterday or today.

Bowen’s speech contained no indication of Labor having any other new economic policy initiatives. None whatsoever.

A “financial services centre for the region”. That is the great Labor plan, or so it would seem.

After what we have seen happen to other small nations that embarked on this same path, what we should have seen is the media tearing strips off Labor.

Instead, if anything, what we have seen is muted applause.

Methinks the economic commentariat’s left-leaning slip is showing under their skirts.

Tags: chris bowen, economic transition, financial services centre, mining boom

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Crisis Management: APRA To Be Given Power To “Direct” Your Super

17 Jul

Australian Treasury, Strengthening APRA’s Crisis Management Powers, September 2012, page 34 (click to enlarge)

It’s been a big week for your humble blogger, vis-a-vis finding incriminating evidence on government websites.

Here’s another example of something I have warned of (repeatedly) since the inception of this blog, now coming to fruition.

That like so many other countries in the Western world since 2008, our government too would, someday, use the pretext of “crisis management” to steal your super to prop up an insolvent financial system.

Today, we learn that the Orwellian euphemism that has been chosen to describe this process in Australia, is “direction powers”.

From the Australian Treasury’s Consultation Paper, Strengthening APRA’s Crisis Management Powers, September 2012 (my bold emphasis added):

2.3.1 Potential new direction triggers

…it is being considered whether APRA should have new direction powers in relation to superannuation.

The purpose of the direction powers would be for the rectification of significant problems, in the nature of an enforcement power.

Possible triggers for the issue of a direction might include:

a breach of the RSE licensee law or licence condition;
an anticipated breach of the RSE licensee law or licence condition;
promoting instability in the Australian financial system;
conducting affairs in an improper or financially unsound way; and
where the failure to issue the direction would materially prejudice the interests or reasonable expectations of beneficiaries of the superannuation entity.

Note carefully what is being described here.

Earlier in the same document, the Treasury department bemoaned that:

APRA has comprehensive direction powers in relation to ADIs, general insurers and life insurers but not in relation to RSE licensees, even though the superannuation sector holds approximately $1.4 trillion in savings and a number of superannuation entities hold tens of billions of dollars in assets.

Oh dear! All that money, just sitting there making private sector fund managers rich on fees, and they (the government) don’t have the power to direct what happens to it. Sacre bleu!

Treasury went on to say that APRA needs an “early intervention tool” that is “preemptive”, and so allows it to “address a superannuation entity’s deterioration or non-compliance with prudential requirements”:

Australian Treasury, Strengthening APRA’s Crisis Management Powers, September 2012, page 34 (click to enlarge)

Now here is where the cunning comes in.

How do you ensure that you give yourself the ability to “trigger” your new “enforcement power”, in order to give “direction” to a superannuation fund to … oh let’s say … direct a percentage of its (ie, yours, dear reader) money into government bonds to support the national government’s solvency? Or to the shares of a collapsing bank? Or to the shares in a new “bridging institution”, as directed by the FSB under its new, G20-wide bank resolution “bail-in” regime?

Easy.

You establish a set of “triggers” for your new “direction power”. Just like those they have listed above. Including, most notably, the trigger that — in their judgment — “the failure to issue the direction would materially prejudice the interests or reasonable expectations of beneficiaries of the superannuation entity.”

In other words, if APRA (or the IMF, or FSB, who now tell APRA what to do) were to decide that it “would materially prejudice” your interests if they did NOT “direct” your super fund to do whatever the government wants, then that is all the “trigger” they need to enforce a “direction” on your super savings.

Don’t believe me?

Think I’m twisting what they said?

Read it again.

Very carefully.

With special note of this:

Enhancing direction powers in superannuation would allow APRA to detail specifically how an entity must address an identified concern. Direction powers would enable APRA to direct the entity as to what should be done to remedy the situation…

What if the “identified concern” is that “failure to issue the direction would materially prejudice the interests or reasonable expectations of beneficiaries of the superannuation entity”?

Or what if the “identified concern” is simply that the super funds are not parking your money in the “investments” that the government wants them to, and that this is or could be “promoting instability in the Australian financial system” — another one of the “triggers” listed?

