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The Detroit Bail-In Template: Fleecing Pensioners to Save the Banks
The Detroit Bail-In Template: Fleecing Pensioners to Save the Banks
Posted on Aug 5, 2013
By Ellen Brown, Web of Debt
This piece first appeared at Web of Debt.
The Detroit bankruptcy is looking suspiciously like the bail-in template originated by the G20s Financial Stability Board in 2011, which exploded on the scene in Cyprus in 2013 and is now becoming the model globally. In Cyprus, the depositors were bailed in (stripped of a major portion of their deposits) to re-capitalize the banks. In Detroit, it is the municipal workers who are being bailed in, stripped of a major portion of their pensions to save the banks.
Bank of America Corp. and UBS AG have been given priority over other bankruptcy claimants, meaning chiefly the pensioners, for payments due on interest rate swaps they entered into with the city. Interest rate swaps the exchange of interest rate payments between counterparties are sold by Wall Street banks as a form of insurance, something municipal governments should do to protect their loans from an unanticipated increase in rates. Unlike ordinary insurance, however, swaps are actually just bets; and if the municipality loses the bet, it can owe the house, and owe big. The swap casino is almost entirely unregulated, and it is a rigged game that the house virtually always wins. Interest rate swaps are based on the LIBOR rate, which has now been proven to be manipulated by the rate-setting banks; and they were a major contributor to Detroits bankruptcy.
Derivative claims are considered secured because the players must post collateral to play. They get not just priority but super-priority in bankruptcy, meaning they go first before all others, a deal pushed through by Wall Street in the Bankruptcy Reform Act of 2005. Meanwhile, the municipal workers, whose pensions are theoretically protected under the Michigan Constitution, are classified as unsecured claimants who will get the scraps after the secured creditors put in their claims. The banking casino, it seems, trumps even the state constitution. The banks win and the workers lose once again.
Systemically Dangerous Institutions Are Moved to the Head of the Line
The argument for the super-priority of derivative claims is that nonpayment on these bets represents a systemic risk to the financial scheme. Derivative bets are cross-collateralized and are so inextricably entwined in a $600-plus trillion house of cards that the whole financial scheme could go down if the betting scheme were to collapse. Instead of banning or regulating this very risky casino, Congress has been persuaded by the masterminds of Wall Street that it needs to be preserved at all costs. .....................(more)
The complete piece is at: http://www.truthdig.com/report/item/the_detroit_bail-in_template_fleecing_pensioners_to_save_the_banks_20130805/?ln
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The Detroit Bail-In Template: Fleecing Pensioners to Save the Banks (Original Post)
marmar
Aug 2013
OP
Jackpine Radical
(45,274 posts)1. The 3 inviolable rules of investment banking (for the little guy)…
1) You can't win.
2) You can't break even, either.
3) You can't get out of the game.
leveymg
(36,418 posts)2. The Black Hole that has entered this quadrant of the galaxy is growing rapidly.
Time to send for Old Spock. The one who REALLY knew how to kick ass.
leveymg
(36,418 posts)3. The Black Hole that has entered this quadrant of the galaxy is growing rapidly.
Time to send for Old Spock. The one who REALLY knew how to kick ass.
pa28
(6,145 posts)4. Orr offered 25 cents on the dollar to pensioners on a 90% funded plan.
That's called STEALING
At the same time he offered bondholders around 75 cents on the dollar. You crush labor and transfer their hard earned pension to wall street all in one blow.
blkmusclmachine
(16,149 posts)5. Is this Germany in the 30s?
Enthusiast
(50,983 posts)6. This is a symptom of Fascism.
I'm just saying.