No Bank Deposits Will Be Spared from Confiscation



I challenge anyone to prove me wrong that confiscation of bank deposits is legalised daylight robbery



By Matthias Chang
Future Fastforward

April 25, 2013



Bank depositors in the UK and USA may think that their bank deposits would not be confiscated as they are insured and no government would dare embark on such a drastic action to bail out insolvent banks.



Before I explain why confiscation of bank deposits in the UK and US is a 1000% certainty and absolutely legal, I need all readers of this article to do the following:



Ask your local police, sheriffs, lawyers, judges the following questions:



1) If I place my money with a lawyer as a stake-holder and he uses the money without my consent, has the lawyer committed a crime?

2) If I store a bushel of wheat or cotton in a warehouse and the owner of the warehouse sold my wheat/cotton without my consent or authority, has the warehouse owner committed a crime?

3) If I place monies with my broker (stock or commodity) and the broker uses my monies for other purposes and or contrary to my instructions, has the broker committed a crime?



I am confident that the answer to the above questions is a Yes!



However, for the purposes of this article, I would like to first highlight the situation of the deposit/storage of wheat with a warehouse owner in relation to the deposit of money/storage with a banker.



First, you will notice that all wheat is the same i.e. the wheat in one bushel is no different from the wheat in another bushel. Likewise, with cotton, it is indistinguishable. The deposit of a bushel of wheat with the warehouse owner in law constitutes a bailment. Ownership of the bushel of wheat remains with you and there is no transfer of ownership at all to the warehouse owner. And as stated above, if the owner sells the bushel of wheat without your consent or authority, he has committed a crime as well as having committed a civil wrong (a tort) of conversion – converting your property to his own use and he can be sued.



Let me use another analogy. If a cashier in a supermarket removes $100 from the till on Friday to have a frolic on Saturday, he has committed theft, even though he may replace the $100 on Monday without the knowledge of the owner / manager of the supermarket. The $100 the cashier stole on Friday is also indistinguishable from the $100 he put back in the till on Monday.



In both situations – the wheat in the warehouse and the $100 dollar bill in the till, which have been unlawfully misappropriated would constitute a crime.



Keep this principle and issue at the back of your mind.



Now we shall proceed with the money you have deposited with your banker.



I am sure that most of you have little or no knowledge about banking, specifically fractional reserve banking.



Since you were a little kid, your parents have encouraged you to save some money to instil in you the good habit of money management. And when you grew up and got married, you in turn instilled the same discipline in your children. Your faith in the integrity of the bank is almost absolute. Your money in the bank would earn an interest income. And when you want your money back, all you needed to do is to withdraw the money together with the accumulated interest. Never for a moment did you think that you had transferred ownership of your money to the bank. Your belief was grounded in like manner as the owner of the bushel of wheat stored in the warehouse.



However, this belief is and has always been a lie.



You were led to believe this lie because of savvy advertisements by the banks and government assurances that your money is safe and is protected by deposit insurance. But, the insurance does not cover all the monies that you have deposited in the bank, but to a limited amount e.g. $250,000 in the US by the Federal Deposit Insurance Corporation (FDIC), Germany €100,000, UK £85,000 etc.



But, unlike the owner of the bushel of wheat who has deposited the wheat with the warehouse owner, your ownership of the monies that you have deposited with the bank is transferred to the bank [Emphasis in the original] and all you have is the right to demand its repayment. And, if the bank fails to repay your monies (e.g. $100), your only remedy is to sue the bank and if the bank is insolvent you get nothing.



You may recover some of your money if your deposit is covered by an insurance scheme as referred to earlier but in a fixed amount. But, there is a catch here. Most insurance schemes whether backed by the government or not do not have sufficient monies to cover all the deposits in the banking system. So, in the worst case scenario – a systemic collapse, there is no way for you to get your money back.



In fact, and as illustrated in the Cyprus banking fiasco, the authorities went to the extent of confiscating your deposits to pay the banks’ creditors.



When that happened, ordinary citizens and financial analysts cried out that such confiscation was daylight robbery. But, is it?



Surprise, surprise!



It will come as a shock to all of you to know that such daylight robbery is perfectly legal and this has been so for hundreds of years.



Let me explain.



The reason is that unlike the owner of the bushel of wheat whose ownership of the wheat WAS NEVER TRANSFERRED to the warehouse owner when the same was deposited, the moment you deposited your money with the bank, the ownership is transferred to the bank.



Your status is that of A CREDITOR TO THE BANK and the BANK IS IN LAW A DEBTOR to you. You are deemed to have “lent” your money to the bank for the bank to apply to its banking business (even to gamble in the biggest casino in the world – the global derivatives casino).



You have become a creditor, AN UNSECURED CREDITOR.



Therefore, by law, in the insolvency of a bank, you as an unsecured creditor stand last in the queue of creditors to be paid out of any funds and or assets which the bank has to pay its creditors. The secured creditors are always first in line to be paid. It is only after secured creditors have been paid and there are still some funds left (usually, not much, more often zilch!) that unsecured creditors are paid and the sums pro-rated among all the unsecured creditors.



