The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out Banks

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Continuing my series of banks ready to “Cyprus” their depositors, I offer this reader contribution from Don from Canada 2013-03-29 23:11:

As part of the 2013 budget in Canada, the Minister of Finance tabled the Economic Action Plan 2013 which included the newest buzzword ‘bail-in’.

Source: budget.gc.ca/…/…
Page 145
“The [Canadian] Government proposes to implement a “bail-in” regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants. Systemically important banks will continue to be subject to existing risk management requirements, including enhanced supervision and recovery and resolution plans.
This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are ‘too big to fail’.”

A depositor is an unsecured creditor to a bank. The Canadian government presents its position to be one of shielding the taxpayer from the need to pay for bailing out a failing bank. As a taxpayer that is comforting. 
However as a depositor, the phrase “rapid conversion of certain bank liabilities into regulatory capital” concerns me. My deposit is the bank’s liability. Could depositors’ funds fall under the definition of ‘certain bank liabilities’? 
I searched the entire 442 page document and I cannot find where the term ‘certain bank liabilities’ is defined.
The prudent approach I believe would be to assume that under certain conditions, certain bank liabilities will include depositors’ funds; at least those funds in excess of CAD 100,000 which is our so-called insured amount.
Even if it has noble intentions now, under a credit and derivatives collapse scenario, it is conceivable that the Canadian government could be coerced or bullied by external agents into grabbing depositors’ funds just like what is happening in Cyprus.
I find the newest ‘bail-in’ term being used since the Cyprus debacle quite amusing. It reminds me of the ‘sit-in’ and ‘love-in’ terms of the peace/hippie generation.
We all seem to be floating on the bathwater of fiat currency liquidity. The tub is being drained at the opposite end from where we are floating. The EU is circling the drain. The central banks are feverishly trying to replenish the tub with thimbles full of water, but it appears inevitable that some will go down the drain, whilst others will be left high and dry. The central bankers only have thimbles, not a drain stopper.

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Now, tell me if this looks even remotely familiar… from an article publsihed in the Financial Times on February 10, 2013 which clearly, accurately and timely foretold the events to unfold over the following 45 days or so :

A radical new option for the financial rescue of Cyprus would force losses on uninsured depositors in Cypriot banks, as well as investors in the country’s sovereign bonds, according to a confidential memorandum prepared ahead of Monday’s meeting of eurozone finance ministers.

The proposal for a “bail-in” of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout. The ministers are trying to agree a rescue plan by March, to follow the presidential elections in Cyprus later this month.

By “bailing in” uninsured bank depositors, it would also involve more foreign investors, especially from Russia, some of whom have used Cyprus as a tax haven in recent years. That would answer criticism from Berlin in particular, where politicians are calling for more drastic action to stop the island being used for money laundering and tax evasion.

Labelled “strictly confidential” and distributed to eurozone officials last week, the memo says the radical version of the plan – including a “haircut” of 50 per cent on sovereign bonds – would shrink the Cypriot financial sector, now nearly eight times larger than the island’s economy, by about one-third by 2015.

Senior EU officials who have seen the document cautioned that imposing losses on bank depositors and a sovereign debt restructuring remain unlikely. Underlining the dissuasive language in the memo, they said that bailing in depositors was never considered in previous eurozone bailouts because of concern that it could lead to bank runs in other financially fragile countries.

But the authors warn such drastic action could restart contagion in eurozone financial markets…

Oh, and it can get worse. Zerohedge reports, via Reuters, that there will be absolute wipeouts for some big depositors in Cyprus:

In what appears to be drastically worse than many had hoped (and expected), uninsured depositor in Cyprus’ largest bank stand to get no actual cash back from their initial deposit as the plan (expected to be announced tomorrow) is:

• 
  
  • 22.5% of the previous cash deposit gone forever (pure haircut)
  
  
  • 40% of the previous cash deposit will receive interest (but will never be repaid),
  
  
  • and the remaining 37.5% of the previous cash deposit will be swapped into equity into the bank (a completely worthless bank that is of course.)
  
  

So, theoretically this is 62.5% haircut but once everyone decides to ‘sell’ their shares to reconstitute some cash then we would imagine it will be far greater. Furthermore, at what valuation will the 37.5% equity be allocated (we suspect a rather aggressive mark-up to ‘market’ clearing levels).

