Watch Out for that Banana Peel

Watch Out for that Banana Peel

Recently, the EU announced that it is looking into legislation to allow the savings of EU citizens to "be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis."

Sounds reasonable enough. But why would legislation be needed? It's perfectly legal for people to invest their savings in such ventures now, should they choose to do so.

Let's see what else the EU have to say: They are considering a law "to mobilize more personal pension savings for long-term financing." Mobilise? An odd term to use when discussing privately held savings. It could mean "encourage investment," or it could just as easily mean "confiscate." The former might be okay, but the latter would clearly not.

Let's look a bit further.

The proposal includes the creation of "an EU savings account, open to individuals whose funds could be pooled and invested in small companies… [The EU] is also seeking to revive the securitization market, which pools loans like mortgages into bonds that banks can sell to raise funding for themselves…."

Oops. This is a bit less circumspect. It suggests the creation of bonds to be bought with pension funds, possibly without the permission of the beneficiaries. If so, this proposed legislation seems to be intended to allow banks to unload mortgage debt on those invested in pensions.

The more this proposal is examined, the more it looks like another means to transfer debt from the banks to others.

Recently, the IMF announced that a solution to central banks' woes—a Cyprus-style bail-in that would apply to all EU depositors—is in the planning stages. The banks would appropriate all deposits over €100,000. Would the new proposal further impoverish the people of the EU? At present, they are not saying.

Certainly, there is a difference in the tone of the two announcements. The IMF announcement sounds as though they had been wringing their hands, seeking a solution, then the light suddenly went on. The perfect solution—an EU-wide bail-in.

However, the other announcement, the one from the EU, sounds as though the proposal is just a consideration that they have been mulling over a bit. But, if it's a terrific idea, why is it not presented like the IMF bail-in plan—as a brilliant solution?

Perhaps it is that early last year, the bail-in was tried out in Cyprus as a trial balloon, and it flew. The people of the world accepted it. So to extend it to all of Europe would just be the extension of a great idea that is already entirely acceptable to everyone.

On the other hand, the new proposal does not come with a trial balloon. It's being considered, first time out, to apply to the entire EU. Possibly, this announcement, then, is intended to run the concept up the flagpole as an idea that the EU is musing, to see what reaction it receives.

Again, what they are seeking here is legislation. And yet, everything that they have outlined is legal now, with the one possible exception being that curious word, "mobilise." If, indeed, "mobilise" means "confiscate," the EU most certainly would need legislation, as, presently, it is illegal to confiscate pensioners' savings for such a purpose.

If this is the case, it would appear that what this announcement is really heralding is a bill for legislation that will allow the banks to pool their troublesome mortgages into bonds. The banks could then "sell" the bonds, with payment being taken from private pension accounts. This would take place without the permission of the beneficiaries of those pensions.

If this is so, through the novel use of the word "mobilise," the public might well see this, at present, as just another law by the EU that they need not pay attention to, as it does not directly pertain to them. As such, there would not likely be any major objection from the public prior to its presentation to the EU legislature in Brussels. However, the legislation itself, when proposed, will most certainly contain a term other than "mobilise," and it is hoped that the watchdogs of the EU will be eyeing this particular banana peel closely.

As the details on the proposal are sketchy, we cannot at present be sure one way or the other as to what it is the EU intends. However, governments, both in Europe and across the pond in the US, are becoming increasingly brazen in creating highly destructive and confiscatory legislation. The corridors leading to the legislative chambers are now regularly littered with legislative banana peels, and residents in these jurisdictions should, at this point, be watching very closely, as both their personal freedom and their economic well-being are increasingly threatened by the very governments that were ostensibly created to protect them.

Editor's Note: Unfortunately there’s little any individual can practically do to change the trajectory of this trend in motion. The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation.

This is what Doug Casey’s International Man is all about: helping you cut through the smoke and mirrors while making the most of your personal freedom and financial opportunities around the world. The free IM Communiqué is a great place to start.

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