LEAKED: Mario Draghi And His Triumvirate Shut Up German Finance Minister To Keep Cyprus From Blowing Up The Eurozone

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

The state-sponsored chorus about the end of the debt crisis in the Eurozone has been deafening. It even has feel-good metrics: the Euro Breakup Index for January fell to 17.2%—the percentage of investors who thought that at least one country would leave the Eurozone within twelve months. In July, it stood at 73%. For Cyprus, the fifth Eurozone country to ask for a bailout, the index fell to 7.5%. “A euro breakup is almost no issue anymore among investors,” the statement said.

Just then, in a fight over whether or not to bail out Cyprus, top Eurocrats exposed what a taxpayer-funded con game they thought these bailouts really were—and how fragile the Eurozone was.

A debate has been raging in Germany about Cyprus. Not that the German parliament, which has a say in this, wouldn’t rubberstamp an eventual bailout, as it rubberstamped others before, but right now they’re not in the mood. Cyprus is too much of a mess. Bailing out uninsured depositors of Cypriot banks would set a costly precedent for other countries. And bailing out Russian “black money,” which makes up a large portion of the deposits, would be, well, distasteful in Germany, a few months before the federal elections.

For the tiny country whose economy is barely a rounding error in the Eurozone, it would be an enormous bailout. At €17.5 billion, it would amount to about 100% of GDP: €10 billion for the banks, €6 billion for holders of existing debt, and €1.5 billion to cover budget deficits through 2016. The new debt, a €2.5 billion loan that Russia extended in 2011, and other debt would amount to 150% of GDP, according to Moody’s. Unsustainable. So haircuts would be necessary. But whose hair would be cut?

As always, there is never an alternative to a bailout. “It’s essential that everybody realizes that a disorderly default of Cyprus could lead to an exit of Cyprus from the Eurozone,” said Olli Rehn, European Commissioner for Economic and Monetary Affairs. “It would be extremely stupid to take any risk of that nature.”

A risk German Finance Minister Wolfgang Schäuble would be willing to take. He’d been saying publicly that it wasn’t certain yet that a default would put the Eurozone at risk—”one of the requirements that any bailout money can flow at all,” he said. Cyprus simply wasn’t “systemically important.” In fact, there were alternatives.

Heretic words. He needed to be shut up, apparently. And that happened at the meeting of Eurozone finance ministers a week ago, details of which sources just leaked to the Spiegel.

The meeting was marked by the transfer of the Eurogroup presidency from Jean-Claude Juncker to the new guy, Dutch Finance Minister Jeroen Dijsselbloem. Cyprus was also on the agenda, but not much was accomplished, other than an agreement to delay the bailout decision until after the Cypriot general elections in February. The government has resisted certain bailout conditions, such as the privatization of state-owned enterprises and the elimination of cost-of-living adjustments for salaries. Now, everyone wanted to deal with the new government.

But what didn’t make it into the press release was that ECB President Mario Draghi, bailout-fund tsar Klaus Regling, and Olli Rehn, all three unelected officials, had formed a triumvirate to gang up on Schäuble.

That Cyprus wasn’t “systemically important” was something he kept hearing everywhere from lawyers, Draghi told Schäuble at the meeting. But it wasn’t a question that can be answered by lawyers, he said. It was a topic for economists.

A resounding put-down: Schäuble, a lawyer by training—not an economist—wasn’t competent to speak on the issue and should therefore shut up!

The two largest Cypriot banks had an extensive network of branches in Greece, the triumvirate argued. If deposits at these branches weren’t considered safe, Greek depositors would be plunged again into uncertainty, which could then infect Greek banks and cause a serious relapse in Greece.  

If Cyprus went bust, they contended, it would annihilate the flow of positive news that has been responsible recently for calming down the Eurozone.

For weeks, all signs have pointed towards an improvement, they argued. Risk premiums for Spanish and Italian government debt have dropped significantly, and balances between central banks, which had risen to dangerous levels, have been edging down. If the money spigot were turned off, this recovery could reverse, they argued. Contagion would spread and could jeopardize Ireland’s and Portugal’s return to the financial markets.

Further, Cyprus was carrying its portion of the bailout funds and therefore had a right to its own bailout—a legal argument even a mere lawyer should be able to grasp.

