The scary last pages of the budget

Be prepared. If you hold a large bank account, Finance Minister Jim Flaherty and the government may come after your savings

Last week I commented on the basically stand-pat Canadian budget. This week, I comment on a part of it. The positive for the government was a chance to say something really startling in a quiet way.

The decision affects those who have more than $100,000 in a savings account, but it also shows the change in attitude of governments to your savings accounts. Be prepared. If you hold a large bank account, Finance Minister Jim Flaherty and the government may come after your savings. The idea affects all of us, whether we are large or small, anyway.

It showed up first in the enormous change the European Union showed toward the old belief in the sanctity of the savings account. In order to keep the nation from the edge of bankruptcy they demanded the savings of depositors be used to bail out the nation. The result is your savings account in your bank is not inviolate.

The term they use to describe it is ‘bail-in’ which sounds like a simple reversal of the old word for giving away government money, almost meaningless, but it’s not. To put it bluntly, what it means is that, if the banking system goes kaput, it is the owners of savings accounts who must pay for the salvage of banks, rather than the government. They pay for it by a forced conversion of savings to shares, which means you own bank shares whether or not you wanted them. This provision is briefly mentioned in the budget as a possible action in an emergency.

The new rules would allow government to seize bank liabilities they have not described, including, possibly, the savings of uninsured depositors, or those with more savings than a specified amount — and use them to prop up a faltering institution.

That, as we look back, is exactly what Cyprus’ government did to deal with its banking crisis. In the Cypriot case, the liabilities the government seized were the uninsured bank accounts of those with more than 100,000 euros on deposit. That’s a lot of money, but the amount isn’t as important as the principle.

Most people don’t have anywhere near the size of savings being considered for the limit, so most people won’t think it makes any difference to them. In a very limited way they’re right. However, who’s to say the limit won’t affect you and whatever amount of savings you have?

The principle at stake is that bank savings, once unquestioned, are no more. The second principle at stake is that perhaps we should think harder about what a ‘new world’ means. In a lot of ways it means that what we once considered sacrosanct is not. We’ll have to get used to that.

Some of the changes will be for the better. Some of them won’t be anything near what we now recognize as good. Since the unpredicted is, by definition, what is meant by change, over the next while we will have to try to figure it out.

It’s going to be a challenge. It’s not just a question of what will happen to savings accounts. It’s a revolution in every element of what we thought was our world. For example, while some still question the nature of the causes for climate change, it is virtually impossible to challenge the fact that the climate is changing. We can already see some of the effects of it, and we already know the future is going to be different. For some, it will become more and more difficult. There are people who are already fighting to save their entire countries from the effects. We also know that our local community, no matter how remote it is considered, is tied into whatever happens in the rest of the world, whether or not we “believe” in such terms as globalization. We have always been a part of the whole world and the whole world has always been more interactive than we had thought. We are just beginning to realize it now. And that’s only one of the most visible changes.

Change is becoming part of our vocabulary in ways we never expected and, just like the people of the nation of Cyprus, an island at the far end of the Mediterranean, we no longer have a choice in whether we deal with it. For them, the central feature of their economy, employing and affecting half the population who live there, is now gone. They have to start all over.

Some of the changes we are now facing will eventually be called the good news and some the bad news. This difference will be ours to discover. And all of them will arrive with the new world we will discover as we grow into it. Equality of women, poverty, starvation, education, racism, economic success and failure, and the need to integrate ourselves into the world, will all be part of the work we will have to undertake.

The good news right for now is that Canadian banking is not as shaky as that of Cyprus. At their height, Cypriot banks held more than eight times the island’s entire economy. Big. Successful. International.

The bad news is that the Cypriots thought their banks were safe, too.


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