# Why don't all governments guarantee 100% deposits



## Pommiegranite (6 October 2008)

Surely this would help massively with confidence and in turn liquidity.

Also, on the subject of the so-called strength of Australian banks, isn't it just a matter of time before the detiorating RE market and folding small businesses, lead to huge defaults?

Wouldn't a 100% guarantee of deposits, announced NOW, help limit future damage?


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## gav (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*

Yes but where would the money come from?  Would it just be printed out? (aka US bailout)


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## Pommiegranite (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



gav said:


> Yes but where would the money come from? Would it just be printed out? (aka US bailout)




It's just a guarantee (gamble) to inspire confidence a al Ireland and Germany. 

I personally think it is one of the only moves left to prevent a run on banks on a global scale. No actual printing of money should be required.

Ireland and Germany are leading the way. What I don't understand is why other nations are not acting, or acting in small measures (like the UK)


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## tech/a (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



Pommiegranite said:


> It's just a guarantee (gamble) to inspire confidence a al Ireland and Germany.
> 
> I personally think it is one of the only moves left to prevent a run on banks on a global scale. No actual printing of money should be required.
> 
> Ireland and Germany are leading the way. What I don't understand is why other nations are not acting, or acting in small measures (like the UK)




Simply because we in Australia DONT HAVE the exposure of the eastern block and the US.
We actually have a surplus.
We are NOT running on empty.
We will survive.


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## brty (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*

Seeing that Ireland has done it, rapidly followed by Germany and Greece?, then it wont be long before everyone has to do it as deposits will flow to where they are guaranteed.

The banks that get those deposits will have good capitalisation and by default are in less danger of defaulting 

I'll predict that by the end of this week we will have some type of deposit guarantees here in Australia, to stop a run on deposits, or the currency or both.

From the governments perspective, a run on the banks is economic suicide for the country, so they have to stop it. Deciding to guarantee the deposits, is win-win. Even if they had to make good the guarantee, they can just print the money.

There is no real downside to guaranteeing deposits for the governments (worldwide) in the current turbulent mess, which is why Germany did a backflip less than 24 hours after verbally caning Ireland.

brty


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## sam76 (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



tech/a said:


> Simply because we in Australia DONT HAVE the exposure of the eastern block and the US.
> We actually have a surplus.
> We are NOT running on empty.
> We will survive.




I reckon that's the first positive thing I've read from you in the last month or so there, Tech.


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## Pommiegranite (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



tech/a said:


> *Simply because we in Australia DONT HAVE the exposure of the eastern block and the US*.
> We actually have a surplus.
> We are NOT running on empty.
> We will survive.




I've heard this on the idiotbox time and time again. However, isn't this just because the RE market hasn't collapsed here...........yet?


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## wildkactus (6 October 2008)

But what type of deposits are covered just the mum and dad deposits or all deposits. (company, Inter bank, institutions, government, etc)

if it is just the mum and dad deposits then its just a publicity stunt to keep the mum and dads from rushing the banks.

I think you will find that these deposits only make up a small amount of deposits on hand for most banks.

to stop this rot it will need to be a cover of all deposits.


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## trading_rookie (6 October 2008)

> I'll predict that by the end of this week we will have some type of deposit guarantees here in Australia, to stop a run on deposits, or the currency or both.




No need to predict, months ago Swan came up with the Financial Claims scheme that he's hoping to finalise soon that guarentee's deposits up to $20K.


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## Aussiejeff (6 October 2008)

trading_rookie said:


> No need to predict, months ago Swan came up with the Financial Claims scheme that he's hoping to finalise soon that guarentee's deposits up to $20K.




Too bad if you have $40,000 or more in bank deposits. AFAIK depositors with less than $20,000 only make up less than 10% of all bank deposits? Big deal, then. 

In any case, with what funny money shall Guvmints "guarantee" deposits? Ah, yes, of course - taxpayers money! IF the banks in Ireland start to go down, how broke can the Irish Guvmint afford to go? The UK? Germany??? Oh, I know - they'll start panic selling their piles of gold bullion in a mad rush to "beat the other guys to the sale". 