By this action, the government is effectively abrogating to itself what is essentially an unlimited power to “direct” your super fund to do “specifically” whatever the government says with your money, under the dangerously broad, and subjective, Big-Brother-Knows-Best pretext that “failure to issue the direction would materially prejudice” your interests.

See also:

Your Super Screwed By The Laboral Party

Stealing Our Super – I DARE You To Ignore This Now

Tags: APRA, bail-in, bailout, crisis management, RSE, superannuation, treasury

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IMF Tells Australian Lawmakers To “Prevent Premature Disclosure Of Sensitive Information” On Bank Bail-Ins

17 Jul

IMF: Financial Safety Net and Crisis Management Framework, November 2012, page 4 (click to enlarge)

IMF: Financial Safety Net and Crisis Management Framework, November 2012, page 5 (click to enlarge)

Orwell would be impressed with this.

In a November 2012 Technical Note on the Financial Sector Program Update for Australia, as part of their Financial Safety Net and Crisis Management Framework, the IMF has advised that there is a problem (my bold emphasis added):

Past simulation exercises revealed the need for legislative changes to prevent premature disclosure of sensitive information. Australia’s securities disclosure regime requires, for the protection of investors, immediate and continuous disclosure of information that could reasonably be expected to have a material effect on the price or value of an ADI’s securities. There is a high probability that any resolution or crisis response measures will impact the price or value of an authorized deposit-taking institution’s (ADI’s) securities.

Poor coordination of compliance with the disclosure requirements, timing of resolution or crisis response actions, and the overall public communication strategy regarding these actions could pose risks to financial stability (e.g., through depositor runs) or thwart resolution actions (e.g., through the stripping of the ADI’s assets by insiders) or cause market disruptions. Legislative changes that reduce tension between investor protection and financial stability should be pursued.

“Reduce tension” between investor protection and financial stability?!

By making laws to “prevent premature disclosure of sensitive information”?!?!

In order to prevent bank runs, which would happen if investors were to find out that a Cyprus-style “resolution or crisis response measure” is in the offing for the bank that they have their money in?!?!!!!

Truly, moral relativism is one of The greatest evils of our time.

These people have no Conscience.

None.

UPDATE:

The Treasury department put this problem to the banks in their September 2012 Consultation Paper, with a proposal to suspend the continuous disclosure requirements:

Australian Treasury, Strengthening APRA’s Crisis Management Powers, September 2012, page 26 (click to enlarge)

Australian Treasury, Strengthening APRA’s Crisis Management Powers, September 2012, page 29 (click to enlarge)

… and unsurprisingly, the banks have agreed to it:

AFMA, letter to Australian Treasury, January 2013, pp 7-8 (click to enlarge)

Tags: ADI, ASIC, bail-in, banksters, cyprus, disclosure requirements, FSB, G20, IMF

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Australian Banks “Welcome” Cyprus-Style Bail-In Plan

17 Jul

AFMA letter to Australian Treasury, 11 January 2013, page 5 (click to enlarge)

On 11 January 2013, the Australian Financial Markets Association (AFMA) responded to the Australian Treasury regarding the government’s Consultation Paper (September 2012) Strengthening APRA’s Crisis Management Powers.

Click to enlarge

There is much of interest in AFMA’s letter.

But this (page 5) is arguably the “money quote” that should be of most interest to Aussies with savings in a bank:

“The FSB’s Key Attributes lays out its principles for executing a bail-in within resolution. We welcome the role of the bail-in tool for a resolution.”

The Australian Treasury’s consultation paper further evidences that the internationalist, Goldman-Sachs chaired, FSB-directed new regime for Cyprus-style bail-in of banks using depositors savings was endorsed by the G20:

Australian Treasury, Strengthening APRA’s Crisis Management Powers, September 2012, page 4 (click to enlarge)

… and that bail-in of Australian banks is an FSB requirement, one that will be enforced by APRA as Australia’s “resolution authority”, under new “robust statutory powers”:

Australian Treasury, Strengthening APRA’s Crisis Management Powers, September 2012, page 5 (click to enlarge)

More to come.

