by Larry Doyle, Sense on Cents
The banks in Cyprus remain closed until at least next Tuesday out of fear that once the doors open a massive run on the banks will ensue.
The situation in Cyprus is clearly evidence of a financial system that remains on life support and that drastic situations precipitate drastic actions.
Before we lose our heads, though, isn’t this why free markets develop and implement rules of law? Indeed — or so we thought.
With the outcome of the situation in Cyprus remaining very much in question, many people in America wonder if a similar situation might unfold here. I would maintain that it already has and may occur with greater frequency and impact in the future. How so? Let’s navigate.
As the depositors in Cyprus are now learning, the integrity of deposit insurance seems to have been worth little more than the paper on which it was written. But wouldn’t the integrity of deposit insurance hold up under challenge in a court of law?
“Did you say, law, LD, as in the rule of law?”
On that note, let’s cross over to our own shores and pose that very same question regarding the practice of the rule of law to the following situations:
1. Foreclosure abuses in which mortgage servicers clearly violated the rule of law in protecting both homeowners and mortgage investors for the benefit of major banks. The token fine assessed for this injustice was a joke.
2. Violation of bankruptcy procedures in the auto bailouts. Ask the creditors how that worked for them?
3. Clear violation of the SIPA in the manner in which Madoff trustee Irving Picard has gone about collecting and dispensing recovered funds.
4. Clear violation of SEC rules — without proper restitution and adjudication — by those involved in the distribution of a wide array of structured products, including the $50+ billion of supposed cash-equivalent auction-rate securities that remain outstanding a full 5-plus years after that market meltdown. Tell the thousand of ARS investors about the rule of law.
What do all of these situations exemplify?
The degradation of the rule of law. Clear as day.
With these precedents having been set, might we see a grab of other funds by our government if and as necessary? Well, let’s keep an eye on our retirement accounts. To wit, I welcome providing the following links to stories highlighted a few years back but continue to generate regular interest:
- Blueprint for Government Takeover of IRAs, January 2010
- Will Uncle Sam Takeover Your IRA? February 2010
- Will Uncle Sam Takeover Your IRA? Part II, April 2012
Remain on guard and navigate accordingly.
Disclosure: I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.