And so, letting tiny Cyprus default could tear up the rest of the Eurozone, they argued—saying essentially that bailouts were a delicate con game, and that Schäuble, by digging in his heels, was blowing it up.

It made for another bitter Eurozone irony: the democratically elected finance minister of a country whose taxpayers have to pay more than any other for the bailouts got shut down by unelected Eurocrats who, in a continued power grab, postulated that Cypriot banks, their bondholders, their depositors, even their uninsured depositors, even Russian “black money” depositors had a “right” to the German money (and anyone else’s). And if Schäuble refused, it would blow up the entire Eurozone. Schäuble’s response hasn’t bubbled to the surface yet. And bailout queen Chancellor Merkel, who is trying to avoid tumult ahead of her elections, has a new headache. Read...  Russian “Black Money” Threatens To Boot Cyprus Out Of The Eurozone.

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ebworthen's picture

Choosing between Lawyers and Economists to fix Cyprus and the Eurozone?


Oh boy, are they screwed!

THE DORK OF CORK's picture

France spends too much Greek money on its sexy high speed lines while leaving its old stations / rail lines to rot...........




Closed 1983 in a town with a population of 10,000 +





Sandmann's picture

Straightforward Mafia Shakedown as you get with Assad in Syria, Hussein in Iraq or whoever Africa's billionairess in Angola is related to

SmoothCoolSmoke's picture

Time since Euro Zone was first gonna blow -up:  3 years :  6 months : 9 days : 14 hrs : 8 min:  23, 24, 25, 26 secs.

But I'm sure Cyprus is the real fuse.  Yeah, right.


flacorps's picture

The Cyprus situation is a cheap place to apply a couple of stitches. The problem is that the fabric is threadbare across much of Europe, particularly in the PIIGS countries, but France is showing the strain as well.

If the slow crumble continues, they might actually succeed in boiling the frog that is Europe's disaffected youth--they would live out their lives bounded in shallows and miseries ... but history shows that there is usually a spark somewhere that will bring matters to a head.

From Germany With Love's picture

The current state of the German discussion is very well summarized here (unfortunately it's in German):

Google translate:

Best summary comes from FDP member Frank Schäffler (translation mine):
"Cyprus is a chip-shop compared to Greece." Mind you, that is the guy who more or less predicted correctly that the ECB would eventually take up old bikes as collateral. If only, if only...

Anyway, the current state is that the German establishment is publically highly skeptical. We know how this is going to end though: they'll cave in after much pretense of resistance. Personally, I'd like to see a tsundere Schäuble and Merkel by williambanzai7....

SAT 800's picture

What's really unfortunate is that they don't let the German People vote on this issue directly. This respresentative government "business" has a problem; it has representatives alright; but who do they represent? The idea of letting Cyprus play with Euros, a currency used by fairly serious people in real countries is obviously crazy.

shovelhead's picture

Comforting to know that there's an Arch Duke and a Serbian nationalist out in Euro-land just itching to get together and get the party started.

Because once shit happens...it sometimes takes on a life of it's own and gets shittier real fast.

Ball to Germany now.

Bail the fail or go third rail?

SAT 800's picture

Telegraphic response to Cyprus Banks; "eat shit and choke". end. Someone needs to be made an example of; instead of continuing this on-going BS. that increases the "moral hazard"; the belief in guarantees from "somewhere else". Will someone please study the example of Iceland, Please?

Herkimer Jerkimer's picture






I was just thinking about the ol' Arch Duke moment, that nobody figured would have much of an influence on anything.

That didn't work out so well.

We won't see it coming. It'll come out of nowhere, off to the side. It's influence will be dismissed, until it can't be controlled. Some innocuous event will explode beyond what anyone expected.

It's never the hand you see, it's the one you don't.

"Crisis takes a much longer time coming than you think, and then it happens much faster than you have thought." MIT economist Rudiger Dornbusch




NotApplicable's picture

You seem to think history is all one big accident.

Which part of the equation "government = mafia" is so hard to understand?

When the world is primed to explode, the idea that the activation energy it took to blow it up wasn't intentionally applied by proxy? Well, that's being naive.

Mandates for collectivist action are always created behind the scenes. FDR for instance, not only made Pearl Harbor a giant setup, he quickly went to work deflecting the blame onto the innocent commanders in the field who were not given any information from DC.

