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Two Sides of Cyprus
Let me first (try to) give you a justification for the seizure of bank deposits in Cyprus.
Everybody who knows any thing about Cyprus also knows that the domestic banks were a parking lot for Russian hot money. I wrote about this back in 2011 (Link). There are a gazillion other articles saying the same thing.
That being the case, the seizure of some of the black Russian money as part of a bailout for Cyprus is not really a surprise. With dirty money flowing in, the stupid banks in Cyprus used the deposits to buy crappy assets like the sovereign bonds of Greece. To a significant extent, the hot money caused the problem – and therefore the E5.8b ($7.5b) hit to depositors is justified.
The folks in Berlin, Brussels and Paris all understood that Cyprus was a Russian front. To bailout Cyprus is one thing, but to bail out Russian Oligarchs is quite another. What else could the Euro Deciders do?
I struggle to come up with a valid comparison for what has happened in Cyprus. Think what the backlash would be if somehow the FDIC/Federal Reserve were forced to step in to bailout an entity that was a depository for the Mexican drug lords. If faced with a similar situation, America would do the same as the EU. Screw the hot money crowd.
And now the other side. This is a huge development, a potential game changer. If the seizure of accounts had happened in Greece (or the other PIGS) the European Monetary Union, as we know it today, would not exist. The EU would have imploded within months. This outcome would have resulted in some form of Euro break up, and a return to national currencies. That scenario has broad global implications.
The decision to clip depositors was not taken lightly. The ECB, and all the other Finance ministers contributed to the decision to take the depositors money. While making that decision, they had to have considered the consequences. Certainly there was recognition that this was an unprecedented step, and that it was extraordinarily hostile to bank depositors.
How are markets going to react to this? Will people care if some Russian money was stolen? Will they conclude that this was a unique event, and the depositors in Italy, Spain and France will never face the same losses that depositors in Cyprus have realized?
Given the significance of what has happened it would be logical to assume that a huge safe-haven trade could be the market’s response. If the Cyprus seizure had happened a year ago, the market would have reacted with:
- The Euro trades cheap against all crosses.
- The Yen strengthens against the Euro and the dollar.
-European bond spreads widen. Money moves to Germany, while Spanish and Italian bonds get crushed.
-The EURCHF comes under attack. The Swiss national Bank floor of 1.2000 is tested, and the SNB is forced to intervene to maintain the peg.
-US bonds trade rich.
-Money moves to the UK (where banks are ‘safe’) and Sterling strengthens.
-Money moves to gold, and other PMs.
-Stocks would take a beating globally.
While all of those things might have happened a year ago, I’m not sure that is the case today. As of Friday, the markets hated gold/PMs, Sterling, the Yen against everything (including the Euro), the EURCHF, US bonds and everyone loved stocks.
Is it possible that everything that was in the market on Friday is going to be reversed? I would think not, but these are very unusual circumstances. Nothing like the seizure of depositor’s money has ever happened before, so we are on uncharted ground.
Given the fact that the EU deciders were well aware of the potential consequences to financial stability within the EU, I wonder if some additional “market friendly” steps might be in the offing. (There must be a plan 'B" in place - that or the guys pulling the strings are idiots.)
Because of the Russian money angle, the step to seize deposits might be glossed over. On the other hand, there is a great risk that what has happened is a turning point in modern finance. I’m not aware of any precedent for what has occurred. I say again, if this had happened in any other country in Europe – the monetary union would be dead within months. That possibility still exists, even though it was just crooked Russian money that was stolen. We shall see the market’s reaction in a matter of hours – I can’t wait.
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By the way Bruce, the IMF found that Cyprus banks were substantially in compliance and not laundering money.
http://www.spiegel.de/international/europe/imf-and-europe-disagreement-c...
