A Successful Taxpayer Revolt Against Bank Bailouts In the Eurozone

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Bank bailouts in the Eurozone, like bank bailouts elsewhere, have made owners of otherwise worthless bank debt whole through a circuitous process where, in the end, taxpayers transferred their money to investors. Even in Greece, investors were coddled. Even Proton Bank that had siphoned off $1 billion in a scheme of fraud, embezzlement, and money laundering was bailed out at taxpayer expense [European Bailout Fund For Greek Money Laundering And Fraud].

By contrast, private-sector holders of Greek government debt, such as hedge funds who’d bought this crap for cents on the euro, got ugly haircuts of over 70%. Public-sector holders, like the ECB, got off scot-free. It wasn't fair. But fairness had nothing to do with it. These were bailouts! That’s how it was done. Until now.

SNS Reaal, fourth largest bank and insurance group in the Netherlands, cratering under a huge load of rotting real-estate loans, was bailed out on February 1, after already having been bailed out in 2008, and nationalized with a €10-billion package.

A collapse and bankruptcy “would have unacceptably large and undesirable consequences,” explained Dutch Finance Minister Jeroen Dijsselbloem, confirming that bank bailouts would be the norm in the Eurozone. Only question: to what extent would taxpayers be sacrificed? In the SNS bailout, all depositors were made whole. But stockholders were wiped out. And so were holders of junior debt!

Tremors went through the system. Stories surfaced of individual holders, such as artists, who’d lost their savings because they’d bought these crappy bank bonds that had been touted as safe. Alas, that junior debt would have been worthless anyway in a bankruptcy, retorted Dijsselbloem and stuck to his semi-hard line—semi-hard because holders of senior debt and covered bonds were still bailed out by taxpayers.

On Monday, the Dutch Council of State blessed that procedure and thus set an example for the rest of the Eurozone: when a bank is bailed out and nationalized, owners of its debt can lose their entire capital. The unwritten government guarantee on bank debt is off.

A government finally drew the line on one of its big banks, instead of flailing about to justify why taxpayers had to bail out bondholders who’d benefitted from the yields that had compensated them for the risks. Why tolerate a situation where the capital “at risk” wasn’t at risk?

That exotic theory is already spreading. Dijsselbloem is President of the Eurogroup that approves country bailouts. And the German government has been toying with the idea of going after bank investors for months. At issue: the bailout of the banks in Cyprus. But there, it’s more ... delicate. These banks didn’t issue a lot of debt. They didn’t have to; they were flooded with deposits from rich Russians, Russian companies with mailbox subsidiaries in Cyprus, and even Oligarchs [Cyprus, ‘A Money Laundering Machine For Russian criminals’].

As more stories about the Russian connection surfaced, the unwritten government guarantee of uninsured bank deposits has been fraying around the edges. The Cypriot government, unlike the Dutch government, cannot bail out its own banks. It’s bankrupt too and needs a bailout. So, which bank stakeholders get bailed out and which get sacrificed will have to be negotiated with the Troika. Even deposit accounts aren’t sacrosanct anymore, and their owners, the “rich Russians,” are being prepped for a haircut, a mild one presumably, not a crew cut. Nevertheless, it would break another barrier.

Next? Senior bank debt. Its unwritten government guarantee has not yet been broken, and any attempts to do so would be met with determined opposition by the banks themselves. Once investors in senior debt realize that they could lose their capital, they would, in theory, demand higher yields to compensate them for the risk—thus raise the cost of funds for banks and squeeze their margins.

So far in the Eurozone, it has just been one major bank, but not a TBTF bank, where junior debt holders lost their shirts. More such bank bailouts would have to take place before investors accept them as reality and price that risk into the equation. Then, they might actually try to look at the crap these banks have hidden in their basements.

In theory. In practice, central banks rule. Their money-printing operations and asset-purchase programs have distorted the markets. Risk has been wrung out of the equation. If a bank is TBTF, it wouldn’t be the taxpayer to bail it out directly, but the central bank, as the Fed had done, beyond the reach of democratic processes or controls, with amounts that dwarf what the taxpayer could do, generating huge profits for bailed out investors and those betting on these bailouts, and in the process devaluing the currency for everyone else.