This is all getting a tad yucky.. smells like *panic* by "Authorities" to me.


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## Aussiejeff (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



tech/a said:


> Simply because we in Australia DONT HAVE the exposure of the eastern block and the US.
> We actually have a surplus.
> We are NOT running on empty.
> We will survive.




UNLESS of course, the Rest Of The World gambles away OUR money on THEIR crappy economies.....

Unfortunately, we are no longer an island nation "immune" to foreign "diseases" by our geographic stroke of luck - the wily Net pretty much has us trapped in a corner.


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## trading_rookie (6 October 2008)

Agree.
_
Any sum of $20K would have to be recovered through the liquidation process, Mr Swan said.

There are unresolved questions about how the FCS including how creditors would be ranked and whether larger depositors would be pushed down the rank of creditors behind smaller depositors._

The banks don't like this 'cause it gives credit unions and building societies the same level of **security** as that of the banks.

I guess we can all be assured that 'historical' info shows that no Aussie bank has failed in more than a 100 yrs...


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## GreatPig (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



tech/a said:


> We will survive.



That's what she thought! 

(an oldie but a goodie)

GP


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## MrBurns (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



tech/a said:


> Simply because we in Australia DONT HAVE the exposure of the eastern block and the US.
> We actually have a surplus.
> We are NOT running on empty.
> We will survive.




Good then it should be no problem to guarantee deposits then should it.


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## trading_rookie (6 October 2008)

Apologies, that should have read;

Any sum* over* $20K would have to be recovered through the liquidation process, Mr Swan said.

instead of

Any sum of $20K would have to be recovered through the liquidation process, Mr Swan said.


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## 2020hindsight (6 October 2008)

peripheral to the thread - but how difficult would it be to control anything to do with banking in the US (extremely surely) 

USA has thousands of banks (7500+), whereas Aus has maybe a dozen (?) (approx) . 



> *The US had by far the most banks (7,540 at end-2005*) and branches (75,000) in the world. The large number of banks in the US is an indicator of its geography and regulatory structure, resulting in a large number of small to medium sized institutions in its banking system. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy had more than 30,000 branches each—more than double the 15,000 branches in the UK.[8]


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## CamKawa (6 October 2008)

Aussiejeff said:


> Too bad if you have $40,000 or more in bank deposits. AFAIK depositors with less than $20,000 only make up less than 10% of all bank deposits? Big deal, then.



I think it's more like 80% of depositors have less than 20 grand.


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## CamKawa (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



brty said:


> I'll predict that by the end of this week we will have some type of deposit guarantees here in Australia, to stop a run on deposits, or the currency or both.



I'd like to see that. Bank customers with large deposits may be looking at moving their money off shore to countries like Germany that have full government backing. 

A relatively small amount of bank customers here in Aus make up the far greater dollar amount of bank deposits. Swan and 747 know that they only have to cover the first 20 grand as that covers about 80% of the depositors. As for the 40+k depositors, well its bad luck for you if your Aussie bank bites the dust. You are in a minority of voters that probably vote Liberal anyway, who cares.


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## tech/a (6 October 2008)

> *who cares*.




Eventually it will be people like yourself who will come to realise that people who have worked far harder than most (The majority of small businesses) and actually employ you and 1000s like you aren't all money grabbing mc scrooges.

The 1000s of people who have worked their butt off for years to put away a nest egg to help with their retirement (Which in 30 or so years wont amount to much anyway).

It will be your Parents/Brother/Sister/Mate.
It will be the exact same people who will roll up their sleeves and start again if they have to to give snivelling cretins the great country we have today and will have tomorrow.

Frankly I care and so do many of us,not for me/us necessarily but our brothers/sisters/85 yr old parents and our employees.
Your about to find that the world owes you nothing and you'll get what youve put into it.Sweet F/A Id say.