Critically though, there is no cash. None. If you had EUR150,000 in the bank last week (net of insured deposits which may well be impaired before all is said and done) you now have EUR0,000 to draw on! But will earn interest on EUR60,000 (though we do not know at what rate); and own EUR56,250 worth of Bank of Cyprus shares (the same bank that will experience the slow-burn leak of capital controlled outflows).

In the post “EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive – Bank Risk, Reward & Compensation“, I offered a way to calculate what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity??? To bring things up to date, up the haircut to 63% and you will find that no bank in the world will compensate you for the risk you assume in banking there. Banco Posturepedico shares: Strong BUY!!!!

Now that you see its just Cyprus – the perceived uber-conservative Canadian banks are prepping to Cyprus their depositors as well.

Oh, it gets worse. I will start posting a list of definitive bank names that I have apparently caught in some amazingly duplicitous and misleading capital schemes, at least as it appears to me and my staff. I know I wouldn’t have MY money in them, particularly after reading the info above. The first bank name and a description of their actions are avialable to all paying subscribers right now in the right hand downloads column and in the commercial bank research section of my site. I will release a new bank expected to be “Cyprus’d” every 48 hours to subscribers until I run out of definitive candidates. Yes it pays to be a BoomBustBlog member (click here to subscribe). 

This Easter weekend, I will also release a PSA (public service announcement) to give a heads up to non-paying subscribers and readers who are too comfortable with their current banking arrangement.

 

As a reminder for those who wish to ignore my banking calls as a frivolous episode of Chicken Little, BoomBustBlog is the place that was the first to reveal:

1. The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $ 100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear? 


2. The warning of Lehman Brothers before anyone had a clue!!! (February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. 


3. The collapse of the regional banks (32 of them, actually) in May 2008: As I see it, these 32 banks and thrifts are in deep doo-doo! as well as the fall of Countrywide and Washington Mutual


4. The collapse of the monoline insurers, Ambac and MBIA in late 2007 & 2008: A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, Welcome to the World of Dr. FrankenFinance! and Ambac is Effectively Insolvent & Will See More than $ 8 Billion of Losses with Just a $ 2.26 Billion


5. The ENTIRE Pan-European Sovereign Debt Crisis (potentially soon to be the Global Sovereign Debt Crisis) starting in January of 2009 and explicit detail as of January 2010: The Pan-European Sovereign Debt Crisis


6. Ireland austerity and the disguised sink hole of debt and non-performing assets that is the Irish banking system: I Suggest Those That Dislike Hearing “I Told You So” Divest from Western and Southern European Debt, It’ll Get Worse Before It Get’s Better!

The problems that plagued Cyprus banks plague banks in much larger nations within, and around the EU. From Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe you see institutions that are literally too big to be handled safely…

The Banks Are Bigger Than Many of the Sovereigns

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Ready! Set! Bank Run!!!

Cyprus contagion raw

Subscriber downloads below (click here to subscribe):

•  Sovereign Contagion Model – Retail (961.43 kB 2010-05-04 12:32:46)


•  Sovereign Contagion Model – Pro & Institutional

 

 

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Zero Hedge

The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out Banks

Inside the Bush Administration"s Lawless Global Torture Regime (And How Obama Remains Complicit)

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You may not have heard of Mohammed al-Asad, but the torture he suffered was carried out in your name. And his story is one of 136 such ordeals that were perpetrated by the Central Intelligence Agency.

Those stories are told in a comprehensive report issued by the Open Society Foundations (OSF) this month. Titled “Globalizing Torture: CIA Secret Detention and Extraordinary Rendition,” the report is the fullest accounting yet of the Bush administration’s global torture ring. The document aims to fully fill in the gaps of what people know about the Bush administration’s torture program, which enlisted the help of 54 countries around the world.

Al-Asad is a Yemeni national who was detained in Tanzania in 2003 by security forces in that country. He was then shipped off to Djibouti where he was held incommunicado before being transferred to a U.S. “rendition team” which consisted of five people, all of whom wore black with their faces covered.

Then al-Asad was shipped off to a third country, Afghanistan, where he was held in isolation, subject to loud music, faced harsh light 24 hours a day and had his diet manipulated. Finally, al-Asad, by this time damaged by intense CIA-led torture, was handed off to Yemen, his home country and a repressive ally of the U.S., where he was imprisoned for using forged travel documents. He was finally released in 2006, without ever being charged with terrorism–the ostensible reason the CIA picked up him up and tortured him in the first place. 

Mohammed al-Asad’s ordeal was by no means unique. He was caught up in the dragnet of the CIA’s global program of “extraordinary rendition,” which liberally used torture on alleged terrorist suspects, though some were undoubtedly innocent. In total, 136 people were subject to either the CIA’s “black sites” or “extraordinary rendition” operations.

