Bank deposits are protected under the clear terms of a contract. In the U.S., the FDIC insures them. If you have $500,000 in a bank account and the FDIC only covers $250,000 of that money, it's hardly a case of a "seizure" by the bank or government if you lose some or all of the rest.
GM investors were protected by many years of established bankruptcy law.They got screwed and the union types benefited.Law means nothing in this country now.
Thanks for mentioning this. I agree.
What people don't realize is that when they deposit more than the insured amount (which the government agrees to make up by taxing as necessary) they are in fact participants in a hedge fund run by the bank. It's supposed to be a relatively conservative hedge fund that just lends with enough risk to make a spread of a few percentage points.
However, it often happens that the risk gets out of hand. For example, in previous decades the banks assumed a huge amount of duration risk (interest rate risk) in mortgages, which used to be considered conservative. When inflation caused interest rates to rise dramatically in the Carter years, the mortgages lost value, and the banks were upside down.
In Cyprus, you had a similar situation. In order to attract deposits into relatively small and unknown institutions, the Cyprus banks offered much higher interest rates than other banks in the EU. They earned this interest (for a while) by investing heavily in high-interest Greek sovereign debt. After all, sovereign debt never goes bad, right? And, the Basel bank accords gave a zero-risk rating to sovereign debt.
A good deal of fault lies with the banking authorities. But, some lies with the depositors for not understanding what they were doing when they invested above the insured limit.