The Ghost of Dodd-Frank:

The checkers and savers, who believed their bank accounts were secure, will find themselves in a grossly unfair situation, losing their hard-earned savings.  Meanwhile, large financial institutions will be rescued from their own reckless decisions, and their highly leveraged, super-high-risk, and defaulted derivative contracts will be bailed out.

The derivatives market is largely unregulated, primarily because lobbyists representing large banks persuaded the US Congress to permit banks to invest in derivatives with minimal regulation.  The Dodd-Frank Act has authorized future derivative claims arising from losses to have super- or senior priority in repayment over all other claims against the defaulted banks.

The Dodd-Frank Act also reorganized the priorities of all debts, after the costs of administration necessary in any liquidation process, first to the government, then to the banks, then to derivatives, then to secured and unsecured creditors (including checkers and savers) of the bank, and then finally to equity (stockholders).  Bank shareholders may face substantial losses in liquidation, as derivative claims are typically given priority over their claims.  Counterparties to derivative losses will have their claims covered and paid before shareholders and depositors.

Claims are prioritized if Financial Institutions Become Insolvent and the Decision to trigger the Bail-In Provision of Dodd-Frank:

This is stated in 12 USC 5389 and 12 USC 5390

As stated, a series of rules governs the orderly liquidation of assets and the payment of claim holders in accordance with a priority payment schedule.  The receiver refers to this as an orderly liquidation authority.  Claims are paid in the following order.   Anyone involved with a bankruptcy court knows that everyone gets taken care of; innocent investors are last.

When the government seizes money from your accounts, it ceases to be yours.  You become an unsecured creditor, and unsecured creditors are the last to be considered.  This lack of control over your savings can be deeply unsettling.

1) Administrative cost: The government would hire private companies to administer the process.  Who gets paid big bucks?

2) The government; the costs of government employees who are in no hurry.

3) Wages, salaries, or commissions of employees.

4) Contributions to Employee benefit plans.

5) Any other general or senior liability of the company.  This would include amounts under derivative defaults.  This may be an astronomically large number that would gobble up all proceeds confiscated from the public under the bail-in provision. 1USUS Code 5389 refers to rules and regulations concerning the rights, interests, and priorities of creditors, counterparties, security entitlement holders, and others concerning such covered financial companies.  Please note that this includes counterparties of defaulted derivatives.

6) Obligations to shareholders, members, general partners, and other equity holders.

7) Unsecured creditors for 3rd party claims   (This includes bank checkers and savers who are uninsured by the FDI.  The FDIC has money.  I hold only very low-yieldingUS dollars, which effectively renders me insolvent.

The system, including lawyers, judges, consultants, receivers, government employees, and employees of insolvent financial institutions, will continue to receive payments and accrue benefits.   At the same time, the public is left to bear the brunt of this.

The liquidation could result in the depositors’ savings in the insolvent bank being redirected to future equity (stock) and, consequently, lost as a savings asset.  The only alternative for the depositors is for the bank to repay the outstanding amounts over 1 to 30 years.  This potential loss of savings should be a cause for immediate concern.

The rationale behind the theft:

The prosperity of the US.  The government, which pumps trillions of fiat currency into the economy, primarily uses it to further its political objectives.   Political objectives almost always involve supporting public-sector labor unions, private-sector labor unions, and major corporations.

The government’s policy of forced near-zero interest rates benefits only Wall Street and the federal government.

The fractional-reserve banking system, which has been in place for approximately 300 years, should be replaced with a zero-reserve banking system.

The Dodd-Frank Act of 2010, a significant financial reform Law, included a provision known as ‘bail-in’.  This provision allows the USS Federal Reserve to use funds from private party checking and savings accounts to rescue failing financial institutions.  Put another way, your savings could save a bank from trouble.

Article:

Part II expands the discussion to include multiple actions taken by the Federal Government and large financial institutions that undermine the safety of public checking and savings account balances.

While the American public is being relentlessly flogged with propaganda, accusations of racism, conditioned to feel guilt and submissive, indoctrinated, and degrading us for our successes, and bombarded with advertising, at the same time, institutional banditry is in full bloom.

Picking the pockets of the productive people and transferring the wealth to the administrative state and the top 1% has become ingrained in the American Enterprise.

Historic banking is dramatically different from today’s banking:

Most people are correctly under the impression that federally insured banking institutions were historically created to collect public deposits and use those proceeds to lend to creditworthy consumers (borrowers).  Collateral included taking a security interest (deed or mortgage) on real property, unsecured, based upon a Borrower's good credit or some form of government-backed insurance program.  This system was designed to be the primary driver of growth in the USS economy.