Casus belli.

MFLTucson's picture

The Eurozone is fixed and the American recovery is underway.  The two biggest lies puptrated by the global banking fraud to cover their own asses because when this eventually goes, they will be held reponsible.  Even though Eric Holder has given them a pass, the American people will not.

rsnoble's picture

Anything to stay in power.  Even if it puts humans into monkey-living living and survival conditions.

It will blow sky high, WW3 will probably be the end result. There is no fixing these massive fuck ups.

dcb's picture

I think your analysis is flawed. each country needs to have a bailout, because they can't afford to allow a country that didn't have a bailout to do OK. if cyprus didn't cause masive probles, then folks would thihnk about other countries and the entire false premise they use to keep bailing out private rich folks fails. THAT the real reason.

Imagine another success like iceland. if folks know the best path to success is to over throw the bankers, the system is done for.

apberusdisvet's picture

In the ICU that is the Eurozone, the economy is on a propaganda and disinformation drip, with psychopaths attending the patient.  Flatline in 5....4....3...

SAT 800's picture

Perfect; I could never say it as well. I'd give you half a dozen thumbs up if I could. The population is on a propaganda and dis-information drip. And yet; no one dares to allow a public plebiscite; a direct vote of the population; in Germany, for instance. I thought that's what Democracy meant? Apparently not.

THE DORK OF CORK's picture

New Van sales data is a almost foolproof view of domestic economic activity.



something major seems to be happening to the French van market – its much bigger then the German market given France has a tradition of heavy van use for farming and other delivery activities in a economy with much more internal activity then mercantile Germany,

French van reg Y2007 :460,570
reg Y2008 : 458,956
Y2009 : 372,592 (first major fall)
Y2010 : 415,449 (recovery)
Y2011 : 426,654
Y2012 : 381,233 (second fall)

Also Germany is showing weakness in this sector – especially near the end of the year with a -13.1% drop in November & -24.3% drop in December.
Y2007 :221,540
Y2008 :223,234
Y2009 :169,376
Y2010 :196,533
Y2011: 233,442
Y2012 : 219,422.

The fact that Germany only consumed half ~ the vans of smaller France highlights the still major differences between these 2 euro economies.




Jan to December reg is also showing weakness in the UK (-7.9%) with a greater fall near the end of the year.
Something major is happening in non Euro Sweden also with regs down -15.2% this year and -28.9% in December.


Portugal ,Greece & Cyprus is again out there man
With yearly declines of -52.2% , -41.7% & -46.9% from a already very low 2011 base.




JungleJim's picture

I think we need to arm every good German citizen with a MG-42, Kar-98 with optics, MP-38, 25K rounds, P-38, then we'll see how this little experiment in european socialism goes.

falak pema's picture

If tiny Cyprus can blow up the Euro banks...wow, wow, wow!

SAT 800's picture

Dude; the Euro Banking system is insolvent; it gets by on the faith and credulity of the citizens; which is basically mistaken due to the wonders of modern "consensus manufacturing". Cyprus has to go away quietly; very quietly; a fart could blow up the Euro Banking System. Their Big Banks make Bank of America look like a storm proof bastion of believable reserve values; a veritable monolith of stability and probity. I assume you know that BAC is basically bankrupt.

BerCrank Call's picture

I believe there's a valid point here: "Lawyers -- who wrote the rules that underpin the financial system -- aren't allowed to opine about systemic importance, only economists -- who ignore the rules except to game the system -- really know how the game is played, so shut up 'cause clearly you can't even tell when you're losing..."  Hell yeah, I'd trust those folks any day. 

q99x2's picture

Ring fence the green shoots. 

WTFUD's picture

" see all these other curious people ready to throw in the towel . . and go home. . . "

Orly you really make it sound like that people other than traders themselves could give a flying rats ass who effs of home. If i undertook real work like say a farmer, i'd be miffed ( more than that) and feel i did not have the luxury off pissing off with my ball and be subject to vultures living off my sweat. nothing personal just sayin!

Orly's picture

No offense taken.

All I mean to say is that if we get discouraged, then we're not so vigilant and if we're not watching, then no one anywhere is going to call anyone on anything...