This is the truth, the whole truth and nothing but the truth.



The law has been in existence for hundreds of years and was established in England by the House of Lords in the case Foley v Hill in 1848.



When a customer deposits money with his banker, the relationship that arises is one of creditor and debtor, with the banker liable to repay the money deposited when demanded by the customer. Once money has been paid to the banker, it belongs to the banker and he is free to use the money for his own purpose.



I will now quote the relevant portion of the judgment of the House of Lords handed down by Lord Cottenham, the Lord Chancellor. He stated thus:



“Money when paid into a bank, ceases altogether to be the money of the principal… it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid into the banker’s, is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains himself,… The money placed in the custody of the banker is, to all intent and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable TO THE PRINCIPAL IF HE PUTS IT INTO JEOPARDY, IF HE ENGAGES IN A HAZARDOUS SPECULATION; he is not bound to keep it or deal with it as the property of the principal, but he is of course answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.”



Holding that the relationship between a banker and his customer was one of debtor and creditor and not one of trusteeship, Lord Brougham said:



“This trade of a banker is to receive money, and use it as if it were his own, he becoming debtor to the person who has lent or deposited with him the money to use as his own, and for which money he is accountable as a debtor. I cannot at all confound the situation of a banker with that of a trustee, and conclude that the banker is a debtor with a fiduciary character.”



In plain simple English – bankers cannot be prosecuted for breach of trust, because it owes no fiduciary duty to the depositor / customer, as he is deemed to be using his own money to speculate etc. There is absolutely no criminal liability.



The trillion dollar question is, Why has no one in the Justice Department or other government agencies mentioned this legal principle?



The reason why no one dare speak this legal truth is because there would be a run on the banks when all the Joe Six-Packs wise up to the fact that their deposits with the bankers CONSTITUTE IN LAW A LOAN TO THE BANK and the bank can do whatever it likes even to indulge in hazardous speculation such as gambling in the global derivative casino.



The Joe Six-Packs always consider the bank the creditor even when he deposits money in the bank. No depositor ever considers himself as the creditor!



Yes, Eric Hodder, the US Attorney-General is right when he said that bankers cannot be prosecuted for the losses suffered by the bank. This is because a banker cannot be prosecuted for losing his “own money” as stated by the House of Lords. This is because when money is deposited with the bank, that money belongs to the banker.



The reason that if a banker is prosecuted it would collapse the entire banking system is a big lie. The US Attorney-General could not and would not state the legal principle because it would cause a run on the banks when people discover that their monies are not safe with bankers as they can in law use the monies deposited as their own even to speculate.



What is worrisome is that your right to be repaid arises only when you demand payment.



Obviously, when you demand payment, the bank must pay you. But, if you demand payment after the bank has collapsed and is insolvent, it is too late. Your entitlement to be repaid is that of a lonely unsecured creditor and only if there are funds left after liquidation to be paid out to all the unsecured creditors and the remaining funds to be pro-rated. You would be lucky to get ten cents on the dollar.



So, when the Bank of England, the FED and the BIS issued the guidelines which became the template for the Cyprus “bail-in” (which was endorsed by the G-20 Cannes Summit in 2011), it was merely a circuitous way of stating the legal position without arousing the wrath of the people, as they well knew that if the truth was out, there would be a revolution and blood on the streets.



It is therefore not surprising that the global central bankers came out with this crap:



“The objective of an effective resolution regime is to make feasible the resolution of financial institutions without severe systemic disruption and without exposing taxpayers to losses, while protecting vital economic functions through mechanisms which make it possible for shareholders and unsecured and uninsured creditors to absorb losses in a manner that respects the hierarchy of claims in liquidation.”



This is the kind of complex technical jargon used by bankers to confuse the people, especially depositors and to cover up what I have stated in plain and simple English in the foregoing paragraphs.



The key words of the BIS guideline are: “without severe systemic disruptions” (i.e. bank runs), “while protecting vital economic functions” (i.e. protecting vested interests – bankers), “unsecured creditors” (i.e. your monies, you are the dummy), “respects the hierarchy of claims in liquidation” (i.e. you are last in the queue to be paid, after all secured creditors have been paid).



This means all depositors are losers!







Attorney Matthias Chang was the political secretary to Malaysian former prime minister Tun Dr Mahathir Mohamad. He is a world-known authority on economics.

I recently stole a few thousand pounds from a bank... OMG, it felt so good!!!!

Now they caught me and want it back.

Obviously, when you demand payment, the bank must pay you. But, if you demand payment after the bank has collapsed and is insolvent, it is too late.

Obviously, when you demand payment, the bank must pay you. But, if you demand payment after the bank has collapsed and is insolvent, it is too late.

