Plunderball – The new Euro banking game

So who will get shafted next? Will your lucky numbers come up?

We’ve all heard of deposit insurance, but does it mean what we all thought it meant – that up to a given sum we would not lose any money if our bank collapsed? And by the way – who pays the bill?

The simple idea we have all believed in was that up to a specified amount our money was guaranteed by a government  deposit insurance scheme. Most countries have one. As long as your bank is in it you’re covered. Or at least you were till this week.

Before we get to the rapidly evolving changes lets just go over the details of what used to be the case.

It used to be that below the guarentee limit your money was safe. It was only any amount above the guarantee, that you could lose in a restructuring. When a bank went under the normal bankruptcy rules swung into action (I’m leaving aside the TBTF gorilla in the room. Let’s not poke him just yet).TBTF aside – the collapsed banks’ assets would collected in into a pile and all the bank’s creditors (those who bought its debt, lent it money, put their money into it) would be put on a list in order of seniority, with share holders at the bottom, unsecured and Junior bond holders next with Senior insured bond holders at the top. Depositors were always ranked up there with Senior bond holders. Those at top would get most if not all of their money back and not take a loss, those at the bottom would lose everything.

As a depositor  you could still lose whatever money you had in the bank that was above the threshold but you might not. Your chances would be in line with the Senior bond holders. But as this bank debt debacle has mutated over the past 5 years so the old ranking of creditors has mutated with it. First the bail out funds like the EFSF and the ECB itself have made themeslves super senior. They have put themselves above Senior bond holders meaning in the event of a bank collape the ECB and EFSF, if they had been lending the bank money in return for collateral – would be first in line to get paid.

The private bond holders and the banks struck back at this idea a couple of years ago by ramping up the use of Covered Bonds. Covered bonds are  way of trying to put private bond holders back above the ECB and EFSF. They are sold to investors on the claim that they are not just covered by a senior claim on the general assets of the bank – which would make them the same as traditional Senior bond holders – but that the Covered Bonds were also backed by a specially ‘ring-fenced’ set of assets of their own. So in a collapse the Covered Bond holders would have those ring-fenced assets withheld specially for them from the general pool of assets everyone else was queuing up for.

It remains to be seen if the ECB et al would recognize this arrangement as being senior even to them. It also is not  clear to me in what I have read – if even the assets in the ‘ring-fence’ might not be pledged to more than one covered bond and possible even be hypothecated. None of this has, so far as I know, actually been tested in a case of competing claims at bankruptcy.

Be all that as it may – what is clear is that any amount of money you had above the guaranteed threshold would always have been at risk, BUT at the top of the pecking order alongside Senior Bond holders.

It is this long established order of seniority that has been torn up by what the EU tried to force upon Cyprus.  As the financial publication Euromoney comments in an article on events in Cyprus,

…the complacent bailing in of the man-in-the street was the casual abandonment of the creditor hierarchy.

This is why the finanical markets were nearly as shocked as the man in the street. This established hierachy is the entire basis of all the arguments for saying Senior Bond holders could not be made to take losses in a bank collapse. They had to be protected. Now I always dissagreed with this and still do. I feel very strongly that depositors should morally come above everyone, and the senior bond holders should be in line like everyone else, not held as sacrosanct. Basically my view is we should protect the 99% ordinary depositors NOT the 1% bondholders.

But here we are now with that order of seniority having been torn up by the politicians. How now to argue for the Senior bond holders not to be touched? Suddenly there is no argument from principle. The principle was flushed when the Troika backed the Cypriot plan to seize money from ALL depositors.  They can back-track and mumble about amendments to the plan all they like – the principle has been torn up.

So what now? What happens in this new disorder?

Well it turns out other countries have been preparing to enforce this same – ‘force losses on all depositors’ – idea. New Zealand, as reported in an article by interest.co.nz  has been working on what it calls its new Open Bank Resolution Policy (OBR). If put in place – and that is the NZ government’s intention,

The implementation of OBR would see all unsecured liabilities that rank equally among themselves, including deposits, having a portion frozen (My emphasis)

In response, as picked up over at Jesse’s cafe Americain,  NZ Central bank has argued that really nothing has changed because,

…depositors have always needed to understand that deposits are not guaranteed… [OBR]…does not change the fact that depositors and other creditor funds are at risk…

This is at best highly disingenuous. Actually everything has changed. Under deposit guarantee depositors only lose ABOVE a threshold amount. Under OBR they ALL LOSE a given amount straight away.

As the co-leader of NZ Green party Russel Norman pointed out,

… if a bank fails under OBR, all depositors will have their savings reduced overnight to help fund the bank’s bail out.

So it’s not just Cyprus. New Zealand has been working on the same idea. What about European countries?

ZeroHedge reported yesterday quoting from a report in El Pais, that Spain too has been working to implement the same idea.

 Spain, it would appear, has changed constitutional rules to enable a so-called ‘moderate’ levy on deposits

UPDATE – and now, as picked up by The Slog, we have Joerg Kraemer, chief economist of the German Commerzbank sugesting Italy could/should seize 15% of Italian deposits.

And what about the UK ? Surely those fine bowler hatted gents of Threadneedle Street and the Right Honourable fellows over at Westminster – who stand for all that is good and dependable and NOT FOREIGN or FRENCH, wouldn’t ever think of such an outrage.

