By Robert
Romano — We are all Cypriots now.
The
parliament of Cyprus has — for now — overwhelmingly
rejected a €5.8 billion ($7.5 billion) tax on savings deposits that was being
imposed by the European Union (EU) and the International Monetary Fund (IMF) to
bail out banks that bet badly on Greek debt.
The decision
leaves the bailout in doubt and if no other resolution can be found, could
compel Cyprus to even drop the euro, sparking the start of a wider breakup of
the Eurozone monetary union.
The tax
itself would have totaled 32.4 percent of the country’s €17.88 billion ($23.15
billion) Gross Domestic Product (GDP). So it was hardly surprising that it was
rejected.
The people
of Cyprus care more about their life savings than propping up financial
institutions that lost billions on poor investments in socialist governments’
debts. The idea that somehow they, and not the banks that made those decisions,
should bear the brunt of those losses was always disconnected from reality.
Yet that is
precisely the presumption the establishment has made — that rather than banks
raising substantially more capital to address systemic risk, you and I should
pay for bank bailouts — in response to the ongoing financial crisis that began
in 2007, and has actually become the basis for such proposals considered all
over the world, including the U.S.
In 2009, the
G20 asked the International Monetary Fund (IMF) to come up with ways the
financial sector might supposedly contribute to its own bailouts.
The IMF study
released in 2010 essentially proposed two types of taxes: a levy on
financial institutions to create a pool of bailout funds, and a financial
transaction tax.
Interestingly,
what the IMF came up with as a suggestion had already been implemented a few
months earlier by the U.S. Congress in passing the Dodd-Frank so-called
financial reform legislation.
Under
Dodd-Frank, the Federal Deposit Insurance Corporation (FDIC) is allowed to
charge assessments to about 60 bank-holding and insurance companies with $50
billion or more in assets to fund what is called an “orderly liquidation fund.”
Really, it’s just a bailout fund allowing the government to take over systemically
risky institutions, recapitalize them, and allow them to reenter the market
under new management.
The law, as
well as the IMF study, presumes that the financial sector will bear these
costs. But as a
Congressional Budget Office (CBO) analysis of a similar bank tax proposal by
the Obama Administration at the time noted, “the ultimate cost of a
tax or fee is not necessarily borne by the entity that writes the check to the
government. The cost of the proposed fee would ultimately be borne to varying
degrees by an institution’s customers, employees, and investors, but the
precise incidence among those groups is uncertain.”
Meaning, the
assessments would actually be passed on to and paid for by savers and consumers
of financial products through the indirect taxation of higher bank fees and
other financial transaction costs. Americans for
Limited Government warned lawmakers about just such an outcome prior to the
legislation’s passage as an affront to private property rights.
Under
Dodd-Frank, that can come in the form of fees for merely holding a checking or
savings account. Such account
fees are already being charged by many financial institutions and have in fact
been increasing since the passage of Dodd-Frank, reports ABC News.
These fees
are allowable and one might say encouraged under Dodd-Frank. In fact, the law
grants the Federal Reserve broad rulemaking authority over fees imposed
by financial institutions.
While on one
hand this gives the central bank the power to limit the size of those fees, the
same power could be used to lift limits on the fees and gouge depositors in the
event of another major financial crisis.
Either way,
to fund bank bailouts via the FDIC’s “orderly liquidation fund,” you and I are
already paying taxes on our savings.
One might
quibble with the notion that a fee imposed by a privately owned bank could ever
be considered to be a tax. But if the purpose of the fee is to enable the
financial institution to pay a government levy and to fulfill a regulatory
requirement to bail out those same banks from their own poor investment
choices, then what’s the difference?
In reality,
the assessments imposed by Dodd-Frank on financial institutions to fund
bailouts are even more sinister than an overt tax on savings to do the same.
Such legislation if proposed would likely spark outrage in the public and
easily be defeated in Congress. That is what makes this back-door approach to
raising revenue preferable for all parties involved — except for the American
people, that is.
It
guarantees the banks will have sufficient ability to raise funds from their
customers with government consent in order to bail themselves out. Meanwhile,
the politicians get to avoid unpopular votes to stick taxpayers with the bill
for those bailouts, and they can pretend they had nothing to do with the higher
fees.
That is the
difference between the U.S. experience and that of Cyprus. At least in Cyprus
the people’s representatives there actually had an opportunity to vote against
such a levy. Whereas here, those fees are and will continue to be imposed by
the banks with the blessing of government agencies — all without any vote in
Congress.
It may
happen sooner than anyone realizes. U.S. financial institutions are said to
have as much $641 billion of exposure to financial institutions in Portugal,
Ireland, Italy, Greece and Spain (PIIGS) according to the Congressional
Research Service.
Should the
Eurozone really break apart, and U.S. banks are caught in the crossfire, with
the American people suddenly paying exorbitant fees for the “privilege” of
conducting business electronically, they can decide for themselves whether this
was a good idea.
That is, for
Congress to outsource and give unlimited grant of its taxing authority to
faceless bureaucrats acting in concert with an international banking cartel
with the goal of bailing itself out of its own foolishness.
Robert
Romano is the Senior Editor of Americans for Limited Government.
Source: NetRightDaily.com: http://netrightdaily.com/2013/03/how-the-government-will-steal-your-savings-under-dodd-frank/#ixzz2O6IuRbkr
Comments:
So, Cyprus Parliament
proposed a money-grab bill to charge each Cyprus bank depositor a levy of 6.75 percent on deposits of less than 100,000
euros -- the ceiling for European Union account insurance -- and 9.9 percent
above that. The measures will raise 5.8 billion euros. It didn’t pass, because depositors could
close their accounts and move their money out of Cyprus.
Credit for stopping this bill must go to the Press,
reporting the Bill’s existence and the Parliament’s decision to reject the
Bill. We in the U.S. can’t count on this kind of help. Congress routinely votes
against our best interests.
This article accurately asserts that bailout provisions
are included in Dodd-Frank. U.S. Bank CEOs would not suffer if their Banks
failed and that’s the problem. They
would retire on the multi-million dollar parachutes included in their employment
contracts.
Norb Leahy, Dunwoody GA Tea Party Leader
