# You Are an Unsecured Lender To Your Bank



## UncleJoe (Jan 11, 2009)

If you don't have time to watch the entire video, jump to 11:15 and watch for about 4:00.

In a nutshell:

According to banking laws established in England in the 1850's and carried over to the US and Canadian banks, you are an unsecured lender to the bank. Meaning; if the bank finds itself in trouble and there is no other source of funding, it is under no obligation to pay out to you, funds you have on deposit in their institution.

I had never heard this before today.


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## hiwall (Jun 15, 2012)

This is very true. And the FDIC is fine if only a few local banks go bust but they don't have the money to cover even one major bank.
You're screwed.


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## UncleJoe (Jan 11, 2009)

And here's another little piece along the same lines.

http://www.zerohedge.com/news/2013-10-29/congress-eliminate-debt-not-counting-it-anymore

You know the old rule of thumb about laws-

The more high-sounding the legislation, the more destructive its consequences.

Case in point, HR 3293- the recently introduced Debt Limit Reform Act. Sounds great, right? After all, reforming the debt seems like a terrific idea.

Except that's not what the bill really does. They're not reforming anything. HR 3293′s real purpose is to authorize the government to simply stop counting a massive portion of the US national debt.

You see, one of the biggest chunks of the debt is money owed to 'intragovernmental agencies'.

For example, Medicare and Social Security hold their massive trust funds in US Treasuries. This is the money that's owed to retirees.

In fact, nearly $5 trillion of the $17 trillion debt (almost 30%) is owed to intragovernmental agencies like Social Security and Medicare.

So now they basically want to stop counting this debt. Poof. Overnight, they'll make $5 trillion disappear from the debt.

On paper, this looks great. But in reality, they're setting the stage to default on Social Security beneficiaries without causing a single ripple in the financial system.

Remember, when governments get this deep in debt, someone is going to get screwed.

They may default on their obligations to their creditors, causing a crisis across the entire financial system. Or perhaps to the central bank, causing a currency crisis.

But most likely, and first, they will default on their obligations to their citizens. Whatever promises they made, including Social Security, will be abandoned.

And if you read between the lines, this new bill says it all.

Not to be outdone by the United States Congress, though, the International Monetary Fund recently proposed a continental-wide 'one off' wealth tax in Europe.

Buried in an extensive report about Europe's troubled economies, the IMF stated:

"The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair)."

In other words, first they want to implement capital controls to ensure that everyone's money is trapped. Then they want to make a grab for people's bank accounts, just like they did in Cyprus.

The warning signs couldn't be more clear. I've been writing about this for years. It's now happening. This is no longer theory.

Over the last few weeks I've been having my staff revise a free report we put together two years ago about globalizing your gold holdings.

In the report I mentioned that capital controls are coming. And that some governments may even ban cash transactions over a certain level.

These things have happened. Cyprus has capital controls, France and Italy have limits on cash transactions. And given this new evidence, it's clear there's more on the way.

Every rational, thinking person out there has a decision to make.

You can choose to trust these politicians and central bankers to do the right thing.

Or you can choose to acknowledge the overwhelming evidence and reduce your exposure to these bankrupt western countries that will make every effort to lie, cheat, and steal whatever they can from you&#8230; just to keep the party going a little while longer.

It's time for people to wake up to this reality. You only have yourself to rely on. Not the system. Not the government. And certainly not the bankers.


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## lovetogrow (Jan 25, 2011)

Under "Dodd Frank Act"- New Banking Rule Comes in Effect - Jan. 1, 2014

NOT A FAN OF THIS PARTICULAR MEDIA - however this interviewee is insightful:

"Marilyn M. Barnewall to discuss the often overlooked topic of private banks, as well as why she foresees economic catastrophe, bank bail-ins, and currency devaluation soon becoming a reality in the United States."

*Listen from 06:07 mark to 30:33 *






Dodd-Frank Act

https://en.wikipedia.org/wiki/Dodd-F...Protection_Act

http://americablog.com/2013/04/fdic-uk-nz-deposit-confiscation.html
"Nations have already started to institute rules that enable deposit confiscation
There's an international move by national governments to write regulations that permit deposit confiscation in the case of bank failure. This is exactly the Cyprus model, and if the news stories are correct, confiscating deposits was being considered or enabled prior to Cyprus bank-failures."


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## UncleJoe (Jan 11, 2009)

lovetogrow said:


> bank bail-ins,


That's the term Jim Rodgers uses.

Banks using "in house" funds to rescue themselves from poor investment decisions.


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## lovetogrow (Jan 25, 2011)

Exactly what it appears to be. Time to start stashing in the matresses?


