Bail-Ins Are Fraudulent

VANCOUVER, Canada (Bullions Bull Canada) -- In condemning the open criminality of Western regimes as they planned well in advance and then executed the robbery of funds from peoples' bank deposits in Cyprus, it's important to understand that such condemnation is not based merely on sentimental/populist grounds. Rather, the entire premise of the "bail-in" (as it was perpetrated in Cyprus) is fundamentally flawed.

The bank robbery committed in Cyprus was based upon blatantly fraudulent reasoning. The regimes in Europe which have carried out this crime, and the North American regimes which have made it their own official policy, are being intentionally dishonest in "marketing" it to their own people.

Specifically, there is no possible basis where bank depositors should be expected to indemnify the reckless gambling of the banks in which they have stored their savings. There is a glaring and inexcusable fiction being pedaled by the mainstream media and our governments here: that bank shareholders (i.e bank investors) and bank depositors (i.e. savers) are somehow equivalent classes of sheep to fleece in "bailing-in" the reckless gambling and gigantic losses produced by big banks. They are not.

There is a direct and legitimate basis in both logic and contract law for assigning losses to bank investors foolish enough to entrust their risk capital to the world's most-notorious gamblers. When one "invests" in any company, one implicitly assumes the risk of some or all of their capital being consumed if the company experiences serious losses.

There is no legal or factual parallel with respect to bank depositors, i.e. savers. By definition, savers are individuals who have chosen not to "invest" their wealth. They have chosen not to expose it to risk. Indeed, these same countries have all created laws which explicitly recognize this legal principle: depositor's insurance.

Why do our governments (supposedly) provide "100% insurance" of our bank deposits? To serve the principle that such wealth should be entirely immune from any risk/loss, other than being eaten up at a voracious rate by the "inflation" created by these same big banks and governments.

Do bank shareholders receive such protection? No. Has anyone ever suggested that bank shareholders should have such protection (other than bank shareholders)? No. Because it is explicitly understood they have chosen to expose themselves to such risks (in return for enormously greater potential to profit from their investment).

So why have our governments suddenly chosen to pretend (contradicting their own, earlier laws) that "bank shareholders" and "bank depositors" are now essentially two peas in a pod? Why are bank depositors getting 0% of the "gain" of being a shareholder, but 100% of the pain when it comes to stealing their wealth?

This becomes simple to understand the moment one proposes financing these "bail-ins" 100% through shareholder equity (as it should be). What would be the unanimous response of the gambling, thieving bankers and the lying politicians?

"There isn't nearly enough shareholder equity we can squeeze out of these fraud-factories to come close to funding any bail-in." Presumably the bankers and politicians would use somewhat different language to communicate this point.

What does it mean when the "equity" of a bank is absurdly inadequate when it comes to even partially financing a "restructuring?" It means that we are not dealing merely with some moderately insolvent institution, but a hopelessly bankrupt entity. We are dealing with banks which are so completely/obviously bankrupt that they only way they can temporarily delay immediate bankruptcy is by stealing large amounts of money from victims who should never be legally exposed to any risk in these circumstances.

The mere suggestion in any such scenario that bank depositors would/should/could be part of any "bail-in" is conclusive proof that the bank involved is so obviously bankrupt that it must immediately be put out of its (our) misery. To borrow Monty Python vernacular, it is the proverbial dead parrot.

However, let me play devil's advocate. Let me assume that during my three years in law school that I missed some legal "justification" for stealing from savers to indemnify the losses of gamblers. Let me assume that "Too Big To Fail" is not just a euphemism for allowing a financial crime syndicate to blackmail entire societies into permanently indemnifying all of their gambling losses, but rather is actually legitimate public policy.

How could the Cyprus Steal have been perpetrated in at least a slightly less-offensive and blatantly-criminal manner? If you're going to suddenly start treating bank depositors like "shareholders," then obviously you need to give them some shares. New shares, dollar-for-dollar for every dollar of their savings which has been "converted to equity."

But they wouldn't obtain those shares at the current share price of the financial institution (as was done with the Cyprus Steal). Obviously they would have to obtain their shares at a rate equal to the cheapest options or warrants possessed by any current executive or officer within the bank. One could never allow the Gamblers who perpetrated the robbery from their own depositors to be allowed to create new shares for themselves at a better price than their victims.

If bank executives decided that such a price was "too generous" (for the Little People), that's no problem. Simply declare that any/all cheaply-priced warrants and options held by all officers and senior executives are immediately null-and-void -- up to whatever price-level those executives would be comfortable issuing shares to their depositors.

Speaking of the executives and officers who perpetrated the bank robbery to ward-off the immediate bankruptcy of their own bank; obviously we need "more provisions" to govern how they are rewarded for their conduct.

It would be illegal to pay-out any "bonus" or non-salary incentive to any officer/executive of the bank for some suitable period after the bail-in takes place. It would be illegal to award any bank executive any raise in pay, until some time after the bank has become genuinely profitable for consecutive quarters.

Naturally all severance packages for those same executives would also instantly become null-and-void. No golden parachutes for gamblers who bankrupt their own companies to such an extreme degree.

To those bank apologists (i.e. the mainstream media) who would argue that such minimal justice would make it impossible for these banks to "retain and attract" competent personnel, the retort is obvious. To manage to bankrupt themselves to such an outrageous degree (despite receiving preferential treatment from government every day of their existence) proves quite conclusively that these fraud-factories never had any "competent personnel" to begin with -- at least not in senior management.

Handing out carrots to bankers in the hope that these fraud-factories would suddenly begin hiring competent personnel in senior management is not a "luxury" to which these welfare recipients are entitled. Show me a country proposing to perpetrate their own "bail-ins" with similar provisions in place, and I'll show you a government which hasn't entirely forgotten the rule of law.

I'm not holding my breath.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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