A Tipping Point In The Financial System – Part 1

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(April 2013)


March and April 2013 may go down in history as the tipping point for the western financial system.

Read Part 2 of this tipping point discussion.

We have already seen:

  • Lehman Brothers and many other financial firms collapse.
  • $700 Billion in TARP funds arranged by banking insiders for banking insiders at the expense of US taxpayers.
  • Over $16 Trillion in bailouts, guarantees, swaps, and loans created by the Fed and given to various banks, nations, and other insiders.
  • MFGlobal took “segregated” customer funds, the exchange provided no compensation to customers, and yet no criminal indictments have been issued.
  • Global derivatives total $700 Trillion to well over $1,000 Trillion, depending on who is counting. Some are “toxic waste.”
  • Many European bailouts and “fixes.”
  • Spain, Italy, Slovenia, and perhaps France in trouble.
  • US official debt approaching $17 Trillion with unfunded liabilities many times larger.
  • The Federal Reserve creating $85 Billion per month (over $115,000,000 per hour) to support banks and the US government.

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So what other disasters could occur? In a word, Cyprus!

  • Not because the EU and Cyprus took Russian money.
  • Not because several banks will close.
  • Not because some deposits will be confiscated and/or frozen.

In my opinion, the sign that a tipping point has occurred in the financial system is the real story:

  • The veil of banker honesty has been lifted. The EU/IMF/ECB will do whatever is necessary to support the banks, even if it means they will confiscate (tax, steal, bail-in) customer deposits.
  • Customer deposits are NOT assets held in the bank for safe-keeping, but are liabilities of the bank and are not guaranteed to be made whole.
  • Billions of dollars were removed prior to the Cyprus freeze, so insiders clearly knew in advance of the ordinary depositors (see below). There is no “level playing field” when billions of dollars/euros are in play.
  • According to Jeroen Dijsselbloem, Dutch finance minister and Euro Group President, this is “the template for any future bank bailouts.” In other words, your deposits are considerably less safe than you thought. Your bank could fail, and your deposits might be used to compensate for derivative losses or other losses that the bank incurred.
  • The FDIC in the US, as well as England, Canada, and New Zealand, has announced similar policies, agreements, and plans to confiscate deposits in the case of an emergency. Is this a sign that an emergency is not only possible but probable and imminent?
  • Confidence in the banking and financial system has been seriously damaged, perhaps irreversibly.

Following are a few quotes from respected commentators:

Jim Sinclair: If the fools that have attacked Cyprus persist then it is the start of an avalanche that will destroy confidence in fiat currency, the fractional reserve system and central banks. What are the central bankers terrified of? My answer is the mountain of old OTC derivative coming home to roost.” Link.

Tyler Durden: “With every passing day, it becomes clearer and clearer the Cyprus deposit confiscation “news” was the most unsurprising outcome for the nation’s financial system and was known by virtually everyone on the ground days and weeks in advance: first it was disclosed that Russians had been pulling their money, then it was suggested the president himself had made sure some €21 million of his family’s money was parked safely in London, then we showed a massive surge in Cyprus deposit outflows in February, and now the latest news is that a list of 132 companies and individuals has emerged who withdrew their €-denominated deposits in the two weeks from March 1 to March 15, among which the previously noted company Loutsios & Sons which is alleged to have ties with the current Cypriot president Anastasiadis.” Link.

Peter Cooper: “Depositors in the beleaguered Bank of Cyprus are now facing losses of 60 per cent on deposits over 100,000 euros as the Cyprus Government seems to have woken up to the fact that this is its last chance to steal money off these mainly foreign depositors. It’s an absolute travesty and a red letter day for European Union banks…

“Money in EU bank accounts is clearly now up for grabs by any government that recapitalizes its banking sector. Moreover, the Cyprus precedent is going to cause a run on the weaker banks that will make this sort of recapitalization inevitable. Standby for a systemic banking crisis in the EU…

“What the EU has done in Cyprus is the modern equivalent of the failure of the Credit Anstaldt in 1931 that brought on the Great Depression with thousands of banking failures around the world.” Link.

