The Eve Of Another Banking Collapse

Tuesday, December 2, 2014
By Paul Martin

Lenin Nightingale

During the American Economic Depression of the 1930’s, some bank deposits were devalued by 40%. In simple terms, this meant that deposits valued at $1,000 were deemed to be worth only $600. A plan agreed at the G20 Summit in Brisbane (November 16, 2014), allows for depositors’ money to be used to bail out ‘failing’ banks. That is, a contingency has been put in place to allow governments to use their citizens’ money to rescue banks which get into difficulties, because of their faulty mortgage lending policies, or reckless gambling on the derivatives market.

As this plan stands, only the deposits of larger investors will be used to bail out banks, but this may not remain the case. The techical ruse being used to bring about this robbery is one of redefining a customer’s bank deposit as a part of a banks’ capital structure, with other bank creditors having precedence (called ‘super priority’), over them in terms of any monies to be repayed in the case of a bank failure. These ‘preference’ creditors will include those with protected deposits, which include those guaranteed by the UK government up to £85,000, any other secured liability, any liabilities on OTC derivatives,* and any liabilities owed to an employer or former employer in terms of salary or pension. That is, the enormous salaries and pensions of top bank executives will be given more protection than the deposits of those who have worked and saved in the real world. The situation is made more diabolical by some banks tying savings products to the performance of their derivative gambling.

*Over-the-counter (OTC) derivative markets deal in financial contract linked to the future value of an underlying asset (e.g. the movement of interest rates or of a currency value, or of a mortgage debt portfolio. In effect, banks can play roulette, by betting whether an asset’s value goes up (black) or down (red). If the bet comes off, it can be extremely profitable, but, if not, the damage can be almost incalculable. The International Swaps and Derivatives Association (ISDA), estimated that, at the end of 2012, over-the-counter derivatives trade was worth $606 trillion, with the total world GDP for that year being only a seventh of that. The vast dimension of derivatives trading makes policing of it as difficult as spotting a criminal in the Amazon.

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