Well sadly…

Back in December 2012 the FDIC and he BoE published a joint paper outlining their new approach for how to resolve any future collapse of one of the Too-Big-To-Fail banks, called  “Resolving Globally Active, Systemically Important, Financial Institutions” . The paper is the blue print for how collapses, at what it calls G-SIFIs  (Globally Systemically Important Financial Institutions) – get used to this term it will figure largely in your life in future whether you want it to or not- how they will be dealt with in future. I shall write more about this paper and the regime it outlines in future. It is not a pretty picture at all. But for now we need only look at section 34. which says,

34 The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI’s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors. (My emphasis)

As usual the official language is there to obscure rather than enlighten. But what it says is that the money that the Deposit scheme contains, instead of going to you, could now be used (read would be used) to bail out to the bank in order to prop it up. In other words the new system makes the Deposit Guarantee fund available for use as bail out money.

The rationale is that if using your deposit guarantee fund for propping up the bank ‘saves’ the bank from collapse then you wouldn’t need that deposit guarantee would you? This overlooks the one lesson we have all learned from the bank bail outs of the last 5 years, that the bail outs are never, ever, ever, a one off. The first one fails to save the bank as does the second and third and and and.

So if I have read the above correctly – the new system raids the Deposit Protection scheme, gives it to the bank instead of you  and when that fails to save the bank…then what? The bank fails again and there is no money left in the Deposit Guarantee scheme.

And then? My guess is the government would say how they will replenish the fund – because they have your best interests at heart after all – BUT given ‘the exceptional circumstances’ and the ‘unforeseen severity of events’, no doubt forced upon them by rotten foreigners – the scheme cannot now be as generous as they would have liked it to be and the amount of the guaranntee has to be lower.

So, so sorry.

And that is what I think is being planned in the UK and USA.

Will the UK and USA also go for the automatic seizure of money from accounts? My guess is they have been quietly planning on it but will now think twice about admitting to it. Preferring to keep it quiet until the next collapse when ‘circumstances call for desperate measures’ etc etc.

The reality is the banks are still bust – even the ones making huge profits – and when – not if – when the next bubble bursts and one bank starts to bring down another – they will all come for your money and we will all be collectively punished in order to make sure the wealthy and the powerful stay that way.

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94 Responses to Plunderball – The new Euro banking game

  1. Pat Flannery March 20, 2013 at 5:04 pm #

    Personally I left the banking system several years ago. I dumped Bank of America after decades of custom and moved my accounts to my local Credit Union. I encouraged my friends to do likewise.

    My reasoning: if I have to put my money in a shared mattress I want to know with whom I am sharing that mattress. Getting into the local credit union bed I was confident I knew who was in there with me.

    The message from Cyprus (and surprisingly from NZ) is to check out if there are any big rollers in the bed before you hop in. You will come out covered with the fleas of whomever is in there.

    So, the most important legacy of the Cyprus deposits shock may be a depositor-led separation of bank bedfellows, a sort of people’s Glass-Steagall. We can at least hope.

  2. El Sid March 20, 2013 at 5:15 pm #

    The rumor, and I repeat “rumor”, here in Spain is that deposit insurance has already been used as “collateral” for the busted bank.

    Amazing things these high-falluting financial instruments.

  3. HomerJS March 20, 2013 at 5:38 pm #

    I agree with Pat, and I think there is a great opportunity for some new (kind of) bank to come into the market and offer secure, simple banking. As long as they can offer facilities such as Direct Debits and online banking, then a risk free option could become ever more attractive and could attract lots of depositors. Would be very interesting to see the effect on other banks.

  4. John Souter March 20, 2013 at 5:59 pm #

    Oh what a tangled web we weave – only,at first, to deceive – then to find there’s no web left.

  5. KathyP March 20, 2013 at 6:58 pm #

    Thank you for this very clearly written piece. If there were no depositors, would a bank be able to lend (and thereby make) money? I do agree with you that the most protected should be depositors.

    • John G March 20, 2013 at 9:56 pm #

      Banks don’t lend deposits. Loans create deposits create reserves.

  6. Just me March 20, 2013 at 7:16 pm #

    “So who will get shafted next?”

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10872361

  7. Bam_Man March 20, 2013 at 7:16 pm #

    I believe this has been the plan all along. What do you think those TRILLIONS in excess reserves are doing sitting at the Fed? They are insurance against a global bank run. The banks don’t really even need our deposits at this point. Hair cutting depositors – or even exposing them to the possibility of such – is just a variation on the “negative interest rate” tactic to get monetary velocity to increase.

  8. KathyP March 20, 2013 at 7:58 pm #

    Bam_Man,

    I was thinking about my question and realized what you pointed out – banks don’t need the deposits of the small fry. The TBTF banks get “loans” from the Fed which they loan out at higher interest rates, thus making profits on the spread. Given the nearly non-existent interest paid on the little people’s bank deposits and the disappearance of any illusory safety in keeping one’s cash in the bank, begs the question of why to keep money in the banks at all. I’m going to take a good look at my mattress.

    Another question: While I do use credit unions for my deposits and all of my “banking” business, why would credit union deposits be any safer than bank deposits if the whole system collapses? I guess they wouldn’t.

    • Bam_Man March 20, 2013 at 8:36 pm #

      At this point – in a ZIRP world – the “retail” banking customer is an albatross as far as the big banks are concerned. I can tell you from experience that they are LOSING money on at least 95% of all retail deposit accounts. The infrastructure to service them (branches, ATM’s, back office, etc) costs a fortune. They can borrow BILLIONS any time in the inter-bank market for 0.20% and all that is required is a computer and a telephone. I wouldn’t be surprised at all if this is 100% intentional. Scare the people’s money out of the banks. Get them into “safer” government bonds and have them spend the rest – which would be “good for the economy”.