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## CamKawa (6 October 2008)

tech/a said:


> Eventually it will be people like yourself who will come to realise that people who have worked far harder than most



I was implying Swan and 747 don't care. I care like fark.


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## doctorj (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



brty said:


> There is no real downside to guaranteeing deposits for the governments (worldwide) in the current turbulent mess, which is why Germany did a backflip less than 24 hours after verbally caning Ireland



I disagree.  

Picture two banks, Bank A has a conservative lending policy, is well hedged, doesn't speculate and therefore only pays a modest interest rate to depositors, has a fairly low ROE and pays a modest, but consistent dividend year after year.

Bank B is happy to have a riskier lending portfolio, regularly speculates on FX and other instruments and pays an interest rate nearly twice that of Bank A.  It's a fast growing bank paying an ever increasing dividend.

Now imagine, the **** hits the fan.  Bank A is safe, being that its risk management policies are strong.  Bank B goes down so the government comes along and bails out all the depositors who then go and find another risky bank to put their money in.

Effectively the government is underwriting the downside for all banks by guaranteeing deposits - doing so will only drive risky lending and speculation and therefore drive more bank failures in the long term.

I agree that the govt should do something, but I think there are better alternatives.


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## tech/a (6 October 2008)

CamKawa said:


> I was implying Swan and 747 don't care. I care like fark.




My apologies.


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## 2020hindsight (6 October 2008)

forgot to post a link to post # 16  
http://en.wikipedia.org/wiki/Banker


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## numbercruncher (6 October 2008)

I support Government guarantees on PERSONAL deposits up to a certain limit  ...

The rest can go down with the ship ....


Thanks for understanding


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## nioka (6 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



doctorj said:


> I disagree.
> 
> Picture two banks, Bank A has a conservative lending policy, is well hedged, doesn't speculate and therefore only pays a modest interest rate to depositors, has a fairly low ROE and pays a modest, but consistent dividend year after year.
> 
> ...



 I agree with you on this matter. What the government needs to do is to make sure the banks are open with their position and that they must be made to maintain a position to be able to guarantee all deposits themselves in some way. If a bank expects to be bailed out they will make loans to anyone, anytime, anywhere.


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## Trembling Hand (6 October 2008)

numbercruncher said:


> I support Government guarantees on PERSONAL deposits up to a certain limit  ...
> 
> The rest can go down with the ship ....
> 
> ...




I hope that was an off the cuff remark because its a bit silly if we do get to that point and start picking out the Mum & Pop accounts against say a biz account.

What happens to the small biz that employ a huge amount of people??

Most would just fall over straight away. You think its bad when a couple of banks on Wall Street and in the City don't trust people. wait till your fruitier doesn't trust your local cafe and your parts supplier doesn't trust each other.Small biz going bust is a very big problem. You lose your job!! You get no more money from now!!! You carn't get a new job because unemployment has just jumped to 25%. You lose your house. And on and on. Oh that's right I remember its called a depression.


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## chops_a_must (6 October 2008)

Trembling Hand said:


> I hope that was an off the cuff remark because its a bit silly if we do get to that point and start picking out the Mum & Pop accounts against say a biz account.
> 
> What happens to the small biz that employ a huge amount of people??
> 
> Most would just fall over straight away. You think its bad when a couple of banks on Wall Street and in the City don't trust people. wait till your fruitier doesn't trust your local cafe and your parts supplier doesn't trust each other.Small biz going bust is a very big problem. You lose your job!! You get no more money from now!!! You carn't get a new job because unemployment has just jumped to 25%. You lose your house. And on and on. Oh that's right I remember its called a depression.



Add to that it's illegal to pay people in cash, so if your employees don't want to be paid into a bank account, and can't be paid from yours, you can't pay them.


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## nunthewiser (6 October 2008)

chops_a_must said:


> Add to that it's illegal to pay people in cash, so if your employees don't want to be paid into a bank account, and can't be paid from yours, you can't pay them.




