europe bail in official policy now

[Spaceman_Spiff]

I've said it once and will repeat: there's no fairer way to deal with a bank failure than a bail-in:

• Current bank owners (shareholders) should lose everything.
• Creditors should lose the necessary amount to save the bank, starting by those who accepted more risks (like bondholders) until those who did not accept much risk (depositors). Ideally, depositors should not lose anything or very little - but if the hole was too huge, they might end up with a significant cut.
• These same creditors should be rewarded with ownership of the bank. For example, if you lost 10K, and in total 10G were needed to save the bank, you now must own a millionth part of the bank in shares.

I can see no way to make it fairer than this. Tax victims should not have to spend a dime - that's externalizing a cost to people that had nothing to do it (imposed negative externality, moral hazard, private profit public losses etc). Only those involved with the failed bank should. Federal/national insurances of bank deposits are unfair by definition and should never have been created in the first place.

Agreed, I for one didn't understand why what I have been told is normal bankruptcy law (first the shareholder loses his money, then bondholders, then depositors) was not used in previous bank-ruptcies.  It's ridiculous that they have only implemented this now.  

Basically governments are scared of contagion. If you see one bank go down, you run on another one, and that goes bad too. (Probably also some corruption, because people who would lose out are good at influencing the government.)

I think a lot of people here have got the meaning of this backwards. When governments offer full bail-outs with taxpayers's money, it's because they think all the banks are very shaky, and they don't dare let one of them fail in case the rest of them topple, too. What's happening now is that the European banks are gradually getting more stable, so governments are feeling confident enough to try to reassert the original principles of how bank failures were always _supposed_ to work.

Even if you are concerned with systemic risk, you can nationalize the bank and fund the liabilities with taxpayers money, but in that case shareholders and bondholders should be wiped out first.

[oleganza]

I didn't get your point, oleganza.

You noted some injustices that are practiced world wide. But how does that change what I said?

Forcing taxvictims to pay for a bank rescue will always be less fair than what I wrote. Banking being a fucked up industry or not.

My point is that talking about levels of fairness in a situation which is already unfair to both taxpayers and depositors (almost every depositor is a taxpayer, by the way, and every taxpayer is a victim of taxation), is hiding the real problem. It's like discussing oral hygiene during tsunami. It's technically correct, but irrelevant. To add insult to injury, such technique is typically used by media and politicians intentionally to distract from real issues.

In our case, when the government and banks create a nice guarded prison for every citizen and then play with them how they want, anyone who says "taking money from depositors is fairer than from taxpayers" may be technically correct, but insults both groups. It is immoral to threaten peaceful people on any grounds, period. Threatening people for creating their own banks because of such "rules" is immoral. Anyone who invents "moral rules" to justify violence must either have a full mathematically-hard proof or shut up. I myself don't claim to know what's "moral", but my only definition of "immorality" is when someone claims to be moral himself and instead of working on a proof threatens to kill people.

[caveden]

(almost every depositor is a taxpayer, by the way, and every taxpayer is a victim of taxation)

Not of the same bank. Even if all banks fail, the size of each bank's loss will not be the same. Also, bank creditors choose how exposed they'll be (a bondholder is more exposed than a depositor, a depositor that leaves lots of liquid money in the bank is more exposed than one that invests his money somewhere else like real state, precious metals, bitcoin etc). It's perfectly reasonable and fair that those who were voluntarily more exposed end up paying a larger cut than those who took precautions to stay away from the failed bank.

, is hiding the real problem. It's like discussing oral hygiene during tsunami. It's technically correct, but irrelevant.

I respectfully disagree. It's not irrelevant. Bail-outs create a moral hazard. The certainty that you can explore this rigged game and always win, at the expense of others.
A bail-in as I described would at least punish those responsible by making them lose everything. If that's the norm, even though the whole banking system continues fucked up as hell, bankers would be more prudent on their risk-taking.

But of course, I agree that central banks are absurd, that they foster cartels, and that the monopoly of money is perhaps the worse economical problem the developed world faces today. Bail-ins per se won't fix that. But they might change the behavior of bankers.

[tabnloz]

I love this news 
Europe's shit money will fail.

From reading Rickards take on the Euro, it will remain slightly stronger comparatively, allowing us/china competitive advantage.

But after hearing the Anglo Irish tapes & suggestions that derivative losses might be much much bigger than said or thought, maybe more bailouts are coming?

[Spendulus]

....
Don't keep cash in your accounts past the insured limit.  If you are doing this, you are voluntarily acting as an at risk creditor.

Like the insurance limit means something... Sure, better not having more than the insured limit, is another layer of (fragile) protection, but still the only sound hedge against the financial system is BTC

There is a problem with the line of thinking shown here.

When we agree to a government policy of possibly agreeing to let banks do a haircut on monies held above the insured limit, this is agreeing to absolve that government of having to pay for losses in said bank.

At least that is true to the extent that balances above 100k in the aggregate solve the liquidity problem of the bank.

Better would be for the bank to take the first 100k, then require the government to reimburse it.

Look - it's either insurance OR IT'S NOT.  Creating an artificial "risk free scenario" for the first 100k means it's not insurance....yet you are paying in your bank fees, and your bank is remitting in the aggregate, fees for "insurance".

[oleganza]

At least that is true to the extent that balances above 100k in the aggregate solve the liquidity problem of the bank.

Better would be for the bank to take the first 100k, then require the government to reimburse it.

Look - it's either insurance OR IT'S NOT.  Creating an artificial "risk free scenario" for the first 100k means it's not insurance....yet you are paying in your bank fees, and your bank is remitting in the aggregate, fees for "insurance".

You know why we don't really debate if McDonalds is better than Burger King? Because it does not matter. If you think McDo is better, you simply go there. But if government forces you to go to Burger King, does it make any sense to discuss if Burger King has good enough burgers?

The problem is not where everyone is looking. Discussing if fractional reserve or "bails in" are bad or good is irrelevant. The problem is where the gun is. If you don't like government insurance policy "keep less than 100K in a bank", you are free to go and create your own bank, with or without money printing, with any insurance you want. Except, now you will face the gun: you are not allowed to create any bank you want. And then you MUST obey legal tender laws, so if someone brings you a dollar bill, you MUST accept it as a repayment of the debt (even though you gave credit in, say, silver). In the end, multiple individual policies shape the market in a way that only a small number of banks with very specific policies can survive on the market. All the rest will either be pushed out by force or not be competitive.

If intellectuals like you spend all their time debating unimportant and non-black-and-white issues like bail ins, you will never expose the real root of all problems: not allowing people to do what they want to do and thus directing them into the shitty government policies. It does not matter which policy we are talking about. What matters is only gunpoint.