Tuesday, April 02, 2013

If your bank fails, will YOU be held responsible? (Plus: Other noteworthy items)

Apologies. I could not participate in the annual tomfoolery yesterday, due to real world encroachments. Too bad; I had prepared a doozy. (Prepared in my head, at least. The actual writing of those things takes a lot of work.) Maybe next year...

In the meantime, here are some stories you should note:

Obamacare. The controversy enters a new phase. Time to toss out all of the fake arguments offered by the right. Now we must consider real arguments against O-care offered by serious people concerned about life-as-she-is-actually-lived.
There are some for whom the coverage in the marketplaces will still be too costly because the subsidies are too stingy. For example, a single person who earns just $33,500 will be required to pay $258 a month in premiums, which is more than 9 percent of his or her gross income, for coverage. That’s a big chunk out of a moderate income and is more than twice as much as that person would pay under Massachusetts’s current, successful law. In fact, people who earn more than two times the federal poverty level would be required to pay premiums from 6.3 percent to 9.5 percent of their incomes. If those costs are out of their financial reach, the bleak alternative is to pay a fine for remaining uninsured. It’s true that the coverage will include good benefits, free preventive services, and a cap on out-of-pocket costs. But unless it is already paying high medical bills, that won’t help a working family pay a high premium.
So this is good news for members of a poor family in which one person faces chronic illness. But for healthy poor families, the cost of staying healthy is simply too high.

Democratic mass shooters.
Back in the pre-internet age, one of the favorite tactics of right-wing propagandists was to use fake names when contributing to the "letters to the editors" page of various newspapers, a strategy which allowed the same text to appear "spontaneously" in a number of cities. I used to keep a small collection of examples in my files.

Apparently, they're still at it. The latest ruse is a vile-yet-viral letter claiming that all of the recent mass shooters were/are liberals.

The missive falsely claims that the Columbine shooters were registered Democrats. In fact, those two creeps A) were too young to register, B) came from conservative families, C) lived in a conservative enclave, and D) expressed views which, insofar as I could tell, bore no relationship to any real-world ideology or party. The epistle also connects James Holmes (the Batman killer) to Occupy Wall Street; in previous posts, we exposed that smear as a Breitbartian fraud.

Perhaps these Republican propaganda exercises give us some insight into the mentality of the authors. If a hoax focuses on mass murderers, we may fairly wonder if the hoaxer has rage issues. Similarly, the James O'Keefe "stings" usually have a sexual element because the "stingers" are young men who think about sex a lot (and who probably don't get laid as often as they wish).

One thing is for sure: The authors of these fantasies know how to appeal to the Id.

Drones. Anti-drone sentiment has led to a mass movement -- or at least the beginnings of one. This issue should unite the populist right and the progressive left.

But we need to get beyond NIMBY-ism. The problem is not drones-over-my-home or your home or his home or her home. The problem is drones period.

When should you take your money out of the bank? Years ago, I wrote a post about (of all things) the Von Trapp family. Although Rogers and Hammerstein may have told you otherwise, that family got into the singing business because the paterfamilias had parked most of his money in a bank that went belly-up during the Depression.

Such disasters, we are told, do not happen nowadays.

Except when they do.

You may be familiar with the sad situation in Cyprus, where economic Ragnarok reigns. Customers of the Bank of Cyprus may lose as much as 60 percent of their money. There were worries that the bank's UK branch might also stiff British customers, but that sorry outcome seems to have been averted.

Can it happen elsewhere? Maybe. Check out this report...
Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.

New Zealand has a similar directive, discussed in my last article here...
If you visit that last link, you'll find that the NZ government has had a plan in the works since 1997, when the Asian crisis hit. The plan holds that the brunt of any bank failure should be felt by the institution's "shareholders and creditors." Those words sound fair enough, until you understand that by "creditors" they mean depositors.

According to the above-linked writer, our FDIC (the folks who insure your bank deposits) and the Bank of England have come up with a new scheme. When you put your money in the bank, the bank legally owns the lolly. In return, you become a stockholder. Until now, the bank has been obligated to repay your investment in cash when you so demand. But under the new rules, that obligation may no longer hold during emergency times, because your deposit translates into equity in that bank.