Timeline For “Bail-In” Of G20 Banking System

G20 Governments All Agreed To Cyprus-Style Theft Of Bank Deposits … In 2010

Tags: AFMA, bail-in, banks, cyprus, depositors, FSB, G20

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Get ‘Em Naked – Rudd’s Deal To Buy Youth Access

17 Jul

Next, a revival of his 2009 proposal to lower the voting age to 16?

From the Sydney Morning Herald:

The Labor Party’s advertising agency has been offering “exclusive” interviews with Prime Minister Kevin Rudd in exchange for free pro-Labor advertising and editorial on youth websites.

The deal, which also encouraged journalists to produce “entertaining content on the theme of the inadequacy of the Liberal NBN plan”, had been rejected on ethical grounds by Fairfax Media’s popular culture website, TheVine. Two other youth-focused websites – Vice and Pedestrian.tv – have received the same brief.

The deal was being spruiked by Naked Communications, the online and youth-focused advertising agency for Labor’s campaign.

Labor’s national secretary, George Wright, who is in charge of the election campaign, said he had never seen the advertising-for-access deal, despite the document carrying Labor Party branding…

Earlier a spokeswoman for Mr Rudd had said: “The actions of Naked Communications were conducted without the authority or knowledge of the Prime Minister, or his office.”

However, emails obtained by Fairfax Media suggest the Prime Minister’s office was informed of the negotiations.

After being told his deal for access to Mr Rudd was unethical, Naked Communications executive Nick Kavanagh discussed a compromise arrangement with TheVine’s editor, Alyx Gorman.

“No news from the [Prime Minister’s Office] as yet but we’ll keep you updated,” Mr Kavanagh wrote.

Politicians.

P . R . E . D . A . T . O . R . S.

Tags: election 2013, kevin rudd, Naked Communications, voting age, youth vote

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Bailout Fund Not So Stable: Fitch Downgrades Credit Rating Of European Stability Facility

16 Jul

Emptied your bank account yet?

The global ratings agency Fitch has downgraded the eurozone’s temporary bailout fund from AAA to AA+, following its downgrading of France’s credit rating.

On Monday, Fitch announced that the European Financial Stability Facility’s (EFSF’s) had lost its credit rating, saying that France’s downgrading had had a “high weight” on the EFSF fund’s credit status.

“EFSF’s ratings rely on the irrevocable and unconditional guarantees and overguarantees provided by euro area member states,” the ratings agency said in a statement.

On Friday, Fitch announced that France had lost its top credit rating, citing concerns about the lack of growth and the buildup of government debt in the second largest economy of the European Union.

Tags: credit rating, ESFS, Fitch Ratings

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Moodys Warns Of Australian Banking Collapse

15 Jul

Here’s some timely news. Timely, in that we have recently seen proof that the Australian Government has included plans for a Cyprus-style “bail-in” of the banks in the 2013-14 Budget.

From today’s Australian Financial Review:

Banks vulnerable to housing collapse

Australia’s banks have the highest exposure to the residential mortgage market than banks in other major economies, making a US-style banking collapse likely should house prices plummet.

And since the AFR has a paywall that prevents us reading more, here’s MacroBusiness with details of what Moodys had to say:

The continued strong expansion in real estate loans—at least relative to other lending segments—has raised some eyebrows. The Australian banking sector has the highest exposure to residential mortgages in the world, according to the International Monetary Fund (see Chart 5). With the absence of any publicly supported securitization market—such as that provided by Fannie Mae and Freddie Mac in the U.S.—and a currently weak private securitization market, any new mortgage originations have to stay on banks’ books. This trend has been exacerbated by recent changes to RBA rules in that the central bank will accept residential mortgage-backed securities, which may be internally securitized (that is, the loans may be securitized by the originating institution and held in their entirety by the same institution on their books), as collateral for loans.

The high degree of exposure to the domestic mortgage market raises many concerns. Recent experience has shown that house prices can fall significantly and trigger serious banking meltdowns. But what are the chances of a similar housing collapse in Australia? Many international analysts think the chances of an antipodean housing bust are quite high—it would take a bold economist who has been in a decade-long coma to declare that an Australian housing correction was impossible. When trends in Australian house prices are compared globally, the signs look worrying. House prices have increased for longer and faster than in many of the markets where prices cratered during the Great Recession.