      And in answer to your final question, it is highly debatable whether money in a credit union is “safer” than money in a commercial bank in the event of a financial collapse. The deposit insurance funds are woefully inadequate to provide a meaningful backstop in that situation. The government would have to step in a that point. And a bankrupt government would not be in a position to do that.

      • KathyP March 20, 2013 at 8:57 pm #

        Bam_Man,

        Thanks for taking the time to reply. I recall a few years ago “convenience users” of credit cards (those being people who paid off their full balance every month) being referred to as “deadbeats” because they weren’t profitable for the banks. I guess it doesn’t surprise me that retail banking customers are losers for the banks, too. Just deposits to be plundered.

    • John G March 21, 2013 at 5:26 pm #

      No. Banks don’t borrow from anywhere to “fund” loans. They create the money out of thin air by computer keystroke entry. A new “loan” is a new deposit.

  9. Just me March 20, 2013 at 8:13 pm #

    “Germany to Cyprus: your banks might never re-open”

    http://euobserver.com/economic/119493

  10. Just me March 20, 2013 at 8:21 pm #

    “The financial crisis that began five years ago set the unusual project in motion.”

    http://www.dw.de/icelands-grassroots-constitution-on-thin-ice/a-16682469

  11. Alan B March 20, 2013 at 10:12 pm #

    “– the new system raids the Deposit Protection scheme, gives it to the bank instead of you and when that fails to save the bank…then what? The bank fails again and there is no money left in the Deposit Guarantee scheme.”

    Print more money but don’t call it QE this time.

  12. Patricia March 20, 2013 at 10:24 pm #

    New Zealand doesn’t have a deposit protection scheme at all. Saying that the Government has bailed out depositors of failed finance companies in the past so a precedent has been set. But the OBR is set to go into law in June or thereabouts. So on one hand there is a precedent and on the other there will be a law……

  13. The Dork of Cork. March 20, 2013 at 10:28 pm #

    This wiki page does not really mention the true cause of the late Medieval breakdown – free banking poison coming out of Venice (London) Florence (New York) Genoa (Frankfurt / Paris).

    http://en.wikipedia.org/wiki/Crisis_of_the_Late_Middle_Ages

    Which created a then global free trade system based on luxury rather then staple goods.

    But another great crash into entropy looks like whats ahead for us.

    The Physiocrats would have recognized the failure of the tap root agricultural economy
    Today the tap root is oil.

    These kinds of dramatic life support system failures leads almost always towards the imposition of military fiat by some group or another.

    http://en.wikipedia.org/wiki/Military_fiat

  14. The Dork of Cork. March 20, 2013 at 10:47 pm #

    The only solution (that will work for the most) is a detachment of deposit liabilities from banking “assets”
    Turn them into pure fiat claims independent of banking / asset creation.

    Peoples debts to banks will then be declared null and void.
    The assets value would then be based on its basic utility value rather then its (credit) “growth potential”.

    If the fiat cannot be leveraged by the banking system you will not get inflation.

    Internal commerce at least will become rapidly rational again , however much of the international trade system will break down with possible huge dislocation as many of the present service jobs in the west merely consume productivity elsewhere.

  15. Pat Flannery March 20, 2013 at 11:35 pm #

    Wolfgang Schaeuble probably has it right: the Cyprus banks may never reopen. What exactly would they open to do? To pay off all those rich Russian depositors? With what? Troika money? Not likely. The German electorate would go crazy. And rightly so.

    I think we have seen the last of the bailouts, or bailins or any other kind of “cure” for the rampant bank abuse epidemic. It is a bit like the widespread overuse of anti-biotics; pretty soon the microbes catch on and start to adopt. It is time for us microbes to adopt.

    I will be very surprised if the Cyprus banks open next Tuesday. I am kinda hoping that they won’t. A much better plan would be for the EU to launch a humanitarian relief program for the unfortunate small Cyriot depositors who got caught unawares.

    Banks are no different from meat suppliers who sell horsemeat as beef or car manufacturers who sell cars with faulty brakes. Mixing local depositors with wealthy foreign tax dodgers was an egregious breach of banking trust with the public. It is a bit like terrorists or criminals using women and children as human shields. The same could be said for what happened in Dublin in 2008. A financial services terrorist bomb went off in the middle of Dame Street crowded with innocent Irish shoppers.

    • Southern Cross March 21, 2013 at 12:27 am #

      “like terrorists or criminals using women and children as human shields..”

      Pat – what an excellent analogy for honest savers and businesses held to ransom by these parasites. I’ll remember that one.

  16. The Dork of Cork. March 21, 2013 at 12:53 am #

    @Pat
    You are mixing up Bank double asset debt (balance sheet money) with token money (which is of much higher value when the music stops.)

    Cyprus as a country still has value
    However its Banks “assets” don’t have value.
    As these bank assets are preventing rational use of available resources ( remaining wealth)

    If people were to loose their money claims wealth will merely transfer elsewhere. (i.e.it will not disappear)

    The wealth (resource usage) will possibly flow to the IMFs chief shareholders………the banks which own our western treasuries.

  17. OpenThePodBayDoorHAL March 21, 2013 at 1:07 am #

    Hank Paulson was the original “suicide banker”. He showed up with a three page paper and said “give me $700 billion right away or I’ll blow up the world economy!”. People forget that his request was for funds to help people pay down mortgages, not to hand to his buds at Goldman via AIG. Ten days later he did the old switcheroo. Only one guy noticed as far as I recall:
    http://dailybail.com/home/the-hammer-gets-hit-by-a-tree.html

    • Pat Flannery March 21, 2013 at 4:11 am #

      OpenThePodBayDoorHAL: “suicide banker”! I love it. That’s exactly what Paulson did. It worked so well that all western governments became copycats. Hopefully the trick is played out.