Historically, banks were permitted to use depositor funds to lend to borrowers at market interest rates, typically in three categories: consumer installment loans, commercial loans, and real estate loans.  The ability to pool deposits and make loans to multiple borrowers at interest rates higher than the depositor’s interest rates paid out created a positive spread in the form of gross revenue for the bank or financial institution.  Banks also imposed charges, such as overdraft fees, on banking services provided to depositors, thereby increasing their profits.  Many banks’ primary income stream now comes from overdraft charges and default interest charges.  One could argue that this business model has a predatory nature, but it’s best to save your breath.  They oversee the federal government.

Bank balance sheets differ from those of other businesses because the money deposited by the public (capital) that the bank lends to borrowers is considered bank assets.  Bank deposits are also liabilities or unsecured debt.  In simpler terms, if a bank defaults, the people who have deposited money in the bank (the ‘unsecured creditors’) have no legal guarantee that they will get their money back.

Today, banks and non-bank financial institutions are among the most highly leveraged operating companies.  They have been protected through multiple financial bailouts, much like a monopoly cartel, because Wall Street has a propensity to install advocates at all levels of government.

The banking industry appears stable due to a combination of historical fractional-reserve banking and insured deposits under the Federal Deposit Insurance Corporation (FDIC).  What I mean by “historic’ is that our banking laws required a reserve of about 10% of deposits to be held and not loaned out, in case the bank needed cash to meet its obligations in emergencies.

As of 26 March 202, banks are no longer required to maintain reserve deposits on their balance sheets.  The US has moved away from fractional reserve banking to zero-reserve banking.

Our banking system is now unraveling because all public safeguards and assurances of confidence have been removed.  Banks can now invest, with very minimal limits, in extremely high-risk and highly leveraged securities.  Banks no longer need to worry about these pesky reserve requirements.

The banking system makes tremendous profits based on highly leveraged bets that outcomes will favor it.  The real question is how long it can keep up with today’s hyper-casino-styled, highly leveraged investment strategies.  The consequences could be severe if there is even a moderate stock market downturn.  A 200-basis-point increase in the interest rate would bring the economy to its knees.

FDIC insurance of $250,000 per individual account and the illusion of depositor protection:

In 1933, during the Great Depression, the Federal Deposit Insurance Corporation (FDIC) was established as an independent federal agency.  Its primary purpose was to restore public confidence in the banking system by insuring depositsagainstf bank failures.  This was a crucial step to prevent the ‘run on the bank’ scenarios that had devastated many banks during the Depression.

Today, depositors are insured for up to $250,000 per separate account at all FDIC-insured banks.

The public perceives that the Federal Deposit Insurance Corporation (FDIC), somewhere, maybe stashed on a shelf, has the money in reserve to pay out large amounts of insurance claims if any bank(s) default.  Insured deposits are an economic and propagandized illusion.  Suppose the FDIC needed significant funds in the US.  The Department of the Treasury would have to issue new fiat money (i.e., money created out of thin air) and corresponding debt securities.  Treasury bonds) for public or international investors to purchase.  All incoming cash proceeds from these public sale securities are available to cover all federal government financial obligations, including FDIC insurance claims, which could become staggeringly large.  The government may look elsewhere for funding for FDIC claims, and bank depositors’ funds are now considered legal under the 2010 Dodd-Frank Act.  As usual, highly leveraged financial companies take on the maximum risk, enjoy the benefits of success, and pass any losses on to the public.

Investment in US Treasuries and US Savings Bonds is considered low-risk because the full faith and credit of the US government underwrites the newly issued debt securities.  Federal debt, also known as central government debt or sovereign debt, is a financial obligation of the United States taxpayers.  Yes, the taxpayers, not the government employees who created the debt, are responsible for the debt.

The government’s propensity to continue printing money has accelerated year after year, with the current total exceeding $40 trillion.  Whenever economic headwinds arise, policymakers tend to increase the money supply.  Build Back Better, or some other empty mantra, is permanently attached to sell to the unsuspecting public.  Printing more money is an easy decision for weak and ineffective national leadership.

Our current administration is attempting to increase the national debt to $35 trillion or more.  We are witnessing a seat-of-the-pants strategy: defer action and hope.  Unfortunately, hope is not a strategy.  Our current strategy is just a temporary gimmick.

Accrued national public debts are not included in public disclosure.  Keep the public unaware:

The US-accrued sovereign debt does not include unfunded and underfunded pension and medical obligations of Social Security, Medicare, Medicaid, and federal and state government pensions, estimated at over $200 trillion.   Government leaders from both major political parties have never proposed any solution to fund this surge in accepted economic benefits over the next 20-30 years.

