Bank 'bail-ins': you are sheep to be sheared

We've spoken of bank 'bail-ins' in these pages on several occasions, dating back to the Cyprus crisis.  Basically, it involves depositor funds being confiscated to refinance struggling banks and other financial institutions.  Here's a selection of some of my past articles on the subject:

Cyprus: "Suck & Fail" writ large . . .

The Cyprus contagion spreads

When someone else's debt means losing YOUR money

What debt is doing to the world - and all of us

This may spell catastrophe

for the international financial market

Now Canada appears to be heading down that road as well.  Inquisitr reports:

The federal Canadian government unveiled its stimulus Budget 2016 on March 22, which included information about the majority Liberal party’s intention to implement a banking “bail-in regime.”

“To protect Canadian taxpayers in the unlikely event of a large bank failure, the Government is proposing to implement a bail-in regime that would reinforce that bank shareholders and creditors are responsible for the bank’s risks—not taxpayers. This would allow authorities to convert eligible long-term debt of a failing systemically important bank into common shares to recapitalize the bank and allow it to remain open and operating. Such a measure is in line with international efforts to address the potential risks to the financial system and broader economy of institutions perceived as ‘too-big-to-fail.'”

. . .

It is thought that these bail-in proposals would not affect investments, such as bank deposits up to $100,000, and sometimes more, protected by the Canada Deposit Insurance Corporation (CDIC), as previously featured by the Inquisitr.

The problem with this, as has been discussed with Press For Truth, who describes the CDIC as a “Ponzi scheme” and points out that in 2013, the corporation only had $2.5 billion set aside to cover investor losses, up to just over $3 billion in 2015. Three billion dollars covers 30,000 accounts worth $100,000 each.

The CDIC reports that in 2015, they insured $684 billion of Canadians’ savings; with $3 billion. A situation that is described as the CDIC not being able to “cover all Canadian deposits.”

So, Canadians need to understand that only CDIC-insured investments are protected by the government, and savings above $100,000 may be subject to bail-in events where a certain amount could disappear. And to keep in mind that the CDIC only has enough to cover about 0.004 percent of existing insured investments. And keep in mind that this process is already well underway in Europe.

There's more at the link.

Do, please, note the point about deposit insurance above.  I commented on the same reality in the USA in an article in January this year, and outlined what I was doing to protect myself.

"But," you object, "my savings account and CD's are insured by the FDIC.  Even if the bank took my money, the US government would have to repay me!"  Oh, yeah?  Sure, there's insurance on your deposits . . . but it says not one word about when you'll get back your money, or in what form.  Say a bank needs recapitalization, and seizes your deposit(s) as part of the process.  You immediately apply to the FDIC for compensation.  After a long delay (during which you can't access your money), that agency says loftily that yes, it'll refund your money - but only in the form of bonds issued against the bank's capital, or shares in the new entity that replaced it.  (That's the 'bail-inable long-term debt' that Mr. Fischer was talking about - see above.) The FDIC or another government agency will determine the value of those bonds or shares, not you - and their valuation may have little or nothing to do with reality.  Furthermore, you'll only be allowed to sell or otherwise convert them after a suitable period - say, five years?  Ten years?  Twenty-five years?  Whatever it is, you're still S.O.L. and broke - but hey, the insurance policy worked!  By strict legal definition, it covered your losses!

. . .

How can we protect ourselves against that possibility?  There's only one way I can see - keep as much as possible of your savings in a form that will be hard to confiscate.  I'm trying to slowly build up to the point where I have two to three months' actual expenditure in the form of cash, securely stored in a safe place - but not in a bank account or deposit box, where the banksters can get their greedy hands on it.  I'm also putting what I can into precious metals - gold and silver coins.  I'm a very small investor indeed, which means I can't get the best prices on such assets, but I do what I can.  If I had a hundred thousand dollars in savings today (I wish!), I'd have a quarter of it in precious metals, a quarter in cash, and the rest divided between savings accounts in two or three different financial institutions, just in case.  That way, if one or two assets 'went bad' or were confiscated, I wouldn't lose everything.  YMMV, of course.

Again, more at the link.

I should also note that the FDIC has about $25 billion available, but insures bank accounts in the trillions of dollars.  An excellent graphic illustration of just how inadequate the FDIC's coverage really is may be found here.  I'm not joking or exaggerating when I say it's scary as hell.

I can only urge my Canadian readers to take appropriate precautions - and my US readers to read the signs of the times, and react accordingly.  If you think your money is safe in a bank during these trying economic times, you're living in cloud cuckoo land.  We don't have any choice but to use banks, of course - our economy's set up that way - but we can, at a minimum, take precautions to make sure that at least some of our hard-earned cash and assets are protected against government greed and bankster rapaciousness.

Peter