The government of Cyprus wants to grab bank deposits, and the chief economist of the German Commerzbank has called for private savings accounts in Italy to be similarly plundered, and other nations may be moving in that direction as well.
The American government has seized private assets before, and President Obama authorized seizure of property again last year. (The Argentinian government grabbed 401k assets; and some in the American government have mulled the same thing. And the U.S. government’s take-down of Megaupload was also an exercise of the power to seize all of the legal property held in a storage facility because a handful of crooks have illegal property in theirs. )
Zero Hedge has been warning for years that Western governments – including the U.S. – would eventually seize bank assets.
Bernanke was asked yesterday whether a Cyprus-style grab of bank deposits is possible in the U.S. :
Question: I was wondering if you can tell me how if a run on the banks happens in Cyprus, how that might affect U.S. markets. And also is it possible for the U.S. to levy a tax on regular deposits here? Or why not?
Bernanke: As someone mentioned Cyprus is a tiny economy. I don’t think these issues as worrisome as they are and as concerned as we would be for the Cyprus people, I don’t think that they have a direct implications for the U.S. economy.
The only way that they would create a problem would be if the runs became contagious in some sense, if depositors in other countries lost confidence. But to this point I’m not aware of any evidence that that is in fact the case.
The argument the Europeans are making is that Cyprus is a unique situation, very different situation, and indeed, it is quite unusual to have a banking sector as large as they have relative to their economy.
In terms of the United States, the FDIC was founded in 1934, and we have insured deposits and they are very proud of the fact that no one has ever lost a dime in insured deposits.
And during the crisis the response of the government was in fact to increase the level of deposit or account sizes that were insured. So I consider that to be extremely unlikely in the United States.
Bernanke’s response is unsatisfactory for 2 reasons.
Initially, the FDIC only insures deposits up to $250,000. So deposits over that amount are unprotected.
True, the Treasury Department would likely just bail out the FDIC if the FDIC really went belly up. But that would take a political act of will. And so Bernanke should have said, “we will always make sure the FDIC has enough money”.
Second – and more important - Bernanke failed to answer the question altogether. The question was not about whether the government would save bank depositors from economic conditions caused by others. The question was whether the government itself would grab deposits.
People didn’t think any European country would seize bank deposit assets. But the EU demanded that the government of Cyprus seize private bank deposits. The attempt of a government to seize private property is undermining confidence in Europe … and many people worry that that contagion will spread. That is what the question was about.
Bernanke entirely failed to answer the question which was actually asked … and has thereby caused a tsunami of distrust on the Internet.
In the same way that the Department of Justice’s wishy-washy assurances that it probably wouldn’t assassinate Americans on U.S. soil hasn’t reassured anyone, Bernanke shouldn’t have given a half-hearted reply. He should have said:
The U.S. will never, ever seize any American’s bank deposits under any scenario whatsoever … without exception. We respect the rule of law as the basis for our economy, and we will never do anything which interferes with private property rights.
Bernanke’s failure to reassure couldn’t have come at a worse time.
British MP Nigel Farage just gave the following advice in response to the Cyprus bank deposit grab:
Get your money out while you still can.
The failure of American economic “leaders” to provide real reassurance regarding our bank deposits will just increase mistrust.
Indeed, more and more Americans realize that the government has bailed out the super-elite of the big banks, and enabled their fraud … while hosing the little guy again and again (and again). People see that we have socialism for the rich, but cut-throat, sink-or-swim capitalism for everyone else. They see that we have a malignant synergism between D.C. politicians and giant companies. Look here, here, here.
Indeed, after Wall Street giants such as MF Global and JP Morgan got caught seizing segregated client funds – but were never prosecuted by the government – both amateur and sophisticated investors have lost trust in the American financial system and financial regulators. (It has become obvious to all that the government is trying to cover up for the stunning crimes of the big banks.)