Here at barnabyisright.com, we have warned repeatedly of precisely this scenario from the inception of this blog.

The FSB-directed new regime requiring the G20 nations to bail-in their banks using depositors money is looming ever nearer.

UPDATE:

Don’t say you weren’t warned. One example only, from 29 June 2011 –

RBA Says Our Banks Are Stuffed … In Other Words

Tags: australian banks, bail-in, banking collapse, housing bubble, moody's

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New Zealand Banks “Pre-positioning” For Cyprus-Style Bail-In

15 Jul

New Zealand has joined with Europe, the USA, the UK, Canada, and Australia, in preparing to “bail-in” its banks.

Excerpted from Timeline For “Bail-In” Of G20 Banking System:

JUNE, 2013 – Reserve Bank of New Zealand releases its Open Bank Resolution (OBR) Pre-positioning Requirements Policy, stating that the OBR “provides the flexibility to assign losses to creditors“ (meaning, bank depositors):

Reserve Bank of New Zealand, Open Bank Resolution (OBR) Pre-positioning Requirements Policy, June 2013 (click to enlarge)

In Definitions, the OBR states that “‘Customer account’, ‘customer liabilities’, or ‘customer liability accounts’ are unsecured liabilities of the bank represented by a range of products such as cheques, savings and other transactional accounts and including term deposits“, and that these are considered “in-scope for pre-positioning”:

Click to enlarge

The OBR further states that “The Implementation Plan is a key part of the documented evidence that pre-positioned arrangements to quickly close the bank, freeze a portion of customers’ claims to meet potential losses, and reopen the next business day and continue banking services, are in place”:

Click to enlarge

The first requirement for “Pre-positioning” is stated as being “That the bank can be closed promptly at any time of the day and on any day of the week, freezing in full all liabilities and preventing access by customers and counterparties to their accounts”:

Click to enlarge

…

New Zealand’s version of the FSB-directed bank “bail-in” regime appears even worse than the rest of the West.

Unlike the others, New Zealand does not even have the pretence of a “government guarantee” or “deposits insurance” scheme for small depositors.

From Voxy.co.nz –

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.

“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.

“While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.

“Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.

“If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”

Dr Norman questioned the Government’s insistence on pursuing Open Bank Resolution when virtually no other OECD country uses it.

“Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000,” Dr Norman said.

“OBR is not in line with Australia, which protects bank deposits up to $250,000.

Unfortunately, all the “deposit insurance” schemes in the West are not worth the paper they are(n’t) written on.

Cleverly, the FSB’s new G20 “bail-in” regime reclassifies customer deposits as “equity” in the failing bank, or, in a new “bridging” bank (ie, “recapitalisation”). This makes the customer’s “stake” — formerly a deposit — in that “new” bank liable for forfeiture.

Australia Plans Cyprus-Style “Bail-In” Of Banks In 2013-14 Budget

The Bank Deposits Guarantee Is No Guarantee At All

Tags: bail-in, cyprus, depositors, OBR, open bank resolution, pre-positioning, RBNZ

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Timeline For “Bail-In” Of G20 Banking System

14 Jul

How did it happen?

How did we come to a place where an unknown, unelected body of bankers and bureaucrats — chaired since its inception by former Goldman Sachs men — has duped the G20 heads of government into endorsing a scheme to “bail-in” the insolvent private sector banking system by stealing the savings of taxpayers?

Financial Stability Board: Key Attributes of Effective Resolution Regimes for Financial Institutions, October 2011 (click to enlarge)

How did we come to a place where the European Union, the UK, the USA, Canada, and now Australia and New Zealand, have all begun implementing a new regime for “addressing the problem” of “moral hazard” associated with government bail outs for “too-big-to-fail” financial firms — supposedly “without exposing the taxpayer to the risk of loss” — by stealing the savings of taxpayers?

FSB – G-SIFI, Nov 4, 2011 (click to enlarge)

Here is the timeline to date (click the links to verify original sources):

FEBRUARY, 1999 – Following recommendations by then President of the Deutsche Bundesbank (German central bank) and later the Vice-Chairman (2003-present) of the Board of Directors of the Bank for International Settlements (BIS), Hans Tietmeyer, G7 Finance Ministers and Central Bank Governors endorse the creation of a new body, the Financial Stability Forum (FSF). It is funded by the BIS, and based in Basel, Switzerland.