WTF re paying in cash ???? when did this become illegal ?

sincere question


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## wildkactus (7 October 2008)

nunthewiser said:


> WTF re paying in cash ???? when did this become illegal ?
> 
> sincere question




I am with you here, 
I pay some employee's, like this all the time, as far as I know as long as it's recorded correctly, you can pay the employee how they wish to receive it.
Most like straight to their account but we have a couple that like cash on pay day.


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## chops_a_must (7 October 2008)

wildkactus said:


> I am with you here,
> I pay some employee's, like this all the time, as far as I know as long as it's recorded correctly, you can pay the employee how they wish to receive it.
> Most like straight to their account but we have a couple that like cash on pay day.



Is that correct is it?

I was told it wasn't possible...


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## mayk (7 October 2008)

> German Government's Guarantee on Deposits `Political' (Update1)
> 
> By Brian Parkin
> 
> Oct. 6 (Bloomberg) -- Germany's guarantee of bank deposits held by private savers is a ``political'' step meant to boost confidence in the banking system, the government said, ruling out any parliamentary moves to back up the pledge in law.





What kind of guarantee is that if that is not covered by law, it will be a joke to say the least.


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## wildkactus (7 October 2008)

chops_a_must said:


> Is that correct is it?
> 
> I was told it wasn't possible...




Chops, I don't know if its correct but that's what I have been doing.

we have had audits and nothing has been said.

As long as it is all correctly reported ie. the right forms have been filled in, tax taken out etc, i don't think they can stop you.

the old under the counter payments are all but stopped, are these what you meant.


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## Smurf1976 (7 October 2008)

*Re: Why don't all goverments guarantee 100% deposits*



brty said:


> Even if they had to make good the guarantee, they can just print the money.
> 
> There is no real downside to guaranteeing deposits...



If the money has to be printed to make good the guarantee then you've effectively lost your deposit anyway. Sure, you'll still have the nominal Dollars in the account, but they won't buy you much after all that money printing.

Lose either way.


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## Prospector (7 October 2008)

Is it too simplistic a thing to say that it is the 'financially challenged' people who have brought the US to its knees, along with the greedy jerks who signed up people who should never have had a mortgage, just so they get their commissions?

Who needs terrorists!  I have always thought that the US would be brought down by the enemy within!  Maybe I was right.

I had read that only personal accounts were covered; I am thinking of moving our company money into our personal accounts.  Wont save the Super Fund account though.

Our banks are safe.


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## CamKawa (12 October 2008)

Just saw 747 on TV where he said that he will guarantee all deposits of any size in Australian banks for the next 3 years which is great news. The question now is where does that leave credit union depositors?


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## Prospector (12 October 2008)

CamKawa said:


> Just saw 747 on TV where he said that he will guarantee all deposits of any size in Australian banks for the next 3 years which is great news. The question now is where does that leave credit union depositors?




He also said all credit unions and Building societies


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## IFocus (12 October 2008)

Prospector said:


> He also said all credit unions and Building societies




Hmmm I wonder how many times our GDP that is............still its all about instilling confidence hope it works.


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## xyzedarteerf (12 October 2008)

CamKawa said:


> Just saw 747 on TV where he said that he will guarantee all deposits of any size in Australian banks for the next 3 years which is great news. The question now is where does that leave credit union depositors?




i kinda wish they had that worm they use in election going...he looked pretty spooked to me even the tone in his voice lacked confidence. 
not good at all more financial shyt storm ahead definitely


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## chops_a_must (12 October 2008)

It would have made more sense to me to guarantee deposits for a certain amount of time, but mandate that banks be able to guarantee in their own mechanisms, and as a part of new regulation, that they are able to guarantee deposits up to a certain amount - say 20K.


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## Ageo (12 October 2008)

chops_a_must said:


> Add to that it's illegal to pay people in cash, so if your employees don't want to be paid into a bank account, and can't be paid from yours, you can't pay them.




lol who told you that? you can pay them in cow dung if they accept it  money is money no matter how you transfer it.


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## chops_a_must (12 October 2008)

Ageo said:


> lol who told you that? you can pay them in cow dung if they accept it  money is money no matter how you transfer it.