  18. Buck Turgidson March 21, 2013 at 6:19 am #

    I once was a senior bondholder in a Bankruptcy. The bankruptcy went on for years and years. By the time the lawyers had sucked every penny out of the bankrupt company there wasn’t any money left for old Buckie.

  19. Louise Racine March 21, 2013 at 12:52 pm #

    Enjoyed your article and followed your link to the paper and read it through. Made me very thoughtful……

    It appears to me that the “deposit guarantee scheme fund” is different for each country, as we are seeing unfold in Cyprus and the rumblings of what is to come in Spain. (Only as good as the county backing it and the magnitude of the crisis)

    My question is are there provisions in the FDIC Insurance “fine print” that allow for the “guaranteed $250,000 max”, to be forced to participate in a “ball-in” of the bank?

    It appears that this is the case in the UK (by inference from section 34)?

    Have you done this research and/or were does one go to find this?

    Short of ringing up a bank lawyer? lol ( I have an old retired bank lawyer that I worked with for many years that might be intrigued with this question, I’ll be emailing him next…. I’ll post what I hear from him)

  20. Bangers March 21, 2013 at 1:28 pm #

    Thanks for another informed piece David

    I know I haven’t bored you with it for a while but this is another reason why something like Bitcoin is so superior. Each individual can have complete control of their money and, as long as they have followed appropriate levels of security, nobody but nobody can access those funds. If you chose to you could even instigate a “brain wallet” that entails you simply remembering a pass-phrase of a few words. With that alone you can access your secured funds from anywhere in the world at any time.

    I’m not sure if you’ve been keeping track of them since you earned your first one back in October last year but they have somewhat exploded in value (up 600% since then and up 1380% over the last 12 months) on the back of a lot more positive coverage. They’re even up over 40% since the start of this week following the Cyprus debacle and FinCen’s release of a directive that was generally supportive (for now anyway).

    I’ve been amazed and fascinated by them since I first came across them. From those early days the most common thread on the forums questioned how the community could dissipate such an abstract concept widely to others.

    Fortunately, it looks as though our dear leaders have come up with a better solution that any of us could have hoped for.

    Who knows where it will lead but, as disruptive technologies go, this certainly has the potential to be the most disruptive of them all.

    • Golem XIV March 21, 2013 at 1:37 pm #

      Hello bangers,

      Yes like you I have been following them. They pose such far reaching questions. A means of issuing money that neither governments not private banks control.

      I see huge potential revolutionary power and the possiblity for them being used for the ultimate in tax avoidance.

      I would dearly love to spend a little time talking it over.

      • averagejoe March 21, 2013 at 3:47 pm #

        How about an article on Bitcoin sometime? I’ve heard of it before, but I know nothing about it. My main concern though, is the fact that unlike a gold coin, its not a physical thing. And therefore, if systems crash, its worthless. And therefore not resilient.

        • Bangers March 21, 2013 at 4:05 pm #

          hi averagejoe

          it’s actually incredibly resilient – it’s one of it’s many credible features.

          Think of Bitcoin as a globally distributed ledger system. A copy of this ledger (called the Blockchain) that has a record of every single Bitcoin transaction that has ever happened sits on thousands of personal computers around the world. For anyone to connect to the network their Bitcoin software HAS to have a copy of this ledger that has been provably verified by the entire decentralised Bitcoin network.

          You would have to delete every one of these many thousand copies of from each of those computers in order to destroy it. Even if a whole region went offline for whatever reason, a valid copy of it would be available as soon as internet access was regained.

          It is true that it’s not a physical thing like gold and I would always imagine that gold would always maintain its purpose.

          But you can’t create as many encrypted copies of gold as you want and store it offline in multiple places (for free) and you can’t send gold in an instant for virtually zero fees to anywhere in the world directly to another person’s Bitcoin wallet, bypassing the existing payment processing monopoly entirely.

      • Bangers March 21, 2013 at 4:27 pm #

        Hi David

        The coffee invite is still open when you’re in London:)

        I think the debate over the possibility of taxing Bitcoin would be one of the many hurdles that it will still need to overcome if it is to propagate peacefully.

        Personally, I think that would come down to how governments react to it if it ever gets to a point that it becomes bothersome to them.

        If they simply try to legislate against it they will have the same joy as those that have tried to stop BitTorrents and drive it underground, never being capable of killing it completely.

        On the other hand, they could choose to embrace it – unlikely I know – as making it illegal could well just push it into the System D economy anyway.

        However, most members of society and businesses within do value the need for fair taxes. Making it legal to accept Bitcoins but only by using a government approved client could vastly streamline tax collection.

        A Bitcoin client that automatically and instantly sent sales tax and/or income tax to the government’s purse could greatly improve efficiency and cash flow.

        This could also make for a fairer tax system that was driven by market forces. There would always be a threshold whereby people were happy to pay the tax and remain within the law or else, if set too high, decide that the risk of transacting outside the law was one worth taking.

        That may be a little idealistic but it is one possible approach they could take.

        • averagejoe March 21, 2013 at 5:14 pm #

          It sounds very interesting.
          In essense its a medium of exchange, like any currency. However, to ensure it has stable value, the quantity needs to be carefully managed. How and who decides this?
          A more detailed article would be helpful.