Former Goldman Sachs vice chairman and managing director, and now President of the European Central Bank (ECB), Mario Draghi, is appointed the first chairman of the FSF. Its stated purpose is “to promote stability in the international financial system“:

Click to enlarge

…

30 MAY, 2006 – Chairman and CEO of Goldman Sachs from 1999-2006, Henry “Hank” Paulson, appointed Secretary of the Treasury by George W. Bush. During his tenure at Goldman, it became a major player in the creation and sale of collateralised debt obligations (CDO’s), including subprime mortgage-backed securities ($135 billion from 2001-2007). A tax loophole introduced under former President George HW Bush enables Paulson to meet the conflict of interest preconditions for assuming a government position, by “divesting” most of his $700 million fortune in Goldman Sachs’ stock, tax-free.

During Paulson’s first 15 months as Secretary of the Treasury, Goldman Sachs sells $30 billion in toxic mortgage products to pension funds, foreign banks and other investors (including a 59% increase in 2006), and makes billions betting against its own products. In 2006 and 2007, as the housing bubble bursts, Goldman distributes $22.3 billion in year-end profit-sharing rewards to its 31,000 employees and $112 million in bonuses to Paulson’s successor, Lloyd Blankfein.

15 SEPTEMBER, 2008 – Lehman Brothers files for bankruptcy; credit crunch; stockmarket panic; Global Financial Crisis:

…

21 SEPTEMBER, 2008 – On a Sunday, Goldman Sachs is authorised to change its investment bank status, and becomes a traditional bank holding company, thus making it eligible for bailout funds.

26 SEPTEMBER, 2008 – French President Nicholas Sarkozy says “we must rethink the financial system from scratch”.

29 SEPTEMBER, 2008 – USA’s House of Representatives rejects the $700 billion Wall Street bank bailout bill promoted by Secretary of the Treasury, Henry Paulson. Dow Jones Industrial Average (DJIA) index plummets 777 points:

…

1 OCTOBER, 2008 – US House of Representatives agrees to “bail out” Wall Street’s too-big-to-fail (TBTF) banks, passing amended Emergency Economic Stabilization Act, including the Troubled Assets Relief Program (TARP) enabling the government to purchase up to $700 billion in “toxic assets” such as mortgage-backed securities (derivatives) from private sector banks. Despite being a prime cause of the subprime meltdown, Goldman Sachs is the largest individual recipient of public funds ($12.9 billion) from the bailout of insurance giant, AIG, makes $2.9 billion from “proprietary trades” on its own AIG account, and receives a further $10 billion directly from the US Treasury as an “investment” in preferred stock:

…

7 OCTOBER, 2008 – World Bank President Robert Zoellick calls for “a new multilateral network for a new global economy”, says that “We will not create a new world simply by remaking the old”.

13 OCTOBER, 2008 – British Prime Minister Gordon Brown says “We must create a new international financial architecture for the global age”, and that “We are proposing a world leaders’ meeting in which we must agree the principles and policies for restructuring the financial system across the globe”.

15 NOVEMBER, 2008 – First ever summit meeting for heads of government of the Group of Twenty (previously, a G20 summit of Finance Ministers and Central Bank Governors held since 1999). Titled the “Leaders Summit on Financial Markets and the World Economy”, the Washington Summit agrees on an “Action Plan” for financial market reform. It includes an expansion of the Financial Stability Forum to include emerging countries such as China:

…

2 APRIL, 2009 – G20 London Summit Declaration on Strengthening the Financial System gives the freshly renamed Financial Stability Board (FSB) a “broadened mandate” and “enhanced capacity”:

…

8 NOVEMBER, 2010 – FSB report to the G20 Progress since the Washington Summit on the Implementation of the G20 Recommendations for Strengthening Financial Stability states that “Good progress has been made in defining a policy framework to address the moral hazard risks posed by systemically important financial institutions (SIFIs)”, and that “The FSB is submitting to the G20 Seoul Summit a set of recommendations and timelines for implementation of this framework”:

Within the “recommendations”, for the first time the spectre of “bail-in” of banks is formally (though blink-and-you-miss-it briefly) mentioned —

“…higher loss absorbency could be drawn from a menu of viable alternatives and could be achieved by a combination of capital surcharges, contingent capital and bail-in debt“:

…

11-12 NOVEMBER, 2010 – G20 Seoul Summit endorses “the policy framework, work processes and timelines proposed by the FSB to reduce the moral hazard risks posed by systemically important financial institutions (SIFIs) and address the too-big-to-fail problem”, “without… exposing the taxpayers to the risk of loss”:

Click to enlarge

…

4 NOVEMBER, 2011 – Former Goldman Sachs co-head of sovereign risk and managing director of investment banking, chairman of the Bank for International Settlements’ Committee on the Global Financial System, and Governor of the central Bank of Canada, Mark Carney, is appointed the new chairman of the Financial Stability Board. He replaces fellow Goldman Sachs alumnus and current European Central Bank President, Mario Draghi.

4 NOVEMBER, 2011 – FSB states that “the development of the critical policy measures that form the parts of this framework has now been completed. Implementation of these measures will begin from 2012“:

The FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions expressly identifies “bail-in” of banks as one of the “powers” that must be given to a single “Resolution authority” for each nation (G20) or jurisdiction (EU):

Financial Stability Board: Key Attributes of Effective Resolution Regimes for Financial Institutions, October 2011 (click to enlarge)

In the preamble, it is stated that one of the objectives is to make it possible for “unsecured and uninsured creditors to absorb losses”:

Click to enlarge

Each nation or jurisdiction is required to set up a “Resolution authority”, which is to be “responsible for exercising the resolution powers over firms…”:

Click to enlarge

The Resolution authority is to be given power to “transfer or sell assets and liabilities, legal rights and obligations, including deposit liabilities and ownership in shares, to a solvent third party,” … without consent:

Click to enlarge

Key Attribute 3.3 clearly states that any transfer of a bank’s assets or liabilities (ie, deposits) by the Resolution authority “should not require the consent of any interested party or creditor to be valid”, and, that any such action will not be deemed a “default” of the bank’s legal obligations –

Click to enlarge

…

25 JUNE, 2012 – Government of Cyprus requests bailout from the EU, due to losses in its banking system associated with the Greek debt crisis.

10 DECEMBER, 2012 – A joint paper by the Federal Deposit Insurance Corporation (USA) and the Bank of England (UK) titled Resolving Globally Active, Systemically Important, Financial Institutions states that “the authorities in the United States (U.S.) and the United Kingdom (U.K.) have been working together to develop resolution strategies that could be applied to their largest financial institutions”:

FDIC and BoE: Resolving Globally Active, Systemically Important,
Financial Institutions, December 2012 (click to enlarge)

It further identifies that “This work has taken place in connection with the implementation of the G20 Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions”:

FDIC and BoE: Resolving Globally Active, Systemically Important,
Financial Institutions, December 2012 (click to enlarge)

The paper explains that its focus is “the application of ‘top-down’ resolution strategies that involve a single resolution authority applying its powers to the top of a financial group”, and how such a strategy could be implemented “for a U.S. or a U.K. financial group in a cross-border context”:

FDIC and BoE: Resolving Globally Active, Systemically Important,
Financial Institutions, December 2012 (click to enlarge)

With regard to the USA, it explains that “the strategy has been developed in the context of the powers provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010“, and that such a strategy would “assign losses to shareholders and unsecured creditors“ (meaning, bank depositors):

Click to enlarge

With regard to the UK, it explains that “the strategy has been developed on the basis of the powers provided by the U.K. Banking Act 2009 and in anticipation of the further powers that will be provided by the European Union Recovery and Resolution Directive“, and that the strategy would “involve the bail-in (write-down or conversion) of creditors at the top of the group in order to restore the whole group to solvency”:

FDIC and BoE: Resolving Globally Active, Systemically Important,
Financial Institutions, December 2012 (click to enlarge)

Click to enlarge

The paper expressly identifies the origin of the “framework” for the bail-in strategy as being the FSB —

“It should be stressed that the application of such a strategy can be achieved only within a legislative framework that provides authorities with key resolution powers. The FSB Key Attributes have established a crucial framework for the implementation of an effective set of resolution powers and practices into national regimes”:

Click to enlarge

…

14 MARCH, 2013 – Reserve Bank of New Zealand releases draft Open Bank Resolution policy, which includes “bail-in” for failing banks using depositors’ money.

