The Deficiency of Trust: How Banks are Failing Us

Since most governments are reliant upon this system, they usually reluctantly agree or ask a higher authority like the EU or the International Monetary Fund to lend them money so that they can give the banks the money to avoid a collapse. Let’s be clear about one thing, a bailout in this sense has little to do with you and me, we just end up paying for it.

The Next Episode:

The story doesn’t end there. Usually, the end results are government and social service cuts, which are collectively known as austerity. What Cyprus has shown us, is that banks are “evolving” in the face of crisis. By taxing depositors to cover the impending costs of a bailout, banks and by extension their lenders, have a “new and creative” way to cover their losses.

By allowing this brazen theft to occur, banks are essentially being given yet another free pass for their over-indulgence with other people’s money. This essentially means that “the banks, whose depositors’ money is being taken by the government, will end up receiving as profits and their own money a portion of what they allowed the banks to steal from their own depositors,” says Wolff.

The kicker is that after seeing the above work, other banks have rushed to implement similar solutions, such as in New Zealand where they are floating around the idea of covering the cost of any future bailouts with depositor funds.

Lawmakers and the banks can get away with this because of two main reasons. First off, they can control the hours and stream of liquidity the banks release in order to prevent a bank run as was the case in Cyprus. Secondly, when banks go bust, your money is merely a set of digital numbers on a screen. If a bank loses its money, they don’t have the money to pay you back when you go to make a withdrawal, so you either accept the “medicine” or risk losing your life savings.

A Bleak Future:

When something is generally deficient in society, people attempt to create a barrier to prevent this deficiency from happening again. With the banking sector however, there has been little oversight or mechanisms to prevent these failures from happening again.

In the end, something has to give. Either someone or something clamps down on the ability of banks and their associates to risk your investments and forces them to actually exercise fiduciary duty, or we continue to allow these banks to do whatever they want and bring governments, citizens and countries to the edge of the abyss.

Konstantine Roccas is an observer of local and international affairs and governance, but also writes about anything else that piques his ire. He enjoys a half kilo of Greek yogurt daily. He writes for the Arbitrage Magazine. More of his work can be found at myriadtruths.blogspot.ca and he can be followed on Twitter @KosteeRoccas.