          • Bangers March 21, 2013 at 6:06 pm #

            At its core, Bitcoin is just a protocol and anyone could write their own software that states their own pre-defined rules of how that protocol is handled.

            If enough people decide that the rules that you have defined are acceptable to them then they may decide to start using your version of a Bitcoin-based currency too – JoeCoins, for example.

            The original version of the software defined a set of rules that have become by far the most widely accepted. There have been various alternatives to the original Bitcoin (namecoin, strongcoin, litecoin for exaample) with slightly different characteristics but none of these have yet been widely adopted as their characteristics are seen as inferior to Bitcoin by anyone that chooses to asses them.

            At the end of the day it is the network, i.e. the people choosing to use the currency, that decides what is best for them.

            All of the software that is used is completely open source so every line of code can be (and is) checked my anyone that chooses to do so. As such the network maintains its own integrity.

            Back to your question, Bitcoins are defined by the fact that a pre-defined number will be issued to the network every ten minutes. This started out as 50 new coins per ten minutes at inception in 2009.

            That rate halves every 4 years and is now, since December 2012, set at a rate of 25 coins per ten minutes.

            This halving will continue until some time around 2023 when no more coins will be issued and a total of 21m Bitcoins will be in circulation (each divisible to 8 decimal places so that leaves a lot of atomic units to trade with).

            Bitcoins are issued to the members of the network that choose to secure it by providing all the processing power to carry out the transactions. They are known as “miners” because, as with mining gold, they are the ones who supply the equipment (heavy duty GPU processors) and the energy (electricity – lots of it) to secure the network.

            Not just anyone can update the distributed ledger – that would be silly because anyone could just come along and write their own transactions in it and claim them to be valid.

            In order to update the ledger, the protocol requires the miners to find a new page or “block” in the ledger every 10 minutes. To find this page they have to perform a puzzle (or hash) of know difficulty (basically finding a long random number). The protocol adjust the difficulty based upon how much processing power is provided to the whole network so that the pace of finding new blocks remains constant at roughly 10 minute intervals.

            Once a miner has found a block they advertise the fact to all of the other miners on the network. They in turn check that the puzzle he has solved is valid and then all transactions for that 10 minute period are processed into that block. After 10 minutes a new block will be found and appended to the previous one. Over time this produces a multi-paged ledger (called the Blockchain) that provides a record of all transaction that have ever occurred.

            This makes the ledger very secure as it now becomes very very difficult to provide enough computing power to over-ride the whole network and go back and edit any of the previous transaction as an attacker would have to go back and re-hash each puzzle in turn. In fact it would take more than 51% of the total processing power of the whole network to even begin to do any damage and, even then, it would likely be limited.

            As it stands, the combined distributed processing power that is provided by the many thousand miners supporting the network is well over 5 times as large as the largest single super computer on the planet. The more people that support the network, the stronger it becomes.

            Now, dedicated hardware (ASIC processors are now entering the fray that are specifically designed to mine Bitcoins and work at far greater speeds than existing GPU processors) and the electricity required to run them cost a fair whack. As a reward for this effort and for their “proof of work” in solving the puzzle to find a block, the miner who discovers a block is rewarded with the 25 Bitcoins that are issued to the network every 10 minutes. This is what brings new Bitcoins into circulation at a known rate and at a known total supply.

            Nobody can just print a Bitcoin even if they did promise us that it was just to save us from ourselves!

            Hopefully that made sense and answers your question:)

      • Phil T. March 21, 2013 at 7:27 pm #

        In the 1990′s there were companies like Digicash and eCash amongst others that claimed to offer products that were secure digital cash. Suffice it to say that they faded away without much ado … some people say it was just too theoretical and way ahead of its time.

        Nowadays (Bitcoin aside for a moment) there are companies like Travelex that allow customers to purchase digital cash cards in a variety of currencies primarily for convenience when hopping amongst different currency zones. These cash cards are a rather superior breed of prepaid credit/debit cards. That (when they work properly) can be used just like credit and/or debit cards as well as ATM functions. Rather expensive if you take a look at the transaction costs, but still a practical product offering that is available and in use now.

        To Pat Flannery’s idea (up-thread) So, the most important legacy of the Cyprus deposits shock may be a depositor-led separation of bank bedfellows, a sort of people’s Glass-Steagall. … I can see how something like the Travelex Cash Card product could potentially evolve into a more robust version of a (multi-currency) demand deposit account on a SmartChip, (perhaps) existing in an environment immuned from the banker bed bugs. (Of course, I am ignoring Travelex’s relationship to the Local/Global banking systems.)

        Regarding Bitcoin… I have yet to understand its practical value in the sense of moving forward to a structure whereby routine payments between persons or (small) businesses would be served well. It seems a large leap between how people define money and utilize it in the here and now AND the way money would be defined and utilized in a Bitcoin type universe.

        The future for Bitcoin might be similar to that of Digicash.

        Caveat Emptor !

        • Pat Flannery March 21, 2013 at 10:01 pm #

          Phil T.

          I like your idea of a supra-national SmartChips. In a way that is what Visa and MasterCharge are (or will be once they declare their independence from their casino bank owners).

          I keep a balance with PayPal and use it on all my online shopping, the explosion of which is dictating a whole new approach to paying for goods and services.

          Electronic banking can and should be fractionalized by uses.

          There is no longer a reason for eBay or Amazon to get mixed up with the casino banks. Let the speculators play among themselves with their own (casino) bank chips and stay the heck out of our lives.