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## Immolatus (Feb 20, 2011)

I was actually surprised that the few people who I spoke to about bank deposits understood that a deposit is a loan to the bank, and these were people who I thought were less likely to know.
As to that bill in the ZH article:
Prognosis * 1%* chance of getting past committee.
*0%* chance of being enacted.
Only 11% of bills made it past committee and only about 3% were enacted in 2011-2013.
Since this is all just a show anyway, why _not_ just get rid of the debt ceiling? Funny how Dems laud Cheney for saying 'Deficits dont matter', but are more than happy to double them. The overall debt wont matter, well, until it does. Until that happens, $15T, $25T, $100T, whats the difference? Slowly, then all at once...


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## redhorse (Dec 27, 2012)

Good thing I have a hidey hole for my stash. Although if they limit cash transactions, that won't do me any good either. I didn't listen to all of UncleJoe's link, but caught something about the banks taking equity from your home. Lovely.


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## Geek999 (Jul 9, 2013)

There is a lot of misinformation here. Let me first address the FDIC issue. If you are worried about what will happen when one of the large banks fails because FDIC doesn't have the funds to cover it, you should be aware that _this has already occurred_. Remember 2008?

As far as being an "unsecured creditor", that is true in the sense that you don't have a claim on specific assets, like a mortgage on a building. However, bank deposits are senior to all other debts in the event of a bankruptcy, so it just doesn't mean the same thing as being an unsecured creditor of some other type of company.

As far as confiscation of bank deposits and some of the other worries brought up, these are not something the bank can do independently. These would be government actions. If the government gets to the point of stealing bank deposits, there will also be a lot of other government induced problems going on simultaneously and to focus on government theft of bank deposits is probably to lose sight of the bigger picture.


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## cowboyhermit (Nov 10, 2012)

Geek999 said:


> There is a lot of misinformation here.


Where is this misinformation, did not see it addressed in your post?

Depositors are considered unsecured lenders, correct.
If many large banks were to go under the FDIC or here in Canada the CDIC would be in crisis, correct.


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## BillS (May 30, 2011)

Geek999 said:


> There is a lot of misinformation here. Let me first address the FDIC issue. If you are worried about what will happen when one of the large banks fails because FDIC doesn't have the funds to cover it, you should be aware that _this has already occurred_. Remember 2008?
> 
> As far as being an "unsecured creditor", that is true in the sense that you don't have a claim on specific assets, like a mortgage on a building. However, bank deposits are senior to all other debts in the event of a bankruptcy, so it just doesn't mean the same thing as being an unsecured creditor of some other type of company.
> 
> As far as confiscation of bank deposits and some of the other worries brought up, these are not something the bank can do independently. These would be government actions. If the government gets to the point of stealing bank deposits, there will also be a lot of other government induced problems going on simultaneously and to focus on government theft of bank deposits is probably to lose sight of the bigger picture.


That's the way it used to be. It won't be that way after the first of the year. Even the liberal press has talked about it:

http://www.huffingtonpost.com/ellen-brown/banks-confiscation_b_2957937.html

"In the U.S., depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren't even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders. [Emphasis added.]"


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## dixiemama (Nov 28, 2012)

Exactly why we have been taking our money out of banks. My grandpa learned growing up during the depression to not trust banks.


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## Geek999 (Jul 9, 2013)

In the US we had a distinction between commercial banks and investment banks. FDIC insurance applies to commercial banks, not investment banks. Lehman was an investment bank. Generally in the US when one uses the term "bank" they mean a commercial bank.

The laws in US and UK are different, so lumping them together is sloppy reporting. Under current US law, depositors are senior to other creditors and they are insured by FDIC. If anyone here is planning a deposit of more than $250,000 then please ignore everything about FDIC, because it doesn't apply. In order to convert your deposit into bank equity, as described in the article, a bank would need to go through the bankruptcy process. The story in Cyprus was about a government action, not a bank action.

Generally banks do not go through the bankruptcy process as they are siezed by regulators before they get there. However, if a bank did go through bankruptcy, depositors would be senior creditors. To do otherwise would be a violation of current US law. This would again be a government action.

Also, it should be noted that all banks have much higher capital requirements than they had in 2008, making a bankruptcy less likely than it was then. Note that FDIC siezures are way down from what they were just a few years ago.

Having said all that, there are banks that are sounder than others. It is prudent to make deposits in sounder institutions. One of the negative aspects of FDIC insurance is that people no longer worry about whether one bank is better than another. If you have a concern about unhealthy banks, by all means move your business to a bank you have more confidence in.

If you buy into the idea that the US government will suddenly sieze bank deposits then don't bank anywhere, but also do not retain any US dollars. Sticking them in your mattress won't help. You'll need to put your money in a different currency to avoid that problem.


