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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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PMs are ONLY a means to an end. The "end" is about Food, Shelter and Water. Yes, PMs are better than fiat, but a thing that is not used is pretty much of no use. A pile of fiat or a pile of PMs is still a pile; if you never pull the trigger they remain nothing more than a pile. Recognize tools and their proper use.
I have no need for an "assault" rifle. I've got Food, Shelter and Water (and, if not for the boating accident), I have NO need to go looking to assault anyone. Most defenses are close range: good shotguns and indestructible, reliable revolvers are good for that; oh, and a good dog (was number one on my list).
"Let me first (try to) give you a justification for the seizure of bank deposits in Cyprus..."
No need to, Brucie. We know you are always on the side of the Leviathan State and financial oppression everywhere.
Really dude?
Have you read Bruce's posts with any consistency?
Bruce is a critic of the system not an anarchist.
My only supporter...Thank god I have one...
"Bruce is a critic of the system not an anarchist."
A critic operates within the system, that gives the system meaning. If only bitching resolved issues...
Given that we're all talking about organized theft and illegitimate authority then being an "anarchist" is most certainly a more correct position (than merely being a critic). I've grown rather fond of this article, I think that it does a pretty good job at providing the right distinctions:
http://www.spunk.org/library/intro/practice/sp001689.html
I would certainly think this would matter to the Russian depositors, no matter their provenance.
Perhaps Vladimir will invade; then he won't need Syria.
"I vill trade Cyprus for Assad. Your move, amerikanski puppet of Ashkenaz. Ve Russians haff long memory."
Putin/Gazprom hold Europe's energy future in their hands.
("Tighten that valve Ivan Ivanovich")
Sorry, I don't buy it.
Ed Harrison sez the Cypriot banks didn't have the senior secured creditors that could have taken the hit. Even if that is true, that does not mean that senior secured creditors should have been exempted ... as they have been since this Eurocrisis began.
What of preferred equity? Seems they got off scot-free as well. Depositors to Greek branches of Cypriot banks also got that 'Get out of jail free' card. "Don't want a run on Greek banks' is the rationalization.
I have a word for this: 'payoffs'.
I believe there were enough senior debt and preferreds to take the hit and exempt depositors but the assets in Cypriot banks are worthless. The entire liability stack is underwater. The depositors gain worthless 'shares' in Unicorn banks. There is nothing left but the bank run.
Even if this doesn't cause a run outside of Cyprus, the use of the ESM starting in April will guarantee it. The ESM is a credit-laundering facility to allow the ECB to offer unsecured loans - in excess of collateral. At that point the ECB is insolvent as it has no capital to speak of. Its assets are the same cancerous items that have bankrupted all the other banks in Europe, swapped from those banks' balance sheets. The ECB is set to be another, gigantic insolvent commercial bank like all the others in Europe. There is no effective lender of last resort, no entity able to guarantee deposits.
Another thing. The collateral for the entire euro credit system has become the system's currency deposits. What do the European geniuses do in a situation where deposits are vital ...? Let senior creditors gobble them down. Finance system? What system?
I don' need no steenkin' finance system!
It's all okay, another day closer to a car-free Europe.
Who would buy a ESM joint "junk" bond after watching this cluster**** induced move and resultant bank runs ?
"The collateral for the entire euro credit system has become the system's currency deposits" - and yet the silver and gold spot price remains tame. Don't stand too close to that "collateral" with a match. Totally fucking stupid, eat the rich, the politicians and all their fucking offispring already. Oh what a grand feast this will be. Alice in wonderland has nothing on this endgame.
I'm reading that 40% of the money in Cyprus banks is from Russia. None of it was deposited by or is owned by Russians, however. Remember, just because someone speaks Russian that doesn't make them Russian.
I doubt that only Russians will get a hair cut due to this possible (the bill does not seem to have passed the Cypriot parliament yet) confiscation.
For instance, it seems as if the Swedish real estate investor Roger Akelius at some point last year held more than €100 million in cash on Cyprus, see (you can probably translate this web site to English by Google or Bing):
http://entreprenor24.se/nyheter/28775-kand-entreprenor-flyttar-cash-till-skatteparadis/
Sloppy, improved Bing translation:
There are also small and medium-size entrepreneurs who have used Cyprus-registered companies as a means to reduce their taxes. For instance, the Swedish comedian Felix Herngren did that up to last year with his SEK 23 million ($4.03 million) in total assets company:
http://www.di.se/#!/artiklar/2012/10/18/angerfull-felix-herngren-slutar-skatteplanera/?qr=290029
Cyprus based "trust" not a bank.
Who knows where the money really is.
Along the same lines, why would anyone who could not have moved their money out of a Cypriot bank long ago?
Arthur:
My comments:
Roger Akelius transferred his money to something similar to an American family trust which in turn owned Akelius Apartment Ltd which was registered in Cyprus. And for at least a while Akelius Apartment Ltd held more than €100 million in cash, probably in Cyprus (in any case the article indicates that).
Thanks for the follow up.
Akelius should be shooting his financial advisers or at least suing them for malfeasance.
Wish I had ten's of millions to worry about, but I make darn sure that my cash in any account or institution stays within the Fed Guaranteed limit. - Which admittedly would f*ck me in a Cyprus situation Stateside.
If I had Akelius like money in cash, it would be parked in multiple locations around the globe.
Did Cyprus have anything equivalent to FDIC insurance that will get triggered by a bailout haircut?
It seems unlikely that Akelius will take a hit due to this haircut since the clients of his Cyprus based company Ancoria Insurance apparently have their money in bank accounts outside Cyprus, see:
https://www.avanza.se/aza/press/press_article.jsp?article=242441&mbFromPage=Översiktssida
(You will have to use something like a Bing or Google translation.)
I probably thought that Akelius was more prone to make mistakes than he probably is because of the fact that he lost everything in the early 1980s and then had to start all over again. Akelius is a very smart guy. He became an assistant professor in computer science when he was 23 years old.
As regards FDIC insurances I barely know what it is. I am not a financial expert. The European Union equivalent to the American FDIC insurance seems to require that deposits amounting to least €20,000 must be protected by the government and