          With current technology it can be done. We the 99% can trade among ourselves electronically without submitting to the 1%’s rules. That’s all that matters – trade. It does not matter what we use for money so long as we the 99% trade and trade and trade – without being slaves to the 1% money speculators. That’s our problem. We are too submissive.

        • Bangers March 22, 2013 at 10:25 am #

          Hi Phil

          Thanks for raising the comparisons with Digicash. As I’m sure you’re aware, although Digicash was an early implementation of a crypto based form of currency, it was still a centralised system. As such, it was only aloud to exist as long as market forces allowed it to. Also, supply was purely based on demand and it’s value pegged to existing currencies.

          Bitcoin’s decentralised nature is a completely different kettle of fish. It may be years before it fully finds its roll as a functioning form of currency, if it all as you rightly say.

          However, it has the benefit of being able to bubble away quietly in the mean time, unrestricted by any centralised decree.

          • Jamie_Griff March 22, 2013 at 8:38 pm #

            Awesome explanation Bangers – the first one I’ve made it all the way though!

            Thanks!

        • Phil T. April 17, 2013 at 10:03 pm #

          Max Keiser with BitPay CEO Gallippi (April 16, 2013)
          ==> http://www.youtube.com/watch?feature=player_embedded&v=IbSOHwCOnG0

          Also,

          From Forbes:
          Largest Bitcoin Payment Processor Raises $510,000 Angel Round
          ==> http://www.forbes.com/sites/jonmatonis/2013/01/07/largest-bitcoin-payment-processor-raises-510000-angel-round/

  21. John Souter March 21, 2013 at 3:04 pm #

    Yes, I’ve been fascinated by the Bitcoin -who is behind it, where does it lodge and acquire the growth in its asset value – does it have a value?

    As to “who will get shafted next” -well after yesterday we in the UK is the answer to that one.

    £130 billion to restart the housing bubble, only this time the taxpayer is feeding the sub-prime up front courtesy of a sub-prime government.

    • Adele March 21, 2013 at 5:58 pm #

      Im still in utter disbelief that this Govt believes in funding a new housing bubble when we havent actually popped the last one.

    • backwardsevolution March 21, 2013 at 6:09 pm #

      John Souter – yes, they can’t let prices come down, which would be the logical thing to do. Realtors and home building associations lobby hard when times slow down, and in the end they get their way.

      Prices are grossly inflated. Wouldn’t allowing prices to revert back to the mean be a more prudent move? That way young couples, without any help from the government, would be able to afford homes on their own. The problem is that prices are too high. Even with the cheapest mortgage rates ever, prices are still too high.

      The government is stepping in to help with the demand side by propping, and when it all falls apart people will blame “free markets” and ask the government to step in, never realizing the government stepping in is what caused the bubble in the first place.. There’s nothing free about any of this. Palms are being greased as we speak.

      All of these bubbles are carefully engineered, and many look the other way because it benefits them, and then feign ignorance when it all falls apart.

      There is no “free market”.

  22. Louise Racine March 21, 2013 at 3:13 pm #

    I found this

    “The FDIC and Bank of England appeared aware that many obstacles still remain, most notably regarding cross-border issues. Legal frameworks would need to mesh to allow bail-ins, and authorities would need to find a way to force counterparties to extend stays on termination to foreign operations during resolution. “The FDIC and the Bank of England continue to work to ensure that their respective resolution strategies will be fully operational,” the document said.”

    What really caught my eye was the recognition that the ball-in legal language needs to mesh between the two countries…

    This tracks my take on the current language and reading for Insurance FDIC Deposits.

    http://www.centralbanking.com/central-banking/news/2230932/boe-and-fdic-cooperate-on-bailin-plans

    • Golem XIV March 21, 2013 at 6:28 pm #

      Hello Louise,

      I read the orginal paper when it came out and have been meaning to write something abou it ever since. I haven’t because I wasn’t sure if people would be interested in the detail. But over all the story is tha tthe headlines of their plan sound great. The details actually undermine every single aspect of the great sounding headline.

      What you are left with, in my opinion, is somehting taht when it comes to it, will not work and we will be lawrgely where we are today.

      In short it is wndow dressing to make it seem like they have a new plan. They don’t. And what scraps they do have will be dismantled and made unworkable by the banks.

  23. backwardsevolution March 21, 2013 at 6:40 pm #

    Bam_Man said: “Hair cutting depositors – or even exposing them to the possibility of such – is just a variation on the “negative interest rate” tactic to get monetary velocity to increase.” You also said, “They [banks] can borrow BILLIONS any time in the inter-bank market for 0.20% and all that is required is a computer and a telephone. I wouldn’t be surprised at all if this is 100% intentional. Scare the people’s money out of the banks. Get them into “safer” government bonds and have them spend the rest – which would be “good for the economy”.

    It’s funny, but this is exactly the same conclusion I came to yesterday while I was out running errands. The Fed QE’s in order to hold down rates (which allows government to spend more foolishly than they would otherwise, and it acts to prop up asset prices, i.e. housing). At the same time, low rates “punish” savers and those on fixed incomes. The Fed wants to “force” people out of banks and into assets to get velocity going. They want higher inflation, so they “reward” risk-takers.

    They’ve tried a few years of punishing and that isn’t working. So just like a parent who might take the car keys away as a punishment, but finds that doesn’t work, they are upping the ante. They are now going to “scare” people into moving. They chose Cyprus (because most people don’t even know where the heck Cyprus is), far removed from the U.K. or the States, and they just put the thought out there. The bought-and-paid-for media pick it up, run with it, state that it’s an idea worth looking at, and there you have it – the scare. People begin to move, afraid of losing their money.