Authored by Amrit Singh, senior legal officer for national security and counterterrorism at the Open Society Foundations, the report fully exposes the shocking breadth of the CIA’s lawlessness in the age of the war on terror. 

“There was a need for a comprehensive public record on the scale and scope of the CIA’s secret detention and extraordinary rendition operations, both in terms of the victims of these operations and the associated human rights abuses, as well as the governments that were complicit,” Singh told AlterNet. 

The OSF publication gives names to the people tortured by the CIA, exposes the governments around the globe complicit in America’s torture ring, calls for investigations and accountability for the lawless programs, and makes clear that “extraordinary renditions” were not outlawed by the Obama administration and that the U.S. has a responsibility under the law to investigate and prosecute those behind the global torture program right now. It is at once a call for action directed at the Obama administration and an important historical document that lays bare the utter depravity of the Bush administration’s practices.

The Obama administration’s mantra on the torture carried out under the Bush administration has been to “look forward,” and not backward. This has resulted in grotesque abuses carried out by the CIA being swept under the rug, with no criminal prosecutions forthcoming. And while Obama did sign a much-heralded executive order to ban torture, the order also was “specifically crafted to preserve the CIA’s authority to detain terrorist suspects for short periods prior to ‘rendering’ them to another country for interrogation or trial,” writes Singh.

“Globalizing Torture” focuses on two different yet interlocking aspects of the CIA’s global torture program, which the Bush administration put into overdrive following the Sept. 11, 2001 attacks.

“Extraordinary rendition” is defined as the “transfer—without legal process—of a detainee to the custody of a foreign government for purposes of detention and interrogation,” as the report states. The “black sites” were “a secret detention program under which suspected terrorists were held in CIA prisons,” and “where they were subjected to interrogation methods that involved torture and other abuses.”

Singh explains how these are related, writing:

The two programs had similar modalities and entailed the same kinds of human rights violations—the abduction and disappearance of detainees, their extra-legal transfer on secret flights to undisclosed locations around the world, followed by their incommunicado detention, interrogation, torture, and abuse. Moreover, extraordinary rendition typically involved secret detention by the United States if only for the time it took to transfer the person to the custody of another government. In some instances, the same detainee was subjected both to prolonged secret detention in CIA custody and extraordinary rendition to a country where the detainee was at real risk of torture.

The CIA program of extraordinary rendition has its roots in the Clinton administration, as the OSF report notes. Egypt, a strong U.S. ally at the time known to use torture, was one country the CIA often worked with. But it was the Bush administration, following 9/11, that made the program a crucial aspect of how the global war on terror was fought. President Bush “issued a directive authorizing the CIA to conduct these ‘extraordinary renditions without any advance approval from either the White House or the Departments of Justice or State. The CIA gained broad authority to secretly transfer terrorist suspects to be detained and interrogated in the custody of foreign governments, including those known to employ torture.”

While the U.S. government claimed that the countries they sent suspects to had assured them torture wouldn’t be used, those assurances were largely bunk. By 2005, the U.S. had “extraordinarily rendered” over 100 and perhaps as many as 150 people.

What did this program of holding people in top-secret CIA prisons, or sending them off to other countries entail? Brutal torture in order to obtain intelligence about terrorist networks and plots–despite the fact that many interrogation experts say that torture usually produces bad information. But no matter: the CIA implemented a number of tactics that can only be called torture on suspected militants, though some were innocent of any crime. The tactics included “walling,” or repeatedly thrusting a detainee’s head into a “false wall”; stress positions; forced nudity; sleep deprivation; dietary manipulation; and waterboarding. A series of memos from the Bush administration’s Office of Legal Counsel purported to legalize these tactics.

But as the report makes clear, none of the “enhanced interrogation techniques” (in Bush administration parlance) were legal. In fact, international law prohibits torture no matter what, even in the face of a national security emergency. The U.S. is a party to the UN Convention Against Torture, and in the U.S. there is a “federal criminal statute that provides criminal penalties for acts of torture—including attempts and conspiracy to commit such acts—committed outside the United States.” The U.S. is also a party to other international treaties that ban torture, like the International Covenant on Civil and Political Rights. But the Bush administration systematically violated both domestic and international law by engaging in a global torture program.