Investors are fuming—this time in the US about another long-running debacle. But traders, the lucky ones who got the timing right, love it. So do Wall Street firms that shuffle companies around to collect fees. For decades, Hewlett-Packard did what they wanted it to do: swallow other companies, whole or in pieces, spit out some mangled limbs, and dump tens of thousands of employees along the way. But someone ended up holding the bag. Read... H-P's Big Investors Finally Can’t Take It Anymore.

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Moe Howard's picture

Fuck each and every bankster, real estate bitch etc.

When the time comes, I think it is quite obvious what neighborhoods house the criminals.

A quick trial and give those lamp posts something to do beside hold up a light bulb.

bozzy's picture

Those in the chain of authority have been placed there by the most powerful interest groups in the world, with the sole objective of controlling the populations whilst the objectives of the interest groups are met in first position and in defiance  of any natural justice or fairness. If you have understood the history of the last 200 years, with first Britain and then America spilling the blood of millions in pursuit of controlling the global economy and then methodically lying to conceal the truth and its evidence, then you should not expect that Bernanke or his masters will give up whilst trhey have options. If it was thought worth 20 million lives to gain control of oil in the first world war, it will likely take a little pain to regain freedom in any meaningful form. I just hop Ben Bernanke is comfortable with the idea of a retirement in which he will never know whether the poor old souls whose lives he has ruined can still level a long barrel well enough to take his head off at half a mile.

Colonial Intent's picture

Berlin Baghdad Railway caused the first world war.

rsnoble's picture

Go talk about this shit to 'normal' people. My bible beating neighbors were ready to throw me out of the house for just saying all of our steel scrap is ground up in pellets and sent to China where they make cheap crap and sell it back to us.

You'd probably get shot explaining the rest of this.

What scares me is all this continued talk of the Amero.  Does this mean the US and the other fucks get to crash as hard as our overseas counterparts AFTER we join?  It sure looks that way to me if that's the plan.  And if things aren't bad enough!

ebworthen's picture

"Speak no evil, hear no evil, see no evil."

They don't want to know the truth, delusions are much more comforting.

medium giraffe's picture

Finally people are starting to wake up......


20-20 Hindsight's picture

One could one wish that people are starting to wake up.  However, this is not the case at all.  Other that ZH followers, most people still don't have a fucking clue of what's going on and they don't care... just as long as they have their sports, freak "reality" shows and "Honey Blow Me" (or whatever it's called.)  

yellowsub's picture

Yes, watch out for screwing over New Jersey residents...

bozzy's picture

Corzine feeds on the US - he has no intention of living there. Why is he not in Jail?

The only person in history who has got away with the line "it must have just vaporised" as though the movemener of those billions of "ring fenced" "it must never happen again" "trust accoount" dollars could not have been traced.



Z''s picture

Argentina tells U.S. court/bondholders they won't pay no matter what the ruling:


Argentina “won’t voluntarily comply” with the rulings if the appeals court upholds them, said Jonathan Blackman, a lawyer for the country. “If that’s the confrontation the court seeks with the injunctions, that is the court’s decision.”

A range of third parties with a stake in the outcome --including the holders of Argentina’s restructured debt, international payment intermediaries and banks, and the trustee for the restructured bonds -- claim the lower court’s actions also threaten their interests.

Breath of fresh air, that.  Elliott's 'legal arbitrage' be damned.

SmallerGovNow2's picture

Damn!!!  Thanks for the link...

PathForward's picture

The following allegory may be useful when attempting to understand the various ways that banks can systematically steal from taxpayers...

Imagine that you’re a ruthless billionaire and you believe your fundamental purpose in life is simply to make money.

If I was a ruthless billionaire, here’s what I’d do: I’d set up two totally isolated corporations in the United States – investment Bank A and investment Bank B, and I’d make sure that I didn’t personally have any connection whatsoever (i.e., legal or otherwise) to either of those two new corporate entities.

Over a period of time using Bank B, I’d sell a large number of futures contracts (i.e., I’d create a large short position in the commodities market), I’d short-sell a large quantity of stocks, and I’d sell a large quantity of various derivative products. In other words, I’d cause Bank B to develop HUGE liabilities to the financial system (i.e., large liabilities toward the good people who were trusting Bank B to participate ethically in the investment banking system).

