As the world is now beginning to realize, the Cyprus Bank Heist was not a one-time, exceptional measure to save banks, never to be applied again. On the contrary, as I explained earlier this week the idea of confiscating bank deposits to save banks is catching on internationally.
This is a frightening perspective on the issue, because it means that we, the Western civilization, is about to turn our backs on one of the most important cornerstones of our prosperity: the property rights contract between banks and their clients.
There is no doubt that more governments are going to apply the Cyprus Bank Heist model to their own jurisdictions. You would think that this was bad enough – but it is not. Today we can report that the Cyprus Bank Heist model is soon going to expand into other assets than bank deposits.
More on that in a moment. First, let us note that the Eurotarians who govern the EU are temporarily in damage-control mode. Mario Draghi, the president of the European Central Bank, is trying to blow cute little smoke screens to draw people’s attention away from the devastating consequences of the Cyprus Bank Heist. EU Observer reports:
European Central Bank chief Mario Draghi on Thursday (4 April) admitted that an initial plan to tax small savers in Cyprus was “not smart”, but stressed that the island is “no template” for others.
Really… Every finance minister in the euro zone has endorsed it. Finland, Ireland and Estonia have vowed to use it themselves. The Canadian parliament will soon consider a bill that would legalize confiscation of deposits in “systemically important” banks. New Zealand is allegedly considering a similar law. Et cetera.
No, the Cyprus Bank Heist was “no template” at all. Not at all.
Back to the EU Observer works hard to draw people’s attention to small details instead of the big, freedom-shattering principled questions that the Cyprus Bank Heist give rise to:
Draghi said that the ECB had not been the source of the original (and subsequently rejected) idea to impose a tax on small savers, but did agree to it as part of an overall deal on 15 March. “That was not smart, to say the least, and it was quickly corrected the day after in the Eurogroup conference call,” Draghi said during a press conference in Frankfurt after the monthly meeting of the ECB governing council.
Draghi’s strategy is to get people bogged down in some kind of nonsensical debate over who should lose the most. Once people talk about technical details they have de facto accepted the architecture itself.
Draghi’s support for the Cyprus Bank Heist as a template for the future is revealed later in the EU Observer article:
“A bail-in by itself is not a problem, it’s the lack of rules known to all parties which can make a bail-in a disorderly event, and the lack of capital buffers. Absence of rules give this impression of ad-hoc-ary in these cases,” Draghi said. The quicker eurozone-wide rules are in place on how to deal with failing banks and who picks up the bill, the better, he indicated. “We would like these rules not in 2018-2019 as it’s foreseen, but way, way earlier – in 2015.” “It is very urgent that we have in place a European framework for resolution, restructuring and recapitalisation of the banking systems. These are the lessons I would draw from the Cyprus event,” he said.
So first you create an “event” – a government seizes private bank deposits – then you say that the lesson from the event is that we must do it again.
Why do I come to think about the staged Polish invasion of Nazi Germany just prior to September 1, 1939? Hmm…
But regardless of what hot air Mario Draghi is producing, others have already grabbed the torch and carried it to new places where they can set private property rights on fire. First off is the CEO of Unicredit, a large, international bank. From Goldcore.com:
The CEO of Unicredit Federico Ghizzoni said yesterday that it is “acceptable to confiscate savings to save banks.” He said that the savings which are not guaranteed by any protection or insurance could be used in the future to contribute to the rescue of banks who fail and that uninsured deposits could be used in future bank failures provided global policy makers agree on a common approach. He called for “a common solution in Europe” saying that the “EU should pass laws identical and shared in different member states”. Indeed he went a step further and called for a global coordination of deposit confiscations to rescue failing banks.
So what do you think will happen when all depositors have depositors’ insurance? Exactly! There will be a new clause added to some existing law that voids that insurance under “exceptional circumstances” such as when the government needs to seize your assets to save a bank – or a government with unsustainable deficits.
If we add Mr Ghizzoni’s words to the Canadian bill to make it legal for banks to “turn liabilities into assets”, and hold them up against the background of the European chorus of praise for the bank heist model, we get a clear, chilling and very dangerous picture of how this destruction of private property rights is going to spread to every corner of the world.
And once it has conquered all free nations, it will start spreading to other assets as well. Also from Goldcore.com:
An interesting development in the precious metals market is the largest Dutch bank, ABN Amro, has said that they will no longer be providing physical delivery of precious metals including gold, silver, platinum, and palladium bullion coins and bars. ABN AMRO, one of the largest banks in Europe announced in a letter to clients that it would no longer allow clients to take delivery of their metal and instead will pay account holders in a paper currency equivalent to the current spot value of the precious metal. Thus, instead of legally owning a risk free, physical asset (a bullion bar or a bullion coin), the bank’s clients are now unsecured creditors and are now exposed to the bank and the financial system – somewhat defeating the purpose of owning precious metals. The move highlights the importance of owning physical bullion either in your possession (be that be in a safe or vault in a house, in the attic, under the floorboards or elsewhere in your possession) or in a secure vault in a country that is stable and respects property rights.
Indeed it does. But it also highlights a new turn in how the global banking system is trying to prevent people from escaping the next Cyprus Bank Heist.
If you don’t want to keep your money in a regular bank account, but instead own something that we cannot physically take from you – then we are going to make sure we can physically take it from you anyway.
It is shocking to watch the spreading of the bank heist model. It is even more shocking when you realize that this is actually an assault on the oldest, currently existing form of private property right. The entire, modern banking system stands and falls with the banks honoring this property right. This very same banking system has done an enormous amount of good for all countries who have embraced the pillars of Western Civilization – among them economic freedom – and helped create prosperity and wealth of proportions previously unknown to man. Private banking, honoring property rights, has been instrumental in allowing desperately poor nations to lift themselves to a Western-style standard of living.
And now – what is this going to lead to? What will come of this, when the accumulation of wealth has been reduced to a form of fodder for banks and governments?
Are we watching the beginning of the end of free-market capitalism as we know it?
So far, no Cyprus Bank Heist legislation has been introduced here in the United States. Let us pray that it won’t happen. But if that happens, or if it becomes de facto law through some kind of international treaty, then… well, where do we stand then?