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## hiwall (Jun 15, 2012)

Many maybe do not realize that banks are still failing even as we speak. Here are 23 that failed this year so far. Things in the banking industry is not all rosy.

http://www.fdic.gov/bank/individual/failed/banklist.html


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## Geek999 (Jul 9, 2013)

hiwall said:


> Many maybe do not realize that banks are still failing even as we speak. Here are 23 that failed this year so far. Things in the banking industry is not all rosy.
> 
> http://www.fdic.gov/bank/individual/failed/banklist.html


That is compared to several hundred per year a few years ago. There are thousands of banks and a few small ones go every year. FDIC handles those.


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## cowboyhermit (Nov 10, 2012)

In Canada we haven't had any banks go under (recently) and yet we have lowered the limit to $100 000 per person that is guaranteed federally, that doesn't include credit unions and other exceptions. Even at that level a major event would break the program. Sure in most circumstances our government would just step up but my plans never involve counting on the government to do the "right" thing.


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## Geek999 (Jul 9, 2013)

cowboyhermit said:


> In Canada we haven't had any banks go under (recently) and yet we have lowered the limit to $100 000 per person that is guaranteed federally, that doesn't include credit unions and other exceptions. Even at that level a major event would break the program. Sure in most circumstances our government would just step up but my plans never involve counting on the government to do the "right" thing.


You are correct. Canada does not have the many small banks the US does and instead has a few very large banks. Canada has not tried to force its banks to make bad mortgage loans or engaged in other misguided regulatory schemes. Canada's government deserves credit for its bank regulation and sound banking businesses.


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## hiwall (Jun 15, 2012)

Geek999, I think it great that you are a member here so we have a banking insider.


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## Geek999 (Jul 9, 2013)

hiwall said:


> Geek999, I think it great that you are a member here so we have a banking insider.


Thank you. "Insider" is a term that tends to get used with "insider trading" however.  During my career, I have primarily been a consultant to financial services firms including banks, securities firms, and insurance companies.


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## cowboyhermit (Nov 10, 2012)

Funny how "insider" can be taken different ways

I certainly wouldn't dispute the fact that we tend to have fewer and larger banks up here but I think that is often exaggerated to a certain extent because of size differences. For instance the media always talks about the "big five banks" we have, well that equates more or less to the top 50 banks in the U.S. When you factor in other banks that are not much smaller and those that are not legally a bank (atb) then it would be equivalent to hundreds. What Canada does not have is very many small banks, however we use credit unions MUCH more that the U.S. and until recently there were tons of little ones (still lots though)

While regulation is often touted as the reason for our lack of banking crises it is worth noting that as far back as the depression Canada lost no banks even though we were hit at least as hard as the U.S economically. We didn't even have a central bank at the start and it didn't become the sole source of currency till much later, maybe that says something:scratch


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## Geek999 (Jul 9, 2013)

cowboyhermit said:


> Funny how "insider" can be taken different ways
> 
> I certainly wouldn't dispute the fact that we tend to have fewer and larger banks up here but I think that is often exaggerated to a certain extent because of size differences. For instance the media always talks about the "big five banks" we have, well that equates more or less to the top 50 banks in the U.S. When you factor in other banks that are not much smaller and those that are not legally a bank (atb) then it would be equivalent to hundreds. What Canada does not have is very many small banks, however we use credit unions MUCH more that the U.S. and until recently there were tons of little ones (still lots though)
> 
> While regulation is often touted as the reason for our lack of banking crises it is worth noting that as far back as the depression Canada lost no banks even though we were hit at least as hard as the U.S economically. We didn't even have a central bank at the start and it didn't become the sole source of currency till much later, maybe that says something:scratch


My understanding is that Canada also benefits from a lack of regulation forcing banks to make bad loans, such as happened here during the build up to our mortgage crisis. I've seen first hand how thoughtless legislation or regulation can put a bank out of business here in the US, but I've never heard of that sort of thing in Canada.

Unfortunately, we seem to have decided to adopt your health care system instead of your financial system.


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## cowboyhermit (Nov 10, 2012)

Geek999 said:


> My understanding is that Canada also benefits from a lack of regulation forcing banks to make bad loans, such as happened here during the build up to our mortgage crisis. I've seen first hand how thoughtless legislation or regulation can put a bank out of business here in the US, but I've never heard of that sort of thing in Canada.
> 
> Unfortunately, we seem to have decided to adopt your health care system instead of your financial system.


Hey, don't blame us for that mess, not a fan of our system but Obamacare is an entirely different animal. A lot of people are looking south these days and shaking their heads. I am not so convinced, real estate values seem awfully bubbly to me


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## faithmarie (Oct 18, 2008)

Has anyone heard about the copper pennies? They are the size of a quarter? One is worth a dollar in weight. I don't think you can use it now ... but it is legal ....