The hot money was not the problem - it was the pretext for taking the action in Cyprus first as a test case. The assets and investments irresponsibly made with the hot money created the dilemma and the only sacrosanct group are the bondholders and shareholders of the banks
WalStreetPro has relocated to London to work as a cabbie.
Extreme profanity warning.
MUST SEE: The Great Cyprus Bank RobberyPerhaps someone who, unlike the author of this piece of shit, isn't clearly tripping balls, might explain how stealing from people who deposit earnings in a fucking bank in any way shape or form is justified.
Depositors don't own these banks you fucking retard. The government (such as it is) of Cyprus owns a chunk of each of them.
Same as everywhere else, politicans and bureaucrats should be swinging in the breeze for this shit.
And as others have noted above, this has destroyed overnight the russian legitimate commodity sales for oil and gas. This is a nuclear strike on russian earnings and on national sovereignty across the zone.
What fucking pussies most people have become, to even tolerate this shit for a heartbeat.
And as for the UK still being part of the EU- Jesus prison showering CHRIST what is it going to take for the last surviving anglo-saxons to wake the fuck up and take back their birthright?
Fuck it all and good night.
I think in general author has wrong picture about the source of russian money on Cyprus (especiall if you know how european and cyprus' banks deeply track all your transactions). This is "good story" just only for grandmothers.
But "bad story" in fact is about: now Cyprus is really risking to loose all russian deposits and accounts. Totally. And I think everybody undestands that this will destroy Cyprus' banking system at all.
So, why the country that accounts less then 0.5% of Eurozone GDR is going to kill its economy? I can't beleive that is just about dirty money. I think it's about offshore business in general. And I guess de-offshoring will have negative impact on many financial markets...
In my opinion, Cyprus has great alternative option to avoid what Eurocomission is asking him to do. Cyprus can just resign from Eurozone and default on its obligations without any damages for its economy. Could it be?
Why do you suppose the Russian hot money was in Cyrprus?
Because no other banks would take the money.
You say the money will now leave Cyprus, maybe, but where will it go? There is still no one who would take this money.
I really want to see how many large withdrawals happened in the days leading up to this. Who was in the know and removed their money beforehand.
The article states, "I struggle to come up with a valid comparison for what has happened in Cyprus. Think what the backlash would be if somehow the FDIC/Federal Reserve were forced to step in to bailout an entity that was a depository for the Mexican drug lords."
LMAO...LMAO....LMFAO...Nahhh...American Banks, those TBTF...would NEVER, EVER launder Drug Money....Nahhhh...LMAO...LMAO...LMFAO
Bruce, don't be naive, the "hot money" is in American and European banks, who take more drug money than all the Russian olgarch's combined.
The fact that the ECB is willing to STEAL EVERYONE'S MONEY rather than doing sound banking to begin with means that NO ONE'S MONEY IS SAFE IN THE BANKS.
All there is to it. The banks rig LIBOR rates, use MERS to steal property, "vaporize" people's investments, and walk - no jail - get out of jail free card - pass go - collect someone else's $200 (or 6.7% or 9.9% of their deposits).
So the ECB is stealing some of everyone's money instead of identifying the hot money? Wow, what bankers. Will this engender trust in the banks or create bank runs in banks worldwide? Can you say BANK RUN? C'mon Bruce, say it: "BANK RUN".
If you can't see that banking in the West is a completely corrupt and broken system out of the reach of law you are wearing blinders.
I've got a feeling that any Russian with more than a few million Euros in those banks is going to open his little book of vengence and make a note in it about some European bankers. Coming off of 100+ years of getting the shit end of the stick, I seriously doubt that newly wealthy Russians, regardless of means of wealth aquisition, are going to sit quietly while a bunch of pampered Euro candy asses lift their equity to back up their shitty investment plays...
It might be a good time to start a career as a hitman.
Krasting lapping up the Troika propaganda yet again. All this talk about most of the deposits in Cyprus belonging to Russian oligarchs and foreign tax evaders is simply Germany ministry-of-truth bullshit which they've been spreading for the last 6 months.
