Why A Cyprus-Like Seizure Of Your Money Could Happen Here

Forbes ^ | March 25, 2013 | Steve Forbes

[Tolerance Sucks Rocks]

Don’t put it past our politicians to try it in a financial emergency. The breaking of contracts by the U.S. government, unfortunately, has happened before, and what’s under way in Cyprus shows that feckless politicos will continue to try such things.

In 1933–34, amid the depths of the Great Depression, the U.S. government seized the American people’s gold holdings. From that point, until 1975, it was illegal for Americans to own gold, other than in some forms of jewelry or collectors’ coins. In the panic of the Depression years the courts upheld this unconstitutional confiscation. Yes, people received dollars in return for their holdings of the yellow metal, but the dollar itself was formally devalued by 40%. Moreover, the U.S. government abrogated private commercial contracts containing the so-called gold clause, which allowed creditors to receive payments in either dollars or gold.

In the early 1970s President Richard Nixon annulled contracts selling soybeans to Japan. This was done for domestic political reasons: U.S. soybean buyers had been complaining about the high prices, and Nixon felt keeping the product here would mollify them. Of course, the real reason that the prices of soybeans and other agricultural commodities were rising was that Nixon and the Federal Reserve were deliberately undermining the value of the U.S. dollar. (Japan responded by investing in Brazil, which became one of our major soybean competitors.)

In 2009 the Obama Administration pushed through a brazenly political restructuring of bankrupt General Motors and Chrysler, and huge payoffs were made to the United Auto Workers, a pro-Obama union, at the expense of bondholders. Banks signed off on the deal because they had no choice—their survival depended on the whims of Washington. Once again the courts turned their backs on this patently unconstitutional exercise.

[bert]

Yes..... it already happened to me.

If it happens again,it will be open season on rqndom democrats.

[Farmer Dean]

I understand.But the judge ignored established law.Like everything else these socialists do,just make it up as they go along,to the benefit of their cronies.

[griswold3]

crowd conditioning by Obama and cohorts like Elizabeth Warren by saying ‘They didn’t build that!’ as in you didn’t earn that yourself.
So, likely, you really don’t own that money. Prepare to give it ‘back’. Just remember how the MSM came to the defense of Obama, Warren, etc.
Jerry Nadler said on CSpan that savings leads to job losses. They think they’ve got to come up with ways to ‘encourage’ you to spend, spend, spend...

[MrB]

The left is looking for an excuse to see their wet dream come true -

using the power of the State to murder those who disagree with and resist them.

[djf]

I’ve said it before on other threads.

All they need to do is set up choke points on the major commodities routes/production facilities, and the store shelves would be empty in two days.

In ten days, people would be begging for assistance, willing to do whatever it takes.

Gummint could pull it off with 5000 troops.

[OneWingedShark]

In ten days, people would be begging for assistance, willing to do whatever it takes.

Fortunately the "whatever it takes" doesn't mean that they'll do what the government says; there is a lot of truth in the saying "when you have nothing to lose, then you are truly free."

[yorkiemom]

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.

FDIC insurance is in case the bank fails. It doesn't cover government take-over of our assets.

[yorkiemom]

All they need to do is set up choke points on the major commodities routes/production facilities, and the store shelves would be empty in two days. In ten days, people would be begging for assistance, willing to do whatever it takes.

Could be simpler than that - they can just cut off the EBT cards.

[Pearls Before Swine]

They don’t have to that here. They steal a few percent every year by printing more money - its called “inflation.”

A few percent isn't enough, and the flows to the government are less direct than a wealth levy. Speculators can benefit from inflation if they bet right; no one benefits from a wealth levy except the redistributees.

[Pearls Before Swine]

Whenever I see a headline trumpeting an alarm about s "Cyprus-Like Seizure," it becomes clear to me that there are a lot of people out there who don't understand how banks work.

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.

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.