Jim Sinclair: “I believe Cyprus is the defining moment whereby the physical market for gold overtakes the paper market for gold as the arbiter of price. When that occurred in 1979 the price of gold began its move to seek its maximum valuation.” Link.

Julian DW Phillips: “When it was announced [in Cyprus] that both large and small depositors were to have a percentage of their deposits seized, it was not the amount that horrified the world but the discovery that you do not own your own bank deposits… Most investors worldwide are of the belief that when you deposit your money in a bank, it simply has safe-keeping of that money. The realization that you have lent the bank your money and are an “Unsecured Creditor” of the bank is an unpleasant revelation.” Link.

Michael Snyder: “What you are about to see absolutely amazed me when I first saw it. The Canadian government is actually proposing that what just happened in Cyprus should be used as a blueprint for future bank failures up in Canada.

The following comes from pages 144 and 145 of “Economic Action Plan 2013” which you can find right here. Apparently the goal is to find a way to rescue “systemically important banks” without the use of taxpayer funds…”

“In addition, branches of the two largest banks in Cyprus were kept open in Moscow and London even after all of the banks in Cyprus itself were shut down. So wealthy Russians and wealthy Brits have been able to take all of their money out of those banks while the people of Cyprus have been unable to…”

“The global elite are fundamentally changing the game. From now on, no bank account on earth will ever be able to be considered “100% safe” again. This is going to create an atmosphere of fear and panic, and no financial system can operate normally when you destroy the confidence that people have in it.

Confidence is a funny thing – it can take decades to build, but it can be destroyed in a single moment.” Link.

Ellen Brown: “Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.” Link.

Richard Russell: “I’ve been asked to name one future situation of which I’m most certain. My answer is this – I believe the surest situation (change) in America’s future is a decline, even a drastic decline, in our standard of living. We’ve spent it; we’ve spent what we didn’t have. And somewhere ahead, probably much sooner than we think, will come payback time. And it won’t be pretty.” Link.


GE Christenson
aka Deviant Investor

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10 thoughts on “A Tipping Point In The Financial System – Part 1

  1. Most of the collapses and crises have occurred in the USA, which was the source of the debacle in the first place.

    It would not surprise me if America does bring down the world economy. The politicians are entirely to blame – how many countries could justify, let alone sustain, government spending 50% more than its income.

    • Thanks for your comment.

      A dollar collapse could push the derivative disaster over the cliff and bring down the world economy. Financial and economic issues are more and more crazy – it looks more possible than before.

      GE Christenson
      aka Deviant Investor

  2. I am shocked that the banks can take deposits on this way. Also I hate the banks, they lie, cheat and the banker still take off with huge bonuses. But we are in a deep deep mess, we have huge unrepayable debts – the money system is set up like this.

    However I far favour this scheme over tax payer bailouts, as long as deposits below the insured limit are protected (though I suspect this guarantee can’t be kept). The privatise the profits and socialise the losses model we’ve seen so far is deeply unjust. This scheme is truer to the capitalist model which sees the banks sort out there own problems, or if not go bust. Its painful, there is no free lunch. It is ‘fairer’ in that the wealthy pay, whereas so far, in the UK the poorest have been made to pay via cuts to the Welfare budget – this is deeply unfair.

    You claim that “the global elite are fundamentally changing the game”, but not in their favour it would seem? since large depositors stand to lose the most.

    However, the pay the biggests deposit holders, politicians and foreign banks were tipped off early makes my blood boil.

    • And there you have it. Privatize profits, socialize losses, and the insiders get out first. What is supposed to happen often does not happen.

      And again, this is why we need to remove more of our financial life from the banking system.