No one in officialdom has but ZeroHedge has on these guys like white on rice.  Commentary here reflected that commentary in the New York Times financial blogs had references to ZH and a lot of people crowing about these banksters.  The NYT, bastion of liberalism with a former belief that the banks could "save us."

The news is spreading, it's getting out there.  More and more people every day are waking up.  If we get discouraged and basically quit, then what good is it to anyone? 

SAT 800's picture

Orly! You can short the Euro now; really !  I won't move the football this time Charlie Brown. No, seriously, I think; the probability is very much in favor of reversion to the mean for the EUR/USD pair; enough of this mass hysteria of "the problems solved"; which is in the current price. Just went short June from 135.04; twice. Now you can laugh when I choke on this. Or you might want to consider the trade; a major Danish BAnk says; reversion to the mean is the expected behaviour; ie. the rubber band is stretched far enough now. ??

Stuntgirl's picture

I completely agree with you here.

I am currently in Spain, and proper reporting is pretty much limited to very underground venues. In the past few months, I have observed that Zero Hedge material is increasingly mentioned and translated.

Information is the most valuable asset anyone can have.

SAT 800's picture

Que le vaya bien, Chica!  ---dicho---"porque tengas prisa; vamos a la misma; a ser interrado."---

sodbuster's picture

Tick, tick, tick, tick, tick..................................

Spectre's picture

Cyprus may never make the headlines, but it well could be the little firecracker that will set off the  "Spain - France - Italian" super megaton TriFecta.  Should be worth watching all of the dominoes fall down.

anonnn's picture

"A resounding put-down: Schäuble, a lawyer by training—not an economist—wasn’t competent to speak on the issue and should therefore shut up!"

Perhaps Albert Einstein could contribute here:

"Is it advisable for one who is not an expert on economic and social issues to express views on the subject of socialism? I believe for a number of reasons that it is.

Let us first consider the question from the point of view of scientific knowledge. It might appear that there are no essential methodological differences between astronomy and economics: scientists in both fields attempt to discover laws of general acceptability for a circumscribed group of phenomena in order to make the interconnection of these phenomena as clearly understandable as possible. But in reality such methodological differences do exist.

 The discovery of general laws in the field of economics is made difficult by the circumstance that observed economic phenomena are often affected by many factors which are very hard to evaluate separately. In addition, the experience which has accumulated since the beginning of the so-called civilized period of human history has—as is well known—been largely influenced and limited by causes which are by no means exclusively economic in nature.

For example, most of the major states of history owed their existence to conquest. The conquering peoples established themselves, legally and economically, as the privileged class of the conquered country. They seized for themselves a monopoly of the land ownership and appointed a priesthood from among their own ranks. The priests, in control of education, made the class division of society into a permanent institution and created a system of values by which the people were thenceforth, to a large extent unconsciously, guided in their social behavior.

But historic tradition is, so to speak, of yesterday; nowhere have we really overcome what Thorstein Veblen called "the predatory phase" of human development. The observable economic facts belong to that phase and even such laws as we can derive from them are not applicable to other phases. Since the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development, economic science in its present state can throw little light on the socialist society of the future.

Second, socialism is directed towards a social-ethical end. Science, however, cannot create ends and, even less, instill them in human beings; science, at most, can supply the means by which to attain certain ends. But the ends themselves are conceived by personalities with lofty ethical ideals and—if these ends are not stillborn, but vital and vigorous—are adopted and carried forward by those many human beings who, half unconsciously, determine the slow evolution of society.

For these reasons, we should be on our guard not to overestimate science and scientific methods when it is a question of human problems; and we should not assume that experts are the only ones who have a right to express themselves on questions affecting the organization of society. "

Quote from Einstein's Why Socialism. A pretty good read.

monad's picture

Good words. Yet this man gave the superstitious predators access to energy they could not have obtained on their own. Surely he anticipated this most probable outcome. What a bastard. Short him.

anonnn's picture

Thanks for noting E's unintended benefit to the predators [re"the predatory phase" of human development].

 In Ernest Sternglass' account of his discussions with E at Princeton [Sternglass as a 20-something scientist  and later distinguished inventor at Westinghouse and NASA who from the 1970s has warned of radioactive-fallout dangers], noted that E remarked that the worst mistake of his life was his involvement via the Pres Roosevelt/Szilard meeting that led to the Manhattan Project.