Borrowing $200 trillion is the answer, and we should kick the can down the road as though the road to financial wealth will never end.  Massive inflation and reduced purchasing power are the preferred schemes.

Maybe injecting older folks, weaker folks, and those with preexisting conditions with a gene-modifying substance may be the answer to reducing the future social safety net cost.

Our current national economic strategy reminds me of the Weimar Republic between 1914 and 1923 (a German city where the republic was headquartered), Venezuela, and Argentina, where hyperinflation destroyed otherwise beautiful countries.  Our headlights are on high beam, providing clear vision in front for hyperinflation.  Raising interest rates to combat inflation is the only practical solution.  However, the Wall Street elites will not allow this to happen.

FDIC Insurance and Safety Deposit Box Security:

In theory, depositors’ checking, savings, and certificates of deposit, up to $250,000 per separate account, are FDIC-insured if the proceeds are placed or purchased in participating institutions.  FDIC insurance does not cover financial instruments such as stocks, bonds, U.S.Treasury securities (T-bills), safe deposit box contents, annuities, insurance products, and money market funds.  Could you check with your bank representative for clarification on coverage?

When were banks and large financial institutions allowed to engage in high-risk investment strategies?

The repeal of the Glass-Steagall Act of 1933 in 1999 was designed to separate risky investment banking activity from deposit funds.  The repeal no longer prevented banks from operating as both commercial and investment banks.

Federal Legislators from both major political parties joined the sellout.  I’m sorry that your political party and the opposing party (your drastic enemy) sold you out.

TheUS.  The Treasury repurchase agreement (REPO) market is widely regarded as a safe investment.  It serves as collateral for overnight borrowing by banks and other major financial institutions that purchase US Treasury securities.  Treasury securities act as short-term lenders, and sellers (banks and financial institutions) act as short-term borrowers.

The Repurchase Agreement (Repo) market is a key component of the US financial system.  Repo refers to short-term borrowing instruments through approved dealers in government securities.  The dealers sell the securities to investors overnight and repurchase them the next day or later at a slightly higher price.  This process is fundamental to central banks, which continually need to raise capital to meet the government’s cash-flow requirements and fulfill banks’ capital reserve requirements.

On 17 September 2019, the Repo market froze.  Liquidly became so strained that the Federal Reserve began providing hundreds of billions of dollars per week in Repo Loans to participant trading houses.  Since then, the government has created an additional 9 trillion to primarily bail out megabanks and Wall Street, while shifting the debt onto taxpayers.  The National Debt increased from approximately trillion to approximately trillion in just three-quarters of a year.  The public was too busy watching the news (mainstream propaganda) to notice.

The subsequent financial implosion will be bigger, faster, and more ferocious.  Everything appears rosy if the Federal Government continues to mandate close-to-zero and below-inflation interest rates.  The size of the economic bubble can and will continue to grow to the stratosphere.

The illusion of assumed and increased wealth and financial stability permeates every corporate boardroom and media outlet.  Stock buybacks account for 40% of current daily trading volume.  Rising GDPs, rising corporate profits, stock buybacks financed with cheap borrowed money, taking on highly leveraged debt, and the continued speculative frenzy are all necessary to prevent a financial implosion.

Inflation across all asset classes is expected to continue rising sharply.  Investors on Wall Street and the public will experience a corresponding reduction in the purchasing power of each dollar, right up until the day the frenzied financial speculative activity stops.

The catalyst for the next economic crash will be a systemic implosion of a massive number of derivative contracts that default, causing the insolvency of the counterparties, primarily the too-big-to-fail banks.

Derivatives as investment instruments by large banks are a ticking time bomb:

A written derivative contract is a contractual or hedging-bet agreement that derives its value by pegging movements in value to, or against, other financial assets.  The level of speculation here is very high.  The process requires multiple (sophisticated) parties and (refined) counterparties to bet on whether fluctuations will or will not occur.   Typically, hedging instruments are based on the interest rate movements of underlying financial assets, such as bonds, commodities, and currencies.

Derivative contracts are contractual agreements among counterparties that are off-balance-sheet hedging bets.  The profitability potential is very high, but the risk of a downside reversal and loss of corporate and bank capital is also substantial. The Corporation retains profits.  Still, losses can now be transferred to innocent third-party depositors in a public bank.

Dodd-Frank of 2010 - With the passage of this legislation, the US Government has made bank depositors and savers subject to having their deposits confiscated to pay the losses created by central bank and financial institution defaults.

One could question whether a significant bank default constitutes a central bank default.  Yes, absolutely!  But if you are an elite financial powerhouse Member who controls the federal government, and the government allows you to transfer the losses to someone else, why not?  The public is too busy watching daily news and consuming misinformation to notice.