During the same period of time that I was building large liabilities within Bank B, I’d simultaneously be buying (going long) those same futures contracts, stocks, and derivatives using purchases from Bank A. In other words, immediately after pushing prices downward with Bank B’s short sales, I’d purchase those same securities using Bank A. Effectively, I’d use Bank A to make money as those securities later rose in price, and I’d use Bank B to repeatedly push market prices downward whenever I was ready to make more purchases using Bank A. All of the activity at both banks would be directed in a highly coordinated manner from my remote high-tech facility, and all of the activity would appear to be independent when viewed by common market participants (i.e., I’d ensure the communications that I used to coordinate Bank A’s and Bank B’s activities were highly encrypted and non-traceable to my remote facility, and only the two well paid top-level managers at Bank’s A and B would know about the collaboration). The bottom line for me: all of the trading activity in the market would appear to be normal (i.e., legal).

Okay, now let’s fast forward to today. The ruthless billionaire has siphoned off large profits from investment Bank A, while he’s simultaneously created large liabilities for investment Bank B. He’s made billions of dollars over a period of years and his scam has worked very well (for him). In addition, Bank A is currently holding a HUGE quantity (long positions) of derivative products that it effectively purchased from Bank B, and Bank A expects to make *lots* of additional money from those derivatives in the future. So what’s the end game? Bank B is now insolvent and has lost all of its investors’ money. In addition, Bank B cannot fulfill its contractual obligations for the billions it owes for the derivatives products that it sold into the open market. Therefore, in order to prevent cascading cross defaults and a collapse of the whole financial system, the US Government must step in and figure out how to buy back most of those derivative obligations (i.e., repurchase the long positions that Bank A is currently holding), which thereby costs the US taxpayers billions/trillions in bailout money and nets Bank A *lots* more profit.

In summary, when the U.S. Government pumps billions/trillions of dollars into Bank B to prevent catastrophic systemic collapse, the ruthless billionaire effectively ends up with the “pumped-in” money.

What if the ruthless billionaire hasn’t limited himself to controlling only Banks A and B, and instead, he’s controlling *many* investment banks around the world serving the functions of A and B? What if 2008 was simply a warm up and the billionaire has now perfected this game? Imagine the inappropriate transfer of wealth that may occur, as governments desperately attempt to keep the world economic system from imploding as the mountain of derivatives is defaulted upon and must be settled in order to prevent collapse. What kind of wealth and power will the ruthless billionaires end up with, as they effectively transfer huge amounts of taxpayer savings to themselves, since the money that’s created out of thin air to pay off Bank B’s obligations effectively devalue the savings of the small investor. How long has this grand theft been planned, and who are all of the market players that are in on the scam?

Perhaps a few changes are needed in order to prevent this kind of theft and inappropriate accumulation of control (e.g., we could begin by following the constitution and returning to the use of real money (physical gold and silver), and we could stop bailing out private enterprises with taxpayer revenues).

andrewp111's picture

How do you control both bank A and B if neither is legally connected to you? That is the big flaw in your scenario. Banks are highly regulated entities, and control is determined by ownership.

H E D G E H O G's picture

I agree 100% Path. I think first we need to lynch a few fucking thousand of these scumbags.

Go Tribe's picture

Isn't that what JPM does in the silver market with SLV and physical?

mt paul's picture

if i was a billionaire 


i'd dress up as a polar bear

and chase eskimos ..