It was an ATO official actually.

We had a class full of dead heads, so I'm guessing he didn't want to get into it...


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## Ageo (12 October 2008)

chops_a_must said:


> It was an ATO official actually.
> 
> We had a class full of dead heads, so I'm guessing he didn't want to get into it...




lol what an idiot........ declaring it on your books is obviously compulsary so wether you pay your employee's via Bank transfer or cash is irrelevant. What about people that dont use Chq books and have no idea on using the internet or phone for transfers?


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## Julia (12 October 2008)

chops_a_must said:


> It would have made more sense to me to guarantee deposits for a certain amount of time, but mandate that banks be able to guarantee in their own mechanisms, and as a part of new regulation, that they are able to guarantee deposits up to a certain amount - say 20K.



Chops, the banks don't get it all their own way under this new announcement.
As I understand what Mr Rudd said, the banks will be required to engage in insurance policies to underwrite this guarantee of deposits.  The detail will be interesting and hopefully will be available in the next day or two.


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## skyQuake (12 October 2008)

Would be interesting to see how the currencies and markets react... I suppose AUD should rally hard on that... 
A possible side effect is that people may dump assets and throw money into the banks' "safe havens." Might even be worth keeping an eye on how bonds react to this.


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## chops_a_must (12 October 2008)

Julia said:


> Chops, the banks don't get it all their own way under this new announcement.
> As I understand what Mr Rudd said, the banks will be required to engage in insurance policies to underwrite this guarantee of deposits.  The detail will be interesting and hopefully will be available in the next day or two.



Well... there you go.

Sounds like it has been considered and acted upon correctly and thoroughly.

Thumbs up.


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## chops_a_must (12 October 2008)

skyQuake said:


> Would be interesting to see how the currencies and markets react... I suppose AUD should rally hard on that...
> A possible side effect is that people may dump assets and throw money into the banks' "safe havens." Might even be worth keeping an eye on how bonds react to this.



Chance of a massive rally in the bond market? I assume it's been going alright as it is...


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## skyQuake (12 October 2008)

chops_a_must said:


> Chance of a massive rally in the bond market? I assume it's been going alright as it is...




Slow goings compared to the equity markets :
Think people may dump bonds in favor of bank deposits. Especially interesting to see how the 3yr bonds are gonna react. (probably how it normally reacts to any earth shattering news: move up 2 tics, down 3 tics then back up a tic)


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## chops_a_must (12 October 2008)

skyQuake said:


> Slow goings compared to the equity markets :
> Think people may dump bonds in favor of bank deposits. Especially interesting to see how the 3yr bonds are gonna react. (probably how it normally reacts to any earth shattering news: move up 2 tics, down 3 tics then back up a tic)



Lol.

Well, it depends what they reckon IR will do as well I guess.


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## brty (13 October 2008)

Oct 6th,



> I'll predict that by the end of this week we will have some type of deposit guarantees here in Australia, to stop a run on deposits, or the currency or both.




Now that most countries have done it, the real question is what's next?
As this first bit of co-operation seems to be placing a floor under the market, the next elephant needs to be shot, that being OTC derivatives.

I expect some type of wide spread legislation making them all come under some type of exchange controls, with existing ones to be compulsorily unwound/cancelled against each other. Might take a bit longer than guaranteeing bank deposits.

brty


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## Ageo (14 October 2008)

Ok to go back to this question then:

if governments gaurantee all deposits and the government gets its excess money from the Reserve bank, and the banks only have so much in deposits to give out to people if citizens do a run then what happens if their was major run on the banks? if banks cant afford it, how does the government do so? Isnt the government saying we are just going to borrow more money from the Reserve if we need to which means the debt levels would increase along with money supply? inflation would go through the roof? 

Was the call for gauranteeing all deposits just a political call for calm? (basically a bull**** lie to keep the cattle at bay?)

Im interested to see where this is all gonna end up, i mean you just cant keep printing money, and saying everything's gonna be alright.....


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