If our
IOUs are converted to bank stock, they will no longer be subject
to insurance protection but will be “at risk” and vulnerable to
being wiped out, just as the Lehman Brothers shareholders were
in 2008. That this dire scenario could actually materialize was
underscored by Yves Smith in a March 19th post titled
When You Weren’t Looking, Democrat Bank Stooges Launch Bills to
Permit Bailouts, Deregulate Derivatives. She writes:
In the
US, depositors have actually been put in a worse position
than Cyprus deposit-holders, at least if they are at the big
banks that play in the derivatives casino. The regulators
have turned a blind eye as banks use their depositaries
to fund derivatives exposures. And as bad as that is,
the depositors, unlike their Cypriot confreres, aren’t even
senior creditors. Remember Lehman? When the investment bank
failed, unsecured creditors (and remember, depositors are
unsecured creditors) got eight cents on the dollar. One
big reason was that derivatives counterparties require
collateral for any exposures, meaning they are secured
creditors. The 2005 bankruptcy reforms made derivatives
counterparties senior to unsecured lenders.