But note that Szilard already secretly held the patent since 1936, sequestered at the British Admiralty, on nuclear fission/explosion via chain-reaction of neutrons. The Germans pre-WW2 knew of the potential since the first fission was demonstrated in Otto Hahn's lab and recognized by Lise Meitner [and Strassman] who fled to England with the news in 1938.

The recollections of Sternglass can be found on YouTube. He still very active in educating public on the dangers from fallout. BTW, he was instrumental in getting the 1963 atmospheric Nuclear Test Ban Treaty.

monad's picture

Yep, those wiley krauts he grew up with & worked with deceived him every day of his life for 30 years. Then he came over here and worked with the same krauts on the same stuff for another 15. Poor innocent Al.

NotApplicable's picture

Sometimes specialization sucks. It's a wonder that a man can find insight into the nature of the universe, yet fail to understand basic human nature, instead relying upon his own irrational fear of collectivist puppets to create absolute evil in order for them to defeat the Wall St. manufactured evil.



tony bonn's picture

germany will fold just like a good republican....the euronazis are back

20834A's picture

You gentlemen are what I come to zerohedge for. Thank you for your thought-provoking, measured discourse.

20834A's picture

And thank you, Mr. Richter, for always pulling back the curtain in Oz.

fonzannoon's picture

This is the part I just guess I will never grasp ..

"I suppose what bothers me is I see all these other curious people ready to throw in the towel, take their ball and go home. I wish I could have everyone understand that this is the single-most difficult time in human history to be trading or investing in anything."

I would substitue dangerous for difficult. Taking your ball and going home vs staying and playing in a casino that is completely and totally rigged and you have one hand behind your back may not be the worst thing.

"That way, when everyting is as calm as an Ohio lake, we'll be so been-there-done-that, we could trade in our sleep."

That seems to imply that this is cyclical. I think it is structural. So I don't think we see markets ever return to normal. I think as more people take their ball and go home, they rig it even more to empty the wallets of those that are left.

Maybe I am wrong. More importantly I meant what I said with deference and respect. I have better things to do than just break your balls and waste both our time.



Stuntgirl's picture

I am one of those people who took their ball home.

I cannot play in this field. I think I am much younger than the average commenter here, but I read all your forecasts and reasoning, and very much appreciate anyone willing to actually say what they think is going on. Comments like "Fuck (insert official)" don't help so much.

That said, after some market moves spookier than I saw in 2008-9, I quit and started using a demo account to test my own ideas and those of the people here.

My conclusion is that I cannot play this at all, outside of IBEX.

I hope Orly is correct and eventually, we weill once again have a market.

SAT 800's picture

Who told you to trade in the stock market? there are a lot of major markets. Learn something about commodities futres; that's where the money is; none of the markets is either more nor less "rigged" than it ever was; in most cases less. Typically, this is a sour grapes excuse for people who didn't know how to trade. I don't have any trouble making money in the futures market and neither will you; you just need a few simple ideas. If the price is too high, and the mass of speculators has finished their work; short it. If the price is too low, and the speculators are all discouraged and sold out; buy it. don;'t try to trend follow; pick tops and bottoms. let your profits run; don;t pretend to know where the market is going; if it moves favorablly; leave it alone; you may be pleasantly surprised. Sometimes futures trades stay on for three months. All the individual markets are different; there;s a lot of information available; you can educate yourself. Both the LIve Cattle and Feeder Cattle Markets offer repeatable opportunities; you spend most of your time waiting and watching the day charts; say, a half hour a day to cover the markets you're tracking. Eventually you'll see some price action that goes too far; a corn rally that overshoots; Live Cattle prices at levels where they aren't going to be sold in August; ridiculous prices; then you go against the market.  Always use a stop loss order and never read the news or any commentary; it's all bullshit. just look at the day-bar charts and the open interest and volume; nothing else. Easy-peasy.

rhinoblitzing's picture

Refco, PFG, MFG, Corzine, .. Futures is Easy- peasy...? Whatchu selling?

 Madoff should have never had a conscience, Only one to go to jail, and he turned himself in.


