n. WTSHTF: So you think Cypress is bad

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Saturday, March 30, 2013

So you think Cypress is bad

In the US, 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.

As of Dec 2012, FDIC and BOE have agreed the way forward is to take bonholder and depositor money to protect TBTF banks who are sitting on Trillions in derivatives. TBTF banks are first in line and depositors are thrown under the bus and will be completely wiped out. Any FDIC protection is henceforth nonexistent and, in fact, any FDIC money will probably go to the derivatives holders as well. 
The focus on derivatives is what is scaring the shit out of them... finally! Looks like they have finally figured out that there really is going to be daisy chain of failures leading to economic Doomsday if just one of them goes down.
If the SHTF and B of A goes down you can bet Federal government will also do something and try to make everybody else pay their 'fair share" with a new tax on everybody.

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