    Just like an authoritarian parent and a dependent child, it works with the majority of people. Punish, then scare.

    The subjects are now listening, and they are slowly being herded over the cliff, just like they did with the buffalo on the Plains – the buffalo jump. They surrounded the buffalo, and then began to encroach on them, eventually causing a stampede.

    http://en.wikipedia.org/wiki/Buffalo_jump

    The field of Behavioral Economics is alive and well!

    • foucalt Tudoux Wimay March 22, 2013 at 9:44 pm #

      (increase the velocity of money by scaring savers)
      -but you then need to have serious inflation, otherwise folks will just stash cash under their pillows.

  24. backwardsevolution March 21, 2013 at 7:20 pm #

    Money laundering, tax evasion, organized crime – Cyprus, New Zealand, Cayman Islands and…Delaware? Yes, Delaware.

    “NOTHING about 1209 North Orange Street hints at the secrets inside. It’s a humdrum office building, a low-slung affair with a faded awning and a view of a parking garage. Hardly worth a second glance. If a first one.

    But behind its doors is one of the most remarkable corporate collections in the world: 1209 North Orange, you see, is the legal address of no fewer than 285,000 separate businesses.

    Its occupants, on paper, include giants like American Airlines, Apple, Bank of America, Berkshire Hathaway, Cargill, Coca-Cola, Ford, General Electric, Google, JPMorgan Chase, and Wal-Mart. These companies do business across the nation and around the world. Here at 1209 North Orange, they simply have a dropbox.

    What attracts these marquee names to 1209 North Orange and to other Delaware addresses also attracts less-upstanding corporate citizens. [...]

    In these troubled economic times, when many states are desperate for tax dollars, Delaware stands out in sharp relief. The First State, land of DuPont, broiler chickens and, as it happens, Vice President Joseph R. Biden Jr., increasingly resembles a freewheeling offshore haven, right on America’s shores. Officials in other states complain that Delaware’s cozy corporate setup robs their states of billions of tax dollars. Officials in the Cayman Islands, a favorite Caribbean haunt of secretive hedge funds, say Delaware is today playing faster and looser than the offshore jurisdictions that raise hackles in Washington.”

    http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html?pagewanted=all&_r=0

  25. Jason March 21, 2013 at 8:56 pm #

    I bet outstanding loans and mortgages owed to the banks are not reduced by a commensurate percentage.

    TBH I am beggining to think Paypal is a safer alternative to holding money than the bank (and that just shows how stupid these idiots are they are undermining the very foundation of the fractional reserve banking system by these actions).

  26. John Souter March 21, 2013 at 9:26 pm #

    Just suppose for a moment Banks and Governments were honest brokers – Cypriot or otherwise – and (I know this is a difficult concept to accept as plausible) they found themselves a bit (let’s say $16 billion) overstretched and with cash flow problems what would you suppose the reaction would be from their depositors if they approached them with a lucrative bond offer renewable over 1 year at 1% over rate or 5 years at 2% on 20% of their deposits?

    Ten years past, they would have had their hands snatched off, now their depositors would laugh at it, after they’d cleared all their funds from the bank.

    Problem is none of this effects the global money magnates – to them banks are only tools for transfer and receptacles for petty cash.

  27. groundedkiwi March 22, 2013 at 12:00 am #

    The thing that worries me about bit coin, is that it may be a trial for a one world currency.

  28. Just me March 22, 2013 at 1:36 am #

    “The future of the USA – 2012-2016 (Part 2) – The unstoppable US economic spiral: Recession/depression/inflation”

    http://www.leap2020.eu/The-future-of-the-USA-2012-2016-Part-2-The-unstoppable-US-economic-spiral-Recession-depression-inflation_a9859.html

    Where they go, we go.

  29. Alan B March 22, 2013 at 11:11 am #

    Just seen this on Zerohedge. Seems bitcoin is about to be screwed…

    http://www.zerohedge.com/news/2013-03-21/us-begins-regulating-bitcoin-will-consider-virtual-transactions-money-laundering

  30. Just me March 30, 2013 at 2:43 am #

    “Swindling the nation, page 1″

    http://sites.scran.ac.uk/redclyde/redclyde/rc194a.html

    “Swindling the nation, page 2″

    http://sites.scran.ac.uk/redclyde/redclyde/rc194b.html

  31. guidoamm March 30, 2013 at 4:55 am #

    “Will the UK and USA also go for the automatic seizure of money from accounts? ”

    In hindsight, the bankruptcy of MFGlobal was the trial balloon for what is to be rolled out at national level. Allow me to remind you that the $1.3Billion that “vaporized” under Corazine’s watch was not money invested in securities or other vehicles. This was money held in private accounts waiting to be invested. This should have been an open-and-shut case pertaining to private property.

    Hate to have to correct you again. You say:

    “This overlooks the one lesson we have all learned from the bank bail outs of the last 5 years, that the bail outs are never, ever, ever, a one off. The first one fails to save the bank as does
    the second and third and and and.”

    I know this is not the only lesson you have learned David.

    The lesson we should by now have learned is that in a Fractionally Reserved monetary system a bank is arithmetically, inherently, inevitably, absolutely insolvent from the get go.

    The lesson we should by now have learned is that a deposit guarantee in a Fractionally Reserved monetary system is arithmetically impossible thus it is inherently a lie aimed at keeping you in the game as long as possible.