The report also makes plain that it was not only the Bush administration that violated international law. Fifty-four governments around the globe that participated in the torture ring also violated international law by being parties to the program. It’s unsurprising that stalwart allies of the U.S., like the authoritarian governments of Jordan, Egypt, Morocco and Pakistan, would willingly allow people to be tortured at the behest of the CIA. These governments have long battled Islamist political movements, and their participation was seen as a way to gather intelligence and crack down on extremists living in their midst. Afghanistan is also an unsurprising destination for those rendered, considering that the U.S. already had control of detainees there as a result of the invasion and occupation of the country in 2001.

But there are also surprises. Countries held up as paragons of social democracy were deeply complicit. Iceland allowed the CIA to use its airspace and airports to transport prisoners to be tortured. Sweden “apprehended individuals and transferred them to CIA custody for extraordinary rendition.” And then there’s also unstable countries like Somalia. The OSF report states that “Somalia provided territory and guards for individuals subjected to secret CIA detention. From about 2002 onward, U.S. counterterrorism efforts in Somalia required the cooperation of faction leaders and former military or police officers.The CIA hired Somali warlords to kidnap suspected militants, creating what the International Crisis Group termed ‘a small industry in abductions.’”

Notably, as Greg Grandin writes in TomDispatch, no Latin American country participated in the program.

The global torture regime put in place by the CIA implicates dozens of governments, and that in itself is staggering. But as David Cole notes in theNation, those governments’ complicity may open a route to accountability.

“The United States may be able to suppress complaints at home, but it lacks the power to exercise such censorship abroad. The only fitting response to the globalization of torture is the globalization of accountability,” writes Cole.

One model of accountability, as Cole notes, has already been established. Last year, the European Court of Human Rights ruled that “Macedonia had violated the European Convention on Human Rights’ prohibitions on torture, inhuman treatment and arbitrary detention by handing Khaled El-Masri to the CIA, which rendered him to Afghanistan and tortured him,” according to Cole. “The court held that transferring El-Masri to the CIA under such circumstances amounted to complicity in torture and ordered Macedonia to pay damages. The European Court has no jurisdiction over the United States, and therefore could not issue a remedy against it; but it did find expressly that the CIA tortured El-Masri, a predicate to its finding of Macedonia’s complicity.”

More recently, Italy’s former intelligence chief was given 10 years in prison for his role in the kidnapping of an Egyptian cleric who was then taken to an American air base and shipped off to Egypt, where he was tortured.

Those European cases make plain why the OSF report remains relevant and vitally important. More investigations and prosecutions of high-level officials in the nations that participated in the CIA’s torture program could still come in the years ahead. The black mark of the CIA’s practices will continue to hang over the world as long as accountability is lacking.

And there are other reasons why the OSF report remains relevant. One glaring one is that the Obama administration is obligated under the law to investigate and prosecute officials who crafted the illegal torture program. And U.S. courts have acquiesced to the Obama administration’s attempts to shield officials who were responsible for “extraordinarily rendering” people off to be tortured. Another glaring reason is that the Obama administration has not banned “extraordinary rendition” or CIA “black sites,” as the OSF report makes clear. Furthermore, reports of secret detention with the involvement of the CIA have continued to surface during the Obama administration, making clear that the excesses of the Bush era have yet to be fully excised.

Asked by AlterNet whether “extraordinary rendition” remains in use in the Obama era, Singh replied: “It’s a little bit hard to know what the current government’s policies are because they still remain secret…The full extent of what is actually continuing has not been acknowledged by the Obama administration. So these [news reports of CIA involvement in secret detentions] raise serious questions about what the Obama administration’s policies are.”

And as ProPublica revealed this month, 20 prisoners who were held by the CIA remain missing. Nobody knows what happened to them or where they are.

Perhaps the report’s most important section is its recommendations, which provide a path forward to correcting the lawless global torture regime. The OSF publication calls on the U.S. to fully repudiate “extraordinary rendition”; disclose information related to human rights violations; conduct criminal investigations into the CIA’s torture; create a board to provide compensation for the victims of the program; and institute safeguards to ensure that counterterrorism operations by the U.S. don’t run afoul of the law.

“The human rights violations associated with CIA secret detention and extraordinary rendition operations were significant and systemic,” writes Singh in the conclusion of her report. “The time has come for the United States and its partner governments to admit to the truth of their involvement in secret detention and extraordinary rendition, repudiate these practices, and conduct effective investigations directed at holding officials accountable.”

Thu, 02/21/2013 – 09:38

 
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Inside the Bush Administration"s Lawless Global Torture Regime (And How Obama Remains Complicit)