A Taxpayer Revolt Against Bank Bailouts In the Eurozone
Bank bailouts in the Eurozone, like bank bailouts elsewhere, have made owners of otherwise worthless bank debt whole, through a circuitous process where, in the end, taxpayers transferred their money to investors. Even in Greece, investors were coddled. Even Proton Bank that had siphoned off $1 billion in a scheme of fraud, embezzlement, and money laundering was bailed out at taxpayer expense...
SNS Reaal, fourth largest bank and insurance group in the Netherlands, cratering under a huge load of rotting real-estate loans, was bailed out on February 1, after already having been bailed out in 2008, and nationalized with a €10-billion package. A collapse and bankruptcy “would have unacceptably large and undesirable consequences,” explained Dutch Finance Minister Jeroen Dijsselbloem, confirming that bank bailouts would be the norm in the Eurozone. Only question: to what extent would taxpayers be sacrificed?
In the SNS bailout, all depositors were made whole. But stockholders were wiped out. And so were holders of junior debt!
Tremors went through the system. Stories surfaced of individual holders, such as artists, who’d lost their savings because they’d bought these crappy bank bonds that had been touted as safe...
On Monday, the Dutch Council of State blessed that procedure and thus set an example for the rest of the Eurozone: when a bank is bailed out and nationalized, owners of its debt can lose their entire capital. The unwritten government guarantee on bank debt is off.
A government finally drew the line on one of its big banks, instead of flailing about to justify why taxpayers had to bail out bondholders who’d benefitted from the yields that had compensated them for the risks. Why tolerate a situation where the capital “at risk” wasn’t at risk?
That exotic theory is already spreading. Dijsselbloem is President of the Eurogroup that approves country bailouts. And the German government has been toying with the idea of going after bank investors for months. At issue: the bailout of the banks in Cyprus. But there, it’s more ... delicate. These banks didn’t issue a lot of debt. They didn’t have to; they were flooded with deposits from rich Russians, Russian companies with mailbox subsidiaries in Cyprus, and even Oligarchs...As more stories about the Russian connection surfaced, the unwritten government guarantee of uninsured bank deposits has been fraying around the edges. The Cypriot government, unlike the Dutch government, cannot bail out its own banks. It’s bankrupt too and needs a bailout. So, which bank stakeholders get bailed out and which get sacrificed will have to be negotiated with the Troika. Even deposit accounts aren’t sacrosanct anymore, and their owners, the “rich Russians,” are being prepped for a haircut, a mild one presumably, not a crew cut. Nevertheless, it would break another barrier. Next? Senior bank debt...
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