In fact, most of those in the upper savings bracket will be local pensioners for whom this represents their entire life savings, and others who have recently borrowed enough money to buy a modest home. But even if only oligarchs were affected, this is surely an admission of guilt by the European and international authorities, who are responsible for the global regulation of banks and co-ordinating anti-money laundering activities. Their own failure can hardly be a justification for expropriating the small savers of Cyprus.
Just nice rich folks who have lived all their lives in Cyprus have their money tapped.
Wrong. Wait a day or two. You will see that this is not about little guys in Cyprus. It is about a bunch of global crooks.
I've been thinking about this story for the last two days, and it strikes me as phenomenally stupid (not to mention immoral) for any bank to seize any part of any depositor funds lacking a court case verdict demonstrating guilt. Let them prove the funds are illegal; Russian, Cyprian, Briton, whatever, before they are seized. I agree with WB7 that they have crossed the Rubicon and there is no going back. They said loud and clear they mean to steal savings.
I don't think this is going to play out the way they thought. This is a Lead Zeppelin trial balloon. While some people might be driven into equities, that's not what I plan to do and I suspect I'm not alone. The pump-and-dump con artists will have to find other marks. Hopefully, they'll consume each other.
I might buy equities after the crash, but for now, I don't see any safety outside of PMs and cash-on-hand, and I'm dubious about the latter, a la Argentina.
This is crazy. Bankers really are a scourge on humanity.
This is going to require a great deal of spin in the MSM.I am looking forward to the pundits next week. Somehow lipstick on a pig comes to mind....
BK responds "The article was "Two sides of Cyprus". I tried to give a case for both sides of this."
LOL BK, welcome to LeoWorld
and Bruce pls do us a favor
don't respond in the next week or two with a "boy did I learn my lesson about the sharp critique offered by ZH readers" or some other pathetic mea culpa framed to maintain your reputation
just move on, you write good shit and your groupies will continue to make you the ZH fav
Dear ZH readers - I'm so sorry I wrote an article that was controversial. I promise I will never do that again.
Fuck that! What do you want? Mush? You want mush, go read Naked Capitalism or some other rag. I don't do mush.....
bk
Bruce with respect your article was mush, which is why it has likely the worst ratings of anything you have written here at ZH.
Every cent was Russian "stollen" money ???
No regular citizens lost anything ???
Me thinks no
UK govt already on record to make-good UK citizen's accounts held in Cypress.
"Think what the backlash would be if somehow the FDIC/Federal Reserve were forced to step in to bailout an entity that was a depository for the Mexican drug lords. "
Like Wachovia, for example?
Are you really that stupid?
HSBC...
Two surprises in one day. First the Cypriot depositers' haircuts and now Bruce's justification for it.
I didn't see this coming at all. Like many others I thought it would be another round of lip service to austerity followed by another round of bailout with some rioting on the side to keep the spectators happy. This wholesale theft of people's savings is so ugly, no expletives in the world is sufficient to describe it.
I do not for one moment believe this is an exceptional case. It has set the precedent for all central banks to follow, just as the introduction of income tax a little over 100yrs ago set the precedent for all governments today with few exceptions.
Some say it's to save Cyprus and by extension the eurozone. Some say it even saved the Russian black money - they would have lost it all if the Cypriot banks collapsed. And of course a few of the really smart guys mentioned that it saved the USD and its entire financial system by preventing the triggering of CDS, jump risks and whatever the hell else they sell in the multiple trillions of dollars categorised as derivatives. Me? I opt for all of the above, and that's why this farce will go on getting crazier and nastier until it collapses.
The money thing is a side show!
http://www.defencegreece.com/index.php/2012/12/russias-motives-in-cyprus...
agreed seer, this is all about the gas. it's the only explanation that makes any sense.
It's coming.
To a bank near you.