In other words, putting your money in a bank is like buying any other stock. If the enterprise fails, you're screwed.

At least, so claims that above-referenced article; I'll try to double-check. (And I would be very grateful to any readers who can help us obtain the truth.) In the meantime, you should also check out this piece about Canada.
I started asking on Monday, and again on Tuesday, whether the confiscation of money from private bank accounts could happen in Canada the way it has happened in Cyprus. My argument was that yes it could, especially given that Cyprus is a modern European nation and that the decision to dip into accounts was made by finance ministers and officials from countries such as Germany, France and Italy.
The author of that piece dug a little further and found that the Canadian government has recently devised a contingency plan governing the process of massive bank failure. We are assured that such a failure could never, ever happen. But just in case it does...

Folks, I really wish that this post bore an "April 1" date stamp. But this stuff isn't a joke.

Finally, here's Paul Krugman on California. He gets my home state rather well, for an easterner.

A lot of people don't understand that CA has always been a more purple state than many think. The big coastal population centers of Los Angeles and San Francisco vote Dem, but the deserts, the north and the agricultural center all skew right.

Interestingly, just as those who inhabit the red states of our union tend to take more from the national treasury than they pay in taxes, the red areas of California require the greatest degree of aid from the state and federal levels of government. Nevertheless, those crimson-hued counties routinely send reactionaries to the state legislature. Some of these humanoid-shaped sacs of acidic bile are so very extreme they make Michele Bachmann seem like Voltaire. Since they refuse to work with legislators from the saner, more productive parts of the state, nothing gets done.

As Superman once said: When the irresistible force meets the immovable object, they surrender.

One of the state's largest problems is the slump besetting the entertainment industry. See here and here and a whole bunch of other places.

Most people will blame the product, and I suspect that Cannonfire readers are now dying to regale me with the usual cliches along those lines. Pretending to be wiser and cleverer than Hollywood is a national sport. (And by "sport" I mean hallucination.) You know the drill: "Movies made ten years ago were much better than the crap we see now." People have been saying those words since the silent era. In truth, the films and teevee shows of 2013 look rather good compared to what we encountered in 2003 or 1993 or 1983 or 1973. (Please take off the rose-colored glasses of memory. I saw nearly everything that came out 1973; it was a terrible year.)

In fact, even our least successful modern blockbusters look downright brilliant compared to the ghastly pop cultural artifacts produced during the 1980s, a dreadful decade which ended my addiction to moviegoing.

If today's entertainment fare is no worse than yesterday's, then why the slump? To put the matter in crass terms: The internet has taught the audience to expect to get fun for free. As a result, everyone who makes his living via creative pursuits must scramble after the few remaining dollars. Competition is insanely fierce, due to an influx of amateurs who have gained professional-level skills. We live in a world where anyone can download Final Cut Pro and learn to edit, anyone can get hold of Maya and learn special effects, and anyone can buy a $400 HD camcorder and learn things about cinematography that would have boggled John Alton and Stanley Cortez.

And let's not even get into screenwriting. Everyone in L.A. writes screenplays. And by everyone, I mean everyone, including streetside taco venders. Twice, the guy who came to fix my water heater asked me (out of the blue) to look at his script. Twice. Two different guys; two different water heaters, two different scripts. I wanted to erect a sign by the Ventura Freeway: "Welcome to the San Fernando Valley. Nobody wants to read your script."

My editor friend tells me that things are much tougher in his field now than in 2008, the year of the financial collapse. Even the porn merchants of Chatsworth can't keep it up (so to speak) because all of America's daughters have taken to imitating Sheela na gig in front of their iPhone cameras.

You can't sell it in a world where they're giving it away.

Come to think of it, why would anyone buy a book when fine writers like me work for no recompense?
I wanted to erect a sign by the Ventura Freeway: "Welcome to the San Fernando Valley. Nobody wants to read your script."

