Is It Time To Panic?

There's a lot of things in the pop culture-driven society we've become accustomed to keep us distracted, but behind the scenes the big players must be fully aware of a looming economic collapse that will make the home mortgage-led bust in 2008 that brought down major banks look like a mild touch of the flu. As I write, stock trading has been halted in China for the second time this year as its stock market continues to plummet. A massive sell-off is underway on our own stock market this morning. And something called bank bail-ins are already underway in Europe. Bail-in? What's that?

Ellen Brown at the Intrepid Report talks about the bank bail-ins that have already started to happen in Europe that could well happen here. It begins with the story of an Italian pensioner who took his own life in November when he learned that his entire life savings had been wiped out when his bank failed. The blame lied with the EU's Financial Stability Board, which has imposed an "orderly transition" when banks in the EU fail by allowing the seizure of the savings of bank investors and depositors to restore solvency to an otherwise insolvent bank. As the BBC described the rescue of several regional banks in Europe at the time:

The rescue was a “bail-in”—meaning bondholders suffered losses—unlike the hugely unpopular bank bailouts during the 2008 financial crisis, which cost ordinary EU taxpayers tens of billions of euros.

Correspondents say [Italian Prime Minister] Renzi acted quickly because in January, the EU is tightening the rules on bank rescues—they will force losses on depositors holding more than €100,000, as well as bank shareholders and bondholders.

. . . [L]etting the four banks fail under those new EU rules next year would have meant “sacrificing the money of one million savers and the jobs of nearly 6,000 people.”

But that's Europe. That could never happen here in the good old USA. Think again. As Brown explains, one former hedge fund owner, Shah Gilani, wrote in an article in Money Morning that he was closing his bank accounts in the United States while he still can. It seems that that our Congress inserted into that infamous Dodd-Frank Act language requested by the bankers to "protect the American taxpayer by ending bailouts." "But it does this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debtholders, and other unsecured creditors," Brown writes. "That includes depositors, the largest class of unsecured creditor of any bank."

Unfortunately, as Brown explains, Dodd-Frank didn't put needed restrictions on banks investing in risky derivatives. Shockingly, both Dodd-Frank and the U.S. bankruptcy code now provide that derivative claims have a super-priority over all claims, secured and unsecured, insured and uninsured. The largest market for derivatives is made up of banks and other "sophisticated investors" like hedge fund owners. Without trying to explain what they are in detail, they are essentially big bets placed by these big players against each other like a Las Vegas poker game. Your deposits at the bank are now considered just a loan that makes you stand in land like other creditors unlike the secured or collateralized  interest the holders of derivatives have under U.S. law. As of September 2014, U.S. derivatives had a market value of nearly $280 trillion. Is it time to panic? You bet it is.