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## Geek999 (Jul 9, 2013)

cowboyhermit said:


> Hey, don't blame us for that mess, not a fan of our system but Obamacare is an entirely different animal. A lot of people are looking south these days and shaking their heads. I am not so convinced, real estate values seem awfully bubbly to me


You're absolutely right. We did this to ourselves. To tell the truth, if Canada just dumped the gun laws and cleared the wait times for medical care, I'd be looking to retire there.


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## cowboyhermit (Nov 10, 2012)

Well I know a lot of people from here who bought properties in Arizona and Nevada for bargain prices the last decade, might not be long till the situation is reversed. Except the weather, that aint gonna change anytime soon


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## BillS (May 30, 2011)

Geek999 said:


> In the US we had a distinction between commercial banks and investment banks. FDIC insurance applies to commercial banks, not investment banks. Lehman was an investment bank. Generally in the US when one uses the term "bank" they mean a commercial bank.
> 
> The laws in US and UK are different, so lumping them together is sloppy reporting. Under current US law, depositors are senior to other creditors and they are insured by FDIC. If anyone here is planning a deposit of more than $250,000 then please ignore everything about FDIC, because it doesn't apply. In order to convert your deposit into bank equity, as described in the article, a bank would need to go through the bankruptcy process. The story in Cyprus was about a government action, not a bank action.
> 
> ...


You still see things the way they used to be. Not the way they are now.

The big commercial banks are also investment houses. Those investment houses can gamble their depositors money and use it to cover their losses like MF Global did in 2012.

The big banks still have trillions in toxic mortgages. The laws were changed so they don't have to carry them on their books at market value. The Fed is buying them at the rate of about a trillion dollars a year. The big banks get to borrow money at extremely low rates from the Fed. They use that money to buy treasuries. In exchange they don't dump all their foreclosed properties on the market at the same time.

FDIC insurance will become almost meaningless on January 1, 2014 when depositors will be treated as unsecured creditors. According to wikipedia, the FDIC has $37 billion insuring about $10.54 trillion in deposits. Not only that, depositors will become unsecured creditors at the bottom of the creditors list. The big banks could declare huge losses and require their depositors to cover those losses. If there are $370 billion in losses than the FDIC can pay back depositors at 10 cents on the dollar. That's assuming FDIC pays them back at all. If there are $3.7 trillion in losses than the FDIC will pay back depositors at 1 cent on the dollar if at all.

There's also talk about the government charging a one-time wealth tax against bank, retirement, and investment accounts.

You can also expect the government to force retirement fund managers to keep a percentage of their investments in government bonds. The net result will be the government stealing from the retirement accounts and giving the account holders worthless paper.


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## BillS (May 30, 2011)

faithmarie said:


> Has anyone heard about the copper pennies? They are the size of a quarter? One is worth a dollar in weight. I don't think you can use it now ... but it is legal ....


I think what you're talking about are one ounce copper rounds. They're not legal tender. This place shows a number of them:

http://www.providentmetals.com/bullion/copper/1-avdp-ounce.html?limit=all


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## Geek999 (Jul 9, 2013)

BillS said:


> You still see things the way they used to be. Not the way they are now.
> 
> The big commercial banks are also investment houses. Those investment houses can gamble their depositors money and use it to cover their losses like MF Global did in 2012.
> 
> ...


You are correct that most of the investment banks have either obtained commercial bank charters, or been absorbed by commercial banks. However, the businesses are segregated and depositor money is not used on the investment banking side of the business. MF Global was not a commercial bank.

As for the "trillions" of toxic mortgages, most of the banks have been rapidly building capital and at the same time cleaning up the mortgage mess. It isn't over but the problem is much smaller now than it was in 2006 when the bubble burst. The first losses would be absorbed by bank capital, then other creditors and then depositors over the FDIC limit and then FDIC would need to be cleaned out before any insured depositors took a hit. Furthermore, bank contributions to FDIC have been increased to make sure that doesn't happen.

Most of what the Federal Reserve is buying are US Treasuries or new mortgage securities that meet today's underwriting standards, not the old stuff full of foreclosures.

As for a one time wealth tax, that would require legislation and I don't see the Republican house going along with that.

Regarding your point of stealing from retirement accounts, they are already doing that, but not in the fashion you suggest. Fundamentally, the very low interest rate policy takes money from bond holders, who could be anyone, but include retirement accounts, and transfers it to borrowers who benefit from the very low rates.

Will the policies in place work? Maybe or maybe not, but failed policy is not the same as a conspiracy. I suspect that decades into the future people will be studying what was done right and what was done wrong, just as the Depression gets studied today.


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