LawsofPhysics's picture

I have been buying physical assets (many revenue generating for 20+ years).  With every dismantling of the laws that came out of the great depression I have moved away from paper bullshit and more toward all things physical.  I have done this for one simply reason, common sense.  As a farmer by trade, I know that there are real inputs in the real market and when fraud becomes the status quo business model, possession becomes the law.  Of course my grandfather survived a great depression and two world wars and I began my career with his poultry business.

Ultimately, all these paper-pushers provide nothing of real value, yet they own congress and are trying to make all theft legal.  If they could, they would have an entirely cashless society where they coukd steal at will with "the click of a button".  Unfortunately they are closer than most know.  Should bitcoin become super popular, then it will confirm that the state was behind it all along.  At this point in the game, nothing is happening without prior approval.

SAT 800's picture

My Grandfather survived two World Wars and the depression also; and did just fine during the depression. I'm not going to argue with you. a little paper pushing now and then can produce some "gains" which can then be saved in Silver; you have to feel bad for people who think they have dollar denominated long term savings, or "plans".

fonzannoon's picture

Laws, check out whiteshadowmovement's comment below. What is your take?

LawsofPhysics's picture

Digital has always been the plan.  And such things would be great if there was a solid rule of law.  Already I am dealing with some delivery issues.  I have real inputs, the problems come when my digital payment has been made and nothing gets delivered.

Admittedly, most of what mankind does is not sustainable, but it is my humble opinion that there is really only two major questions that need to be addressed.  1) what is the population limit that our current resources can sustain with a decent quality of life and 2) everyone needs to be compensated in accordance with the real value of their labor.

Pushing fucking paper, has no real value yet the compensation is tremendous.  A free market (be it black or otherwise) will fix this. 

Whiteshadowmovement's picture

1. Much, much more than you would ever expect. I moved to Africa to be on the verge of the last great frontier. Let me tell you that Africa alone could COMFORTABLY house, feed, and provide for every single person on this planet (provided it were developed correctly of course, which I guarantee you it will be). Most of Russia will eventually become e worlds largest cattle ranch. We are a long way off from peak-anything and I know this may sound naive, but I think we have only scratched the surface of technological efficiency in commodity production. Want to see a fantastic film- being that you are a farmer I cant imagine you wont be stunned:


2. This is a lovely sentiment, but you forget that for a vast majority of workers, especially in the service economy, the true value of their output is absolutely nothing (att call center reps., starbucks baristas). Because as we see soaring amounts of people on welfare in OECD countries and a massive division between high-wage intellectual jobs and low-wage menial temp jobs, the real question that sort of impedes growth is: what is there for all these people to do? Its more than clear that many of these people are never going back into the workforce because it has evolved faster than them. The idea of the workforce itself is something of an anachronism now. The industrial revolution pushed all these people from the fields into the factories and then once the information age began, productivity meant that we didn't need these people in the factories anymore either thanks to relentless automation, tech improvements and unyielding productivity gains, exactly the same thing that happened in agriculture before that. So as an interim solution to this we created the BS known as 'the service economy' to absorb all these people from factory work, to try to make some use of them in the information age. Thus the generation that succeeded auto and steel workers became starbucks baristas, subway sandwhich artists, ATT call center reps, telemarketers, wealth managers, etc. In a way we all knew that this was a bullshit solution from the start but it was better than nothing and since those service sectors were able to expand so quickly in the early days of the last 20 years, that there was more than enough excess capacity to absorb all these redundant workers that no longer had manufacturing to do, at some small cost to the bottom line but happily underwritten by the Fed. Now we really don't need them in the service economy anymore either (and we never really did) and so now we are in a difficult spot of staring the problem in the face that automation means changing work demographics.

SAT 800's picture

You moved to Africa? I can hardly stop laughing long enough to type. Africa; the continent sized disaster; where nothing works for more than five minutes and political and economic rationality are just dream like concepts no one has ever seen and has no idea how to bring about. Hilarious.

Whiteshadowmovement's picture

Lol man that is the best post, I have been waiting for someone to come and make this asinine remark.

This really illustrates why the Feds behavioral finance tactic works so well, guys like you will believe anythign without questioning it.. Ever been to Africa to see it for yourself? Of course not.

Just for a look, see what my corner of Africa is like:





But sure, you're right, its a 3rd world hellhole and the bane of my existence here is all the lions I have to shoot in the backyard...