Brace yourself, and quietly move your PMs into a lake near you.
Say it ain't so, Bruce...
You A Wanna B?
Putin presses button
turns Cyprus into glass island
no fee attached
Are you saying there is not one single honest depositor in these banks that is getting screwed over? That's like touting the death penalty for taking out 40 scumbags but in order to do that a few innocents had the state snuff them out as well. That sounds good for most until you are one of the innocents getting put to death or haviing their hard earned money on deposit stolen by state sponsored theft and being told "All is well" because we just got mostly dirty money.
Now that the IMF and ECB have created a panic (may as well yelled FIRE!) and verified that they are a bunch of FUCKING LIARS, watch the bank runs, the panic and old Ben ride to rescue.
holy banktrap batman..
gave you a thumbs up
you tried..
do you suppose any of this has to do with Russian support of the regime in Syria?
Its to the tension for sure. Cyprus is all about NG.
This article paints the picture:
http://www.defencegreece.com/index.php/2012/12/russias-motives-in-cyprus...
I don't know. Sure seems like the FED already confiscated money from the future deposits of the Americans to bail out the Banking oligarchs. What's the difference. potato, potahto.
it is agreed among knowledgeable folks that the majority of money in the banks is kgb money....but folks throughout europe and the usa are not going to recognize that....and even if they did, it would do precious little to inspire confidence that accounts are safe from confiscation because the eu and banksters are not making that distinction when applying the confiscation. even if they did distinguish between kgb money and non-kgb money the trust factor has just been incinerated in a nuclear cloud....
then there is the geopolitical act of angering the russian mob and kgb.
finally, there is the equity problem where depositors are fucked while equity holders, bond holders, and banksters are bailed out yet again.....
let the banks go up in smoke.....yes, the people would then get 0 money, but a fresh start could begin....maybe with integrity but probably not....
Most of the writing about the Russian angle in the Cyprus depositor bail-in is totally misinformed.
The wrong story is that Russia's oligarchs and the huge numbers of Cyprus holding companies that are used by Russians and foreigners to hold Russian assets have significant deposits in Cypriot banks. They don't. They keep their money mainly in the UK and Switzerland.
There is some Russian money in Cypriot banks, but far less than is widely supposed. The vast majority of it is the deposits of the many Russians who live in Cyprus at least part of the year. Indeed quite a few of them are gangsters and smugglers. However they are well aware of the unsafety of Cypriot banks and they are well able to move their money elsewhere, so there's not nearly as much of their money in Cypriot banks as it's supposed.
This bail-in is actually going to hit plain old ordinary Cypriot citizens and the foreign residents who were foolish enough to keep their deposits in local banks despite all the bad news over the past three years.
Why would hot money still be in Cyprus? Three years after Cypriot banks were first widely reported to be in trouble and two years after the first, Russian-funded bailout? (Which, by the way, was aimed at gaining political leverage in Cyprus, not much at protecting Russian depositors in Cypriot banks.) The hot money is by definition long, long, long gone.
Really? And what do you know? Out of 60 billion of total deposits in Cyprus 20 billion belong to Russians. And do not tell me that regular Russian citizens keep their money on Cyprus. It is a total bullshit. 20 billion of Russian deposits is money of Russian mafia
and what was done is ABSOLUTELY correct move. In terms of hot money left Cyprus long time ago this is another bullshit.
Thre are two factors here:
1. Nobody including Russian mafia really expected the haircut.
2. If you own 20 euro, yes , it is easy to move money elsewhere (and small offshore depositors had plenty of opportunity to do that). If however you own millions of dirty funds, it is quite difficult to move it to a decent European jurisdiction.
In theory Putin does not like the idea that capital escapes Russia and should be supportive of a current move. In practice, the rumors are that he keeps his own oil income in Cyprus accounts (not on his name, of course). If this is really the case, that is the only factor that can derail EU move.