disabledvet's picture

if it were me i'd just found a media company and go from there. having said this is an EXCELLENT article and shows very much the difference between the American "bailout tycoons" and the rest of the world. What folks don't understand is how Wall Street (which really benefits no one...not even the participants) got so big in the first place. the one an only rule of course is "the media got them there." but beyond that "it's where people who only want money reside." so there is a PERCEPTION at least that "they offer something of value" (money) "to something." (never someone...that money is for the..."person" (as in them) and "not you.") so obviously Wall Street and the TBTF Banks got that way because of the gold standard of yesteryear which TRULY centralized ALL capital in an around New York City (to the point where JP Morgan was having to repeatedly bail out the US Treasury.) Fast forward to the Depression where the asset values of EVERYTHING deflated (save gold...at massive price of 35 bucks an ounce...who could afford that?) and you have Wall Street able to pretty much scoop up the entire Lower 48 "for a song." throw in World War II and rebuilding Japan and Germany and simply put "banking and insurance never had it so good." fast forward to today and i think Wall Street is realizing "when time are flush they can do anything" but "when all your money goes to the Government then guess what...YOU'RE the one Under Surveillance now." this is a much smaller Wall Street...50,000 down on the head count in just the past two months...throw in a generational commitment to the Middle East (if not longer) and I think you have the makings of a real problem for hitting those bonus numbers. this is the first time in American History that you have a professional military fighting a hot war "generationally"..and .unlike any previous conflict the folks involved in this one are embedding themselves into our society at large...with dramatic consequences for the American economy and polity. amazingly we've had ZERO discussions by our leaders about what even the Middle East is, why we're so committed to being over there...why we're becoming even MORE committed over there...etc...etc. and lest The People forget "we have issues over islands between Japan and China"...and we're not leaving that one alone either. Gun control? Immigration reform? Voting rights act? this stuff ain't even in the ballpark...let alone over the plate. this represents a challenge for BOTH Washington DC and Wall Street. The Cold War was easy compared to this. the rhetoric 10 years on has not only failed to live up to the reality but has indeed created a totally FALSE reality that "the conflict doesn't even exist"...let alone that we have had people fighting and dying in it ten years running. devolving it all down to "the budget axe" really misses the whole point. "when aren't wars fought under a budget axe"? anywho just some thoughts...

SmallerGovNow2's picture

Nice rant vet, from a fellow vet, thanks for your service...

bigkahuna's picture

Hope everyone is feeling good. It is very important that we all FEEEEEL really good.

DutchR's picture

"A turd that is solid and long. It will be tapered at both ends, like a large joint. These usually leave a clean first wipe when performed well and may require more than one flush to get it down Mr Toilet Bowl's hole. These are ideal, friendly turds. A shitter's best friend.

I ate 7 meals yesterday and as soon as I woke up, a Big Kahuna was begging to be released. I shat it out and praised god for his wonderful mercy." Smiles
NoDebt's picture

Um, wait.....  What?

Good thing they're tapered on the ends, right?  Imagine if they weren't.  Your ass would slam shut!  (Old joke)

steve from virginia's picture




Now we can see how polluted European (and likely all Western) assets are. The old-school 'wipe out equity and turn debt into shareholders' is kaput. Banks' assets are actually completely worthless because none of them produce other than a speculative return:




"SNS Reaal, fourth largest bank and insurance group in the Netherlands, cratering under a huge load of rotting real-estate loans, was bailed out on February 1, after already having been bailed out in 2008, and nationalized with a €10-billion package.

In the SNS bailout, all depositors were made whole. But stockholders were wiped out. And so were holders of junior debt!"


Cypriot banks will be restructured so that depositors are impaired. Senior debt in the cross-hairs ... it has to be. This is the nature of our system, the untouchable asset has four tires on it, everything else must die first.


Needless to say neither Cyprus nor Netherlands, Spain nor France, Greece nor Ireland produce any petroleum products at all. Every one of these places are stuffed with automobiles. Every other part of these countries' economies is on the chopping block or ruined already but the cars still clog the streets ... burning through irreplaceable capital, borrowing trillions of euros to be able to do so.


What can't go on forever doesn't ...

Colonial Intent's picture

I heard cyprus was re-inventing itself this year as THE offshore funds destination for corrupt chinese govt officials.

Should bring in a few bucks.....

Haus-Targaryen's picture

You're a moron, and a horrible troll.  No matter the problem it is the cars fault.  Your ability to use the internet from you tree-house amazes me, but I highly suspect your hypocrisy knows no bounds. 


Gas yourself troll. 

Arthur's picture

I still don't understand why Ireland assumed bank debt and did not pull and Iceland and let its banks fail.   Fail,  nationalize, sell and move on.  Taxpayers are saved  as are small depositors.... next.  Oh wait save the little guy and burn the contected big guys .... oops can't do that.

NoDebt's picture

Ireland had already been assimilated by The Borg.

Iceland.... different story.  They were assimilated The Bjork.  Different rules, different priorities.  So they burned the banks to heat their homes.  And more power to them for doing so.  There are alway scattered remnants of civilization somewhere that will live on.  Iceland is apparently such a place.  Whocouldanodeit?

Go Tribe's picture

Semi-automatic rifles are banned in Iceland. All gun owners in a national registry. Fuck Iceland.

Moe Howard's picture

They had a pots and pans rebellion because no guns. Bunch of faggots IMHO.

The true story of Iceland and the banksters is not being told.