    Fractionally Reserved monetary systems can only be maintained for as long as credit markets can be expanded. As you expand credit markets, you mortgage people and the productive capital of society to the financial industry. When this inflationary strategy reaches its inherent arithmetical limits, the subsequent asset value deflation will effect the greatest
    transfer of wealth from the producers to the sponsors of the monetary system.

    Hence the desirability of Fractional Reserve banking and the inevitability of the destiny of the throngs of unemployed roaming the streets in the West today.

    People claiming we can resolve this crisis the moment we can foster some economic “growth”, fail to understand the arithmetical reality of this monetary system. People claiming that government has a moral obligation to protect its citizens and ordinary individuals fail to understand the arithmetical reality of this monetary system. People claiming that lessening the fiscal burden on business and society will right this ship… fail to understand the arithmetical reality of this monetary system.

    • Roger April 5, 2013 at 5:45 am #

      Always Gladdens my heart to see you here Guido!
      Must stock up with dried food and get those photovoltaic panels up on our roof though.
      It’s a bloody mess for sure,
      All the best
      Rog

  32. Just me March 30, 2013 at 3:22 pm #

    “Plunderball – The new Euro banking game”

    I knew in the event of a global financial collapse when the banks went under that the UK government would not honour their “bank deposit guarantee”, I knew this when the government first came up with their “bank deposit guarantee”. I thought and thought, how were they going to get around this, it was by sheer accident that I found away they could do this, it was in reading about “frozen bank accounts”, just thought I would run this one passed you all…

    1: Banks go under.
    2: You get a letter from HM government.

    Dear *******,

    As you may be aware there has been a global financial collapse, you may have noticed that when you tried to access your bank/savings account there were no funds available, indeed, you may have also noticed that your bank was closed.

    Now don’t worry, we the UK government have in place a bank deposit guarantee, we will honour our bank deposit guarantee, but, unfortunately because of the global financial collapse we will not be able to honour our bank deposit guarantee at this time.

    We have placed your money in a frozen bank account, this means that your money is safe, and will be paid to you at some future date, when in the opinion of HM government global economic recovery is advancing to a position that will enable us to do so.

    Have a nice day.

    Signed,

    *******

    Just my thoughts on what will happen!.

    • GeoWaveRider March 30, 2013 at 4:21 pm #

      The more you have the more you are going to lose.

  33. Just me April 1, 2013 at 1:52 am #

    “March 30, 2013

    Paul Craig Roberts Transcript; Part 1– The Biggest Economic Disaster in History, Globalism, the Undoings of the West”

    http://www.opednews.com/populum/printer_friendly.php?content=a&id=164570

  34. Just me April 4, 2013 at 12:19 pm #

    “GLOBAL INVESTIGATION: Inside the Offshore Global Money Maze”

    http://premiumtimesng.com/news/128172-global-investigation-inside-the-offshore-global-money-maze.html

  35. Just me April 8, 2013 at 10:13 pm #

    “Portuguese PM speaks of ‘national emergency’ after court ruling”

    http://euobserver.com/economic/119729

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  40. Just me April 12, 2013 at 9:51 am #

    “There are thousands of stories of the callousness with which banks imposed themselves on these small investors, including one pensioner suffering Alzheimer’s disease and at least one illiterate person who signed by dipping a finger in ink.”

    http://www.wsws.org/en/articles/2013/04/12/spai-a12.html

  41. just me April 12, 2013 at 1:39 pm #

    “It’s a very simple story really: this is a widespread tale of western societies transforming themselves into pyramid schemes; or perhaps we should say one big global Ponzi scheme. And these Ponzi things collapse, and there’s nothing anyone can do to “fix” that: the poisoned chalice must and will be emptied to the last drop. Only, the politicians – legally – have their hands in everyone’s pocket, so they can throw around trillions of dollars and euros to hide the process of the plunging system for as long as it lasts. That’s where we’re at right now.”

    http://theautomaticearth.com/Finance/dutch-delusion-europes-core-she-rots-some-more.html

  42. Just me April 12, 2013 at 6:51 pm #

    “Indeed one pensioner has not only refused to pay, but sent a rather forthright letter to the office of the revenue commissioner, explaining his opposition to the tax in rather fruity language.”

    http://www.neurope.eu/article/pensioner-time-bomb

  43. Just me April 14, 2013 at 1:44 am #

    “Assault On Gold Update — Paul Craig Roberts”

    http://www.paulcraigroberts.org/2013/04/13/assault-on-gold-update-paul-craig-roberts/

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  45. Just me May 13, 2013 at 4:08 pm #

    “My explanation that the sudden appearance of an unprecedented 400 ton short sale of gold on the COMEX in April was a manipulation designed to protect the dollar from the Federal Reserve’s quantitative easing policy has found acceptance among gold investors and hedge fund managers.”

    http://www.paulcraigroberts.org/2013/05/13/gangster-state-america-paul-craig-roberts/

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  48. Terence May 26, 2013 at 6:36 pm #

    A good post as usual,thank you.

    With regard to the U.K. ‘Helping the banks’ — aka — ‘bail-ins’

    Depositors in England since 1848 have been ‘legally’ deemed to have lent their money to the bank. The ruling statement by the Lord Chancellor makes it clear that in English law a monetary deposit becomes the asset of the bank,making the depositor an unsecured ‘creditor’.
    Ask anyone about ‘Post War Credits’ who still live,they were cheated!!.

    Any who keep money or anything else in a bank will lose it!

    The U.K. mantra has never changed ………
    “Lets use them” ………..Cannon fodder …….Factory fodder ……..Financial fodder.

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