History of Derivatives Losses:

Derivative losses were the catalyst for the 1998 collapse of Long-Term Capital Management, Inc., a prominent hedge fund, and the near-collapse of the global financial system.

The federal government and the Federal Reserve have caved in and provided bailout schemes to large financial institutions, Wall Street trading houses, and publicly traded corporations.  Very minor exceptions would include Leman, who was a competitor of Goldman-Sacs. Goldman eliminated its major competitor by controlling Washington, as it does today.

Federal bailout programs following the 2008 economic collapse totaled approximately $29 trillion.  It was, and will be, expected that the federal government agrees to bail out companies such as the largest insurer in the world, American International Group (AIG), to the tune of $185 billion to cover derivative losses.  AIG is a multinational financial and insurance Corporation that operates in more than 80 countries and jurisdictions.  Another example in this boneyard was the extinguishment of General Motors’ $11 billion in stock equity and the reallocation of the proceeds to the labor unions.  This $29 trillion is now a debt to be borne by taxpayers rather than by the businesses that assumed an extremely high risk and lost.

A Bit of Perspective:

The U.S. Gross Domestic Product (GDP) is about 30.5 trillion annually.  Taxation generates approximately $5 trillion in annual revenue for the government.  If the government spends $10 trillion annually, it must have a corresponding effect on the economy.

Too Big to Fail Banks: The high-risk derivatives business.

The six too-big-to-fail (TBTF) banks account for 67% of all outstanding bank assets in the United States.

The risk in the derivatives market is concentrated in the US.  In 2018, the US accounted for 95.9% of global derivatives.  Should derivative contracts fail, causing bank defaults, minimal government insurance proceeds are available unless the government issues additional money by issuing new debt to replace the funds paid out on defaulted bank insurance claims.

The government’s full faith does not underwrite derivatives, but losses have been deemed more important than the public assets of checking and savings accounts.  Therefore, the losses will be transferred to the public.  In effect, the Dodd-Frank Act has shifted the ultimate risk for losses from highly speculative derivatives to the depositor.  Ban, which is typical of banks by BYF, serves the middle class.

Warren Buffett has called derivatives financial weapons of mass destruction.  The bank statistics below explain why: market capitalization refers to the total value of a company’s outstanding shares and is commonly used to measure its market value.

• JPMorgan Chase has a market capitalization of $472 billion, total deposits of $2.253 trillion, and $53.4 trillion in off-balance-sheet notional derivatives.  Derivatives contracts are 113 times greater than the market capitalization.  Chase holds 63% of the total $4.197 trillion in equity derivative contracts held by federally insured banks and savings associations.  Its net exposure is in the trillions.  (Verify this statement.)
• Bank of America has a market capitalization of $338 billion, $1,906,458 in total deposits, and total off-balance-sheet notional derivatives of $19.3 trillion, which is 57 times its market capitalization.  Its net exposure is in the trillion.s
• Wells Fargo’s market capitalization is $308 billion, its deposits are $1,479,499,000, and its off-balance sheet notional trading derivatives are $11 trillion, 36 times its market value.
• Citicorp’s market capitalization is $203 billion (as of August 2021); its total deposits are $1,282,071, and its total off-balance sheet notional trading derivatives are approximately $47 trillion, which is 204 times its market capitalization.  Its net exposure and risk are in the trillions.

The above totals fluctuate over time.  Could you consult your broker for the exact figures?

Conclusion:

FDIC government-insured deposit accounts held by the public are now expressly subordinated to derivative losses of banking participants in the event of market collapse.  The risk associated with the total of $288 trillion in counterparty bets in the derivatives market by these banks through Wall Street trading is primarily driven by interest rate hedging.  Not all derivatives would lose in a market collapse; some would win. With a counterparty brisk, there will be winners and losers.  In the settlement process, the real crisis occurs when central banks become insolvent and are unable to cover their losses.  It is then that the government intervenes in the interests of depositors’ pockets.

Depositor accounts held in the US-based system carry the greatest risk of loss and the potential for delayed or deferred recovery.  If approximately $17 trillion in deposits currently held in commercial banks and bail-in provisions were available to the government, and it confiscated one-half or more, $8.5 trillion would not go far toward covering $10 trillion in derivative losses.

Remember the phrase” ‘You can take it to the bank.’ This means a third-party source can verify something as accurate and is assumed to be reliable.  The new phrase should be: “Do not rely on receiving your money back if you deposit it in the bank.” You are better off with your deposits held in small regional banks or, better yet, state-chartered credit unions.

I have researched the above subjects through various data sources.  There may be conflicts, particularly regarding time and data sources.  Thank you for taking the time to rearticulate the article.   Hope you found the information valuable.