      GE Christenson
      aka Deviant Investor

  3. As most of you already know, the whole concept of Central banks was born with the intent to steal on a massive scale, has lived stealing since created, & done so in a manner few understand or even suspect, but @ last it appears, the curtain is( quite inadvertently ) being pulled aside for all to see, & perhaps the general public may come to realize what has been going on, if so that could be the death nell for them @ last. Chuck L.

  4. You are fear-mongering and misrepresenting the facts. Or you are simply confusing what was originally proposed for Cyprus with what was actually done.

    The original proposal – confiscation of 9.99% of all funds above 100.000 euros and 6.79% of those below – was indeed theft and generally an utter idiocy. Why should the people pay for the failure of two bankrupt banks?! Fortunately, it was rejected.

    What was actually done was precisely the right thing to do:

    1) The two insolvent banks are allowed to go bankrupt.

    2) Their shareholders are wiped out.

    3) Their bondholders are wiped out.

    4) The government is ensuring deposits up to 100.000 euros. This is the same in all European countries. Anything above this limit is NOT INSURED. Meaning that you can lose all of it if the bank goes bust. Well, these two banks went bust. Their depositors will lose 40% and 80% respectively of their funds above 100.000 euros. They should consider themselves lucky! They could have lost 100%. It is not guaranteed by the government and has never been.

    This is precisely how insolvent banks should be handled, instead of bailing them out with taxpayer money.

    • Thank you for your intelligent and clear comment. I’ll try to respond to your points.

      1) The original proposal for Cyprus was, as you said, theft and utter idiocy.
      2) The final solution as you said, was bankrupt banks, shareholders and bondholders wiped out.
      3) Depositors with more than 100,000 Euros, as you said, will lose much of their money – you said 40% and 80% respectively – of their money.
      4) As you said, this is how insolvent banks should be handled, instead of bailing them out with taxpayer money. The usual response is to use taxpayer money and I think that is wrong, but that is the way it has been.
      5) We are largely in agreement that this is appropriate in theory. But what bothers me is that, as I understand it, a great many inappropriate things happened…

      So I understand, the banks passed stress tests, assured depositors they were sound, and generally lied. Then they leaked information to insiders and large interests and consequently untold billions of Euros were transferred out before the bank holiday. A list has been circulated with the names of large account holders – including prominent politicians – who pulled their money before the holiday. And I understand that branches in London and Russia allowed withdrawals while Cypriot citizens were denied access to their money during the bank holiday. All these withdrawals from insiders increased the losses of ordinary depositors in Cyprus.

      And that is the point: The game was fixed, the smaller and unconnected depositors were hurt the worst, for the benefit of larger and connected depositors. I don’t think that is “lucky.”

      So my conclusion is that depositors were lied to, insiders benefited at the expense of depositors, and depositors have now lost some, perhaps most of their money, and what is left is restricted. This is not the way to handle an insolvent bank.

      And the message to depositors around the world is, your bank deposit is less safe, your assets may be taken to satisfy other larger interests, and ultimately we should understand that our assets are less safe then we hoped and expected.

      Further, in the US, the FDIC “guarantees” accounts up to $250,000 but their assets backing up those deposits are very small – so I understand – less than 1%. Hopefully it will not be needed, but a banking collapse would more than strain the system in the US and probably in Europe.

      So, no, I do not think I am “fear-mongering” but just calling attention to facts and the reality of modern banking.

      GE Christenson
      aka Deviant Investor

    • It is indeed a dream but the question is: will it happen? I think so, you don’t, so we wait and see. You may be correct. But don’t forget other examples such as silver was about $9 in Oct of 2008 and then rallied to $49 in April 2011. In Oct of 2008, $25 seemed like a near impossible dream and silver blew thru $25 like the US govt. burns thru a $Billion. $50 silver will happen and I hope and expect it will be this year. If not, I’ll send you a “You were right” email.

      GE Christenson
      aka Deviant Investor

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