An Ever More Desperate Plan

The widening net of national bankruptcy worldwide is becoming ever more apparent. The economic imbalances in Europe have been well known for some time. Italy, Greece, Spain and Portugal have been vexed between a debt crisis—and its threat of insolvency—on one side, and their citizens’ unwillingness to put up with a reduction of services or pay.

The left-leaning government-supported cultures have been on the precipice with no long-term solutions, just waiting for the collapse. America, in all its glory and with the stock markets at their highest points, has its back also to the debt cliff. The US vainly hopes that when they turn around all this debt crisis will disappear, and be only a fleeting nightmare.

Every country in the world is watching the most economically unstable countries, trying to learn from others’ mistakes and find more creative solutions. The many austerity measures, instituted to try to find some liquidity to pay the bills, have ended in abject failure. The people have been unwilling to do their part in digging out of the hole.

Recently Cyprus, the newest addition to the instability, devised a plan to raid the savings accounts of its people to stave off bank failures. Their plan was to take 10% of everything in the banks. This immediately was met with outrage and runs on the banks. The public relations fight was on. The banks all closed due to account holders demanding all their money before the 10% could be taken. Cyprus has now backed away from this plan. It is not clear, though, when the banks will open again, or if they will. The economic condition of the nation has not changed. Yet another EU country is near insolvency.

Ironically, in the midst of this scenario, another country has been publicly entertaining the idea of using private bank accounts to solve its coming economic problems.

The New Zealand government is pushing a Cyprus-style plan to avoid bank failures. It has been reported by the Green Party that this plan would involve small depositors losing some of their funds to big bank bailouts.

The Open Bank Resolution (OBR) is the current favored option of Finance Minister Bill English. Under OBR, if banks are threatened with failure, all depositors’ holdings will be reduced overnight to fund the bailout.

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr. Russel Norman.

“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.

“While the details are still to be finalized, nearly all depositors will see their savings reduced by the same proportions.

“Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.

“If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”

In light of the Cyprus experience, and the fact that no other country is (publicly) promoting this strategy, Dr. Norman is questioning the government’s insistence on the OBR strategy.

This is only the beginning. The nations of the world are getting desperate. With no end to this crisis in sight they will have to resort to the simple math. Find volumes of resources and raid them. No one is willing to make the hard choices. For some, they will be forced to take the only choice left. We have waited, talked, deflected, denied and fantasized too long.