All you need to know about Iceland is they are following the IMF instuctions to the letter.

Shell Game's picture

Something is rotten in Reykjavík.. Glad to see someone else is questioning the MSM approved story. I am beginning to believe Iceland was fully allowed their gesture by TPTB.  Note how is caused no stir in capital markets.  No major economy would ever be allowed to do this, the story is far from complete.

NoDebt's picture

You know what, I have to retract the above post.  I may be all wet on this.  Not 10 minutes after I posted I read that Ireland today has decided to NO LONGER back the bonds of their TBTF banks.  Read a blub about it on Yahoo, and drilled back a link or two.  Google "irleand bank bonds" and you see the same story in multiple places  Here's one of the links with the story:


Well, smack my ass and call me Susan!

WillyGroper's picture

Wonder when it will happen here?

Electricity up 12% since last year.


SmallerGovNow2's picture

Already is.  Mine recently went from 9 to 13 cents per KWH...

yellowsub's picture

Who cares about electricity. 

A freaking can of Pringles is $2 on sale!

earnulf's picture

Note that only "junior" bondholders lost their money, the "senior" bondholders were protected.    Don't put your money in these POS and there won't be no sh*t

chunga's picture

We need a taxpayer revolt right here.

Q: What happens when a banker is imbued with the authority of a Federal Court?

A: Nothing good.

RI Special Master Merrill W. Sherman - Former Banker - Corrupts Federal Foreclosure Order

q99x2's picture

The hell with bankruptcy, let's have a revolution.

Go Tribe's picture

Branches aflame. Bank branches, that is.

boogerbently's picture

In as much as the majority stockholders are usually the upper execs and board members, this is a great idea.

The damage to retirement/investment/pensions through mutual fund holdings would be severe.

But taxpayer funding these bailouts is UNFORGIVABLE.

ebworthen's picture

Yes, UNFORGIVABLE, treasonous, a hanging offense.

apberusdisvet's picture

The proper procedure should be.

1.  Bank asks for bailout due to reckless lending.

2.  Top tier executives have their personal finances audited.

3.  All executive asset valuations in excess of country's median income are confiscated.

4.  All share/bondholder values are converted to 50 year notes paying .5%

5.  All bank assets sold at auction.

Boxed Merlot's picture

50 year notes paying .5%...



Interesting you should mention a 50 year term.  After considerable thought, the "tribe"s original instruction for the nation was to allow no contracts to exceed past a predetermined 50 year duration.  What that meant was that these were not "floating" 50 year terms with various redemption dates, but that no contract could be entered into that had a settement date past the nation's agreed upon "jubilee" year.  This makes for a much more orderly set of obligations and prevents a wholesale abdication of the rule of law, but it only works if it's adhered to during the preceeding time frame leading to the said year of "jubilee". 

As it is, bcause no uniform accepted moment in time in the future has been established, some people will recieve windfall benefits, while others will pay more than others for the same return, eliciting cries of injustice and recompense.  No easy way out at this point, imo, other than to cry to the Author of the system and plead for a solution that will not involve the shedding of innocent blood.



LawsofPhysics's picture

Glad to see another optimist.

steve from virginia's picture




You left out the 'feed banking executives into a woodchipper head first' part ...


Blankfein and Dimon go last.

edifice's picture

Head first? Nonsense... Feet first hurts more.

Go Tribe's picture

Yep, and make it a plastic shredder like Saddam used.

jeff montanye's picture

why down arrow a call back to one of our time's greatest intuitive torturers?  cheney was a gifted amateur by comparison.  

dimon particularly needs to watch and listen carefully to the proceedings (as he will be in the splatter zone, blythe masters can be in charge of keeping his sensory orifices clean, free running and, well, perhaps not sanitary, so he can come to realize it isn't because he's richer than you, or me).

LawsofPhysics's picture

Please, the banks own the governments in the west and most likely the world.  So as long the sheep keep paying taxes or working for peanuts so somebody else can benefit from their labor, the government will do exactly what the bankers and paper-pushers of the financial sector want, period.  When your money has no inherent accountability, neither will the world you live in.

Ghordius's picture

a small correction: the megabanks own the governments of the US and the UK and their central banks, and so they have a stranglehold on much of the world

pls note the article above and the other regarding the banker bonuses in the EU - we here on continental europe are trying