Greece: Coming to a Bank Near You?

Greece: Coming to a Bank Near You?

Jim Clark


ADR Pricing for the National Bank of Greece:


Greek banks are scheduled to open on Monday but despite positive headlines and happy talk about the Greek crisis being solved, the EU central bankers and the Greek government have done what they have always done- they kicked the can further down the road. Today from The Washington Post, “Greek debt crisis eases as banks prepare to reopen Monday”.  This is of course, nonsense. The Greek debt crisis is only worsened by a third bail out proposal.

Ignoring for the moment that,

  1. the Greek government has agreed to austerity measures that Greek voters rejected last week,
  2. the difficulty the Greek government will face in imposing these austerity measures, and
  3. nevermind the impossibility of raising taxes and at the same time growing the Greek economy-

Here is the reality of the immediate hurdles this bailout proposal faces:


The next steps are:

 1)   Germany’s parliament must issue a mandate giving Chancellor Angela Merkel the right to negotiate a new bailout deal with Greece.

 2)   Finland’s, the Netherland’s, Slovenia’s, Estonia’s, and Austria’s Parliaments also must agree to let their Finance Ministers negotiate a new deal with Greece.

 3)   EU Finance Ministers must negotiate a new bailout deal with Greece.

 4)   Germany’s parliament must sign off on the new deal.

 5)   Greece must accept the deal

Most notably, the IMF and the European Central Bank (ECB) have considered debt forgiveness for Greece. As we wrote here last week, any debt forgiveness for Greece would most likely lead to popular movements in Spain, Italy and France to press for debt forgiveness. This would be an impossible situation for the European Monetary Union (EMU) and would lead to the collapse of the Euro.

In a nutshell, this is why. There are tens of trillions of Euro denominated derivatives based on the government debt of Greece, Spain, Italy and France. In aggregate, EU banks are leveraged at 26 to 1. A 4% drop in asset prices would wipe out all EU bank capital and cause a systemic failure in Europe. Any forgiveness of Greek, Spanish, Italian and French debt would amount to much more than 4%.

The Greek crisis is now about protecting European banks against their debt derivatives exposure.  Seen in this light, any lasting solution to the Greek financial and banking crisis will most likely not include debt forgiveness and will include what is essentially an ECB confiscation of Greek national assets against a debt that can never be repaid. The other alternative is a Greek exit from the EMU. The impact of a “Grexit” will lead to near term weakness in the Euro and longer term will erode the viability of the EMU as a monetary system as other member countries will move toward repatriating their currency and reclaiming national monetary and political sovereignty.

The only lasting solution for the EMU is to confiscate the assets of the Greek people to ensure the ongoing reign of the Euro and the EMU. We must ask ourselves, How long will it be before this debt derivatives contagion reaches the USA?

How will we Americans protect our assets against possible confiscation by insolvent banks?

The FDIC and Your Bank Account

In December 2012, The FDIC and the Bank of England released a document outlining the protocol for bank bail ins here in the US as part of the implementation of the Dodd- Frank bill of “reforms” passed in the wake of the Lehman Bros. failure and subsequent market crash in 2008.

Under Dodd- Frank, any bank deposits in excess of $250,000 are considered by law to be unsecured debt and in the event of the bank becoming insolvent, those deposits are to be converted to equity in the bank. Let me put this succinctly, bank deposits in excess of $250,000 will be confiscated by the bank and the depositor will receive stock in the insolvent bank. Your cash will be wiped out at the bank’s and FDIC discretion.

So, if the FDIC takes over a bank and determines that the bank is too big for them to save, depositor funds will be used to recapitalize the bank. You as a depositor do not get a vote in this and your deposited wealth will no longer be cash US dollars but stock in a failed bank.

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