This sentence pretty much seems to contradict the whole basis of his article, "that banks can legally steal deposits", he admits the bank holds your cash as a liability, all liabilities will be accounted for on the balance sheet.

The reality as attested to by the response to the banking crisis in America and the Eurozone would seem to indicate that once a bank begins to collapse, the Central bank with government approval supports the banks ability to pay off liabilities, it buys up banks debts, toxic assets or injects cash to insure liabilityes to keep the bank running etc, what's happened is the Government has covered the debts of banks to their depositors, so the article is just more pointless economic stuff imo.

I also am sceptical of Malaysian economists

Banks will rob depositors - creditors as they call them - all over Europe and North America, as they already have in Cyprus.

Under the solution, the nation’s largest bank, Bank of Cyprus, would be restructured and the second largest bank in Cyprus, Laiki Bank, would close. Most of the accounts considered worth saving from Laiki would find a new home at Bank of Cyprus.

Those who have deposited more than 100,000 euros ($130,000 U.S.) would take a hit in the form of losses while those with less than 100,000 euros would be guaranteed. There would be no so-called “deposit tax” on cash deposits inside the banks.

I don't get why all of a sudden debt has become a big problem.

Was it a problem when the debt was, $10,556,050,288,952 equally as unmanageable a debt, don't you think people thought then, we won't be able to pay this back

By Michele Kambas

NICOSIA | Tue Apr 30, 2013 11:53pm
(Reuters) - Cyprus's parliament approved an EU bailout on Tuesday which will force it to wind down its second-largest bank and impose heavy losses on uninsured depositors at another, conditions that have intensified calls from islanders to exit the euro.

With a razor-thin majority of just two votes, lawmakers approved terms accompanying 10 billion euros (8.48 billion pounds) in aid from the European Union and the International Monetary Fund (IMF).

In a show of hands, 29 lawmakers from the three parties in the centre-right government approved the motion, with 27 voting against. .

Government officials had warned the island would fall into chaotic default, unable to pay salaries or pensions, as early as next month without emergency funding.

"Unfortunately the (bailout) is a one-way street for us. It will avert disorderly default and gives, albeit with many hurdles, some prospect of getting us out of the storm," said Averof Neophytou, head of the governing right-wing Democratic Rally party.

The bailout was unlike any other aid deal, controversially forcing depositors to foot the cost of recapitalising banks exposed to debt-crippled Greece.

Mike wrote:
Yea, i'm also curious why all of a sudden the dept is such a big issue WUB?

What has really changed that much? And what is the point of constantly warning people about economic doom?

Durhhh because WE are paying it back in the form of increased taxation and reduced services, the more the debt the worse the situation will get, it's this thing called austerity you might have noticed it in the news along with over 25% unemployment in some EU countries.

.......... wrote:
Durhhh because WE are paying it back in the form of increased taxation and reduced services, the more the debt the worse the situation will get, it's this thing called austerity you might have noticed it in the news along with over 25% unemployment in some EU countries.

Obviously though if you're a stupid monkey then the situation can get far worse with no consequences whatsoever

Not very nice.
Austerity politics is a reaction to the debt, I've argued with people who support austerity politics and guess what they always bring up, the size and unpayability our national debt, then say cuts must be made.

andyh wrote:
Not very nice.
Austerity politics is a reaction to the debt, I've argued with people who support austerity politics and guess what they always bring up, the size and unpayability our national debt, then say cuts must be made.

Economic populism

In the political bearpit the arguments are less sophisticated. Keynes’s name is often used to dignify any proposal that involves the government spending more money and any opposition to cuts.

This crude Keynesianism sidesteps the causes and effects of the financial crisis, including the drag on growth from damaged banks; as well as other structural problems, such as skills shortages and a long-standing neglect of vital exporting industries, which our national industrial strategy is now trying to address.

In opposition to the cruder “demand-side” arguments are some equally crude “supplyside” arguments, which trace an ancestral link to another of the 20th-century greats, Friedrich Hayek (or the Austrian school more generally). This bastardised supply-side economics often degenerates into a saloonbar whine about HSE inspectors, newts and birds that block new development, bloodyminded workers, equalities legislation and Eurocrats who dream up regulations for square tomatoes and straight bananas. Philosophical cover is provided by the belief that the private sector can always fill the space left by a retreating state.

Worryingly, few economists beyond Hyman Minsky and Charles Kindleberger have really addressed the phenomenon of financial mania and banking collapses (although Ben Bernanke, the chairman of the Federal Reserve, produced important work on how the banking crisis worsened the Great Depression in the US). Another defining feature of the present crisis has been the accumulation of a large volume of household debt, mostly linked to mortgages, which, as Irving Fisher argued a century ago, leads to “debt deflation”, with a downward spiral of depressed demand, unserviceable debt and weak confidence.

The thing is borrowing does create growth, it really does, if you or I borrow 20k we could turn it into economic growth and be set up for life with the relevant skills.
I think this is a very good article by Vince Cable