16 MARCH, 2013 – Cypriot Government agrees to EU-imposed conditions for receiving bail out funds, terms which include “bail-in” of Cypriot banks using depositors’ savings.

Cyprus is widely seen as a template for similar actions throughout the EU and the world. Forbes magazine states that “A new strategy has been unveiled around the world, with the first test run in Cyprus. Despite early denials, the ‘bail-in’ strategy for insolvent banks has already become official policy throughout Europe and internationally as well.”

21 MARCH, 2013 – Canadian Government’s Economic Action Plan 2013 states that “The Government proposes to implement a ‘bail-in’ regime for systemically important banks”, aimed at recapitalising failing banks by “the very rapid conversion of certain bank liabilities into regulatory capital”. It further states that “This will reduce risks for taxpayers”:

Canada Budget 2013 Economic Action Plan, March 21, 2013, page 145 (click to enlarge)

…

14 MAY, 2013 – Australian Government Budget 2013-14 Portfolio Budget Statement for the Australian Prudential Regulation Authority identifies implementation of the FSB-directed bank bail-in regime as a key strategic objective for 2013-14 —

“consolidate the prudential framework by enhancing prudential standards where appropriate, in line with the global reform initiatives endorsed by the G20 and overseen by the Financial Stability Board“:

page 134, Portfolio Budget Statements, Australian Prudential Regulation Authority, Australian Government Budget 2013-14, 14 May 2013 (click to enlarge)

…

20 MAY, 2013 – The European Parliament’s Economic and Monetary Affairs committee issues a press release stating that “The case in Cyprus showed how important it is to have clear procedures for making shareholders, bondholders and ultimately depositors foot the bill”.

Bank of England deputy governor Paul Tucker says that draft EU bank rescue laws would be a milestone towards “a global system”.

Reserve Bank of New Zealand, Open Bank Resolution (OBR) Pre-positioning Requirements Policy, June 2013 (click to enlarge)

Click to enlarge

…

27 JUNE, 2013 – The European Union agrees on “bail-in” rules as part of the Bank Resolution and Recovery Directive.

1 JULY, 2013 – Mark Carney appointed to a second term as chairman of the FSB; also becomes Governor of the Bank of England.

3 JULY 2013 – The Financial Times warns that the EU’s newly agreed ‘Bank Resolution and Recovery Directive’ “swings Europe from one extreme – a system laden with implicit government guarantees that protected bank creditors from bearing losses – to the other”, and “risks old-style bank runs”.

************

To be continued…

Observant readers will note that the G20 heads of government endorsed the FSB’s “recommendations” (Seoul, Nov 2010) a full year before the FSB actually completed their “framework”, and finally documented that the power to bail-in the banks using depositors’ savings would be a requirement (“Key Attributes…”, Nov 2011). Prior to this, the only reference to the possibility of bail-in (with no mention of depositors) was one obscure, and very brief, reference in the FSB’s 2010 “Progress…” report to the G20 Seoul Summit; the report on which the G20 leaders based their decision to formally endorse, and implement, the yet-to-be-completed FSB framework —

“…higher loss absorbency could be drawn from a menu of viable alternatives and could be achieved by a combination of capital surcharges, contingent capital and bail-in debt.”

Amidst all the celebrity shoulder-rubbing, champagne, caviar, and photo ops, I wonder how many of the G20 leaders actually read the document, much less noticed that tiny part.

Or — if any of them did — if any had the first clue what it meant.

Australia Plans Cyprus-Style “Bail-In” Of Banks In 2013-14 Budget

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Tags: bail-in, cyprus, Economic Action Plan, Financial Stability Board, FSB, Goldman Sachs, Key Attributes of Effective Resolution Regimes for Financial Institutions, mario draghi, mark carney, TBTF, too big to fail

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To be continued…

UN UDHR – Article 19

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UN UDHR – Article 19

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