Other than that it is a unique event which will have no significant consequences (except for Russian mafia hopefully stop using Cyprus banks for their money laundering operations).
And forget about your stupid fucking conspiracy theories.
You are a vile piece of amoral, collectivist filth if you believe that this grossly ciminal and unjust financial rape was "correct". In exactly just what way is it "correct" to make hundreds of thousands suffer for the unproven crimes of the minority?
Clearly, you do not understand the concept of justice, much less due process, one iota. But that was, after all, already abundantly obvious from your many prior pro-establishment, pro-bankster posts.
Start watching out for mysterious deaths of EU officials. The Russian Bear bites back.
Does any one remember George Markov and what happened to him in 1978?
Funnily enough - yes.
He died in the Intensive Care Unit of St James's Hospital, Sarsfeld Road, Balham, London.
I have the strange honour of working in that ICU when he was admitted (it was my first UK Hospital job!) The Director of Microbiology (my boss) was a Dr Strangeways - no relation to the Prison of the same name though.
As soon as he died the body was removed under Police guard - we certainly didn't get to see any of the pathology reports (including chem. path)
Small World isn't it!!
The only thing i have heard was a 10% cut for each depositor, not 10% of the deposits which would hit big depositors the hardest. I would guess that ordinary Cypriots were not big depositors. In any case i see it as just another theft, taking that which is not yours by force. Where is the tax the rich theme in this?
Bruce, I always enjoy your articles. However, THIS TIME you are a bit off.
I spoke to a friend in Moscow on Friday morning and he told me exactly when and what was going to happen. Absolutely everybody in Russia and Ukraine with any money in Cyprus knew for weeks the details of what was about to happen, and took care of it.
He also sent me the link to an article (please, note the time of the article – it is 10:11 a.m.)
The “Russian Black Money” is just a clumsy excuse to raid the depositors. The PTB are writing a new playbook to be used worldwide, as needed.
http://www.livecharts.co.uk/share_prices/Investors-await-a-deal-on-a-Cyprus-bailout-news20763407.html
Shalom & Gassho,
Looney
I doubt much money got out the door. You think this is simple stuff? Where would you send $10m today? UK? US? Switzerland? Singapore? Hong Kong?
Bullshit. The Russians could not open accounts with those banks and countries. That's why the money was in Cyprus in the first place.
I was surprised by this. I don't think too many people saw it happen.
Bruce,
My best guess is you are trying to establish "non compos mentis" ...
... whether for a Social Security disability claim or some other reason.
"I doubt much money got out the door."
Seriously ???
Much of the Russian mafia is headed by former KGB people.
You are STATING the Russian mafia has NOT been able to get high level sources of information put in place in the IMF, the ECB and the EU ???
I'll give you a MORE likely scenario than ANYTHING you have proposed ...
... this whole clusterfuck was done with behind the scenes encouragement from people WITHIN the IMF, the ECB and the EU controlled by Russia to give Putin an excuse to strong arm the EU via Gazprom with the long term goal of nullifying EU support for a military strike on Iran.
And while you are continuing to go ALL IN on the "Russian oligarch" propaganda, take a look at this chart:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/03/20130318_hanke.png
And explain to everyone how the domestic depositor accounts having TWICE AS MUCH net money in them as the Non-Euro Resident (Russian) accounts justifies this raping and pillaging of the domestic depositor accounts with less than 100,000 euros in them.
deleted by the #%$3#
even from here it smells like a setup job, in order to ramp the NYSE and scare the savers
That's only a bonus. The PRIZE is control over the energy resources; this battle will go on for a while... the stage is being set (propaganda campaigns- "bad Russians- smugglers and 'hot money' etc.)
Jerry Un...Garcia,
Twas my foyst thought as well... ;-)
benShalom to you too ;-)
Looney
Unfortunately i have to agree with north-american commentators:
Better buy gold, stack it under the floor, and buy an assault riffle!