I am still laughing!
A few years ago a documentary on Channel Four revealed that our political parties were sending letters to newspapers because they'd found that people trusted the letters pages more than the news pages. I don't read newspapers anymore.

Don't fall for the Cypruspocalypse. Only people with money above a certain amount on deposit will have to take a haircut, under the current plan, and most of them and crooked foreign oligarchs. As with American and English houses, Cyrpiot bank deposits are artificially overvalued, or have been. When that corrects I should hope the pain will be spread around unequally, with most of it falling at the top.

Texas is meant to be surprisingly purple, too, if you could actually get enough brown folk registered to vote.

Films are quite good now, better than twenty years ago, I'd say. Television has become a bit less variable. Reality TV has occupied a lot of territory once occupied by sitcoms and sci-fi, unfortunately.

As for the internet, box office revenues have gone up in line with piracy. I don't think there's any evidence that the movie studios, at least, have really lost out. And if they do, well, Hollywood was set up by film companies fleeing the patent laws that would have allowed the likes of Edison to take some of their profits. Now hte wheel has turned.

Arr, me hearty.

Porn, that's a different matter.

Stephen, the haircut line is, if I recall, $85,000 pounds. Not everyone with that much (or more) in the bank is a crook.

Well, maybe in Cyprus, but not elsewhere.

Box office revenues may rise but DVDs and other revenue streams have slid gutter-ward. It's all very easy to snicker at Hollywood types but I have a friend who is an editor, and he's trying to raise a kid on his own.

Pornworld is a true horror nowadays. The talent sells itself for lunch money, and the producers aren't doing well either.
Up until recently the US Federal Deposit Insurance Corporation (FDIC) guaranteed US bank depositor funds but has limited assets and would have to rely on a sale of Treasury notes to handle any large collapse of US banks. In Oct 2011 Bank of America Corporation, hit by a credit downgrade, moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits. The exact figures are unknown but are believed to be in the trillions. BAC has $75 trillion worth of derivatives trades. Any calls upon the FDIC to bail out derivatives trades of trillions of dollars would be simply unsustainable. If this merging of derivatives trades with ordinary bank cash deposits were to be non-transparent or repeated by other banks then the entire viability of the US banking system would be called into question in any future crisis.

The Basel Committee of the Bank for International Settlements (BCB) is a private bank group run from Switzerland which sets the global banking regulatory framework. It includes US banking giant JP Morgan, already guilty of running derivatives trades using depositor funds. In 2010 and 2011 the BCB made a series of recommendations for protecting the financial markets from any further meltdowns, that included dealing with all bank depositors as unsecured creditors. Moreover, these measures have been signed off on by the EU, ECB, IMF and the G20 (which includes the US). So the FDIC insurance guarantees that have formed the backbone of US banking safety have effectively been replaced.

What's happening in Cyprus is the new global normal, and it is deadly. AFAIKS we are no longer savings depositors, we are unsecured investors.


On the Cyprus thing, its not true that it will only affect people who have deposits above 100k. It will also affect the employees of the banks, who will lose jobs and pensions. And it is unreasonable to think that only oligarchs put 100k into a Cypriot bank. Frankly you would have to be an idiot Oligarch to do so. There was no advantage to it. Oligarchs keep their money in Switzerland, Lichtenstein and Grand Cayman like every other offshore blind trust in the US. The privacy laws are better.

Cypriot businesses are likely to be the idiots who lost money in the main. That and very conservative middle class people. A useful lesson to them for sure but not painless. Russian money will mostly be in Russian subsidiaries based in Cyprus like VTB bank Cyprus. So it will not have been affected. However the Russians may move to make offshore banking in Cyprus less attractive. Shame the Americans dont do anything to make booking offshore profits in Ireland less attractive.

Anyway, now that the ECB and BoE have established the principle, I will leave it to you to decide what you should do about it. I have already made up my mind to reduce the amount of cash I keep in banks, and to spend the money on things which are hard or harder to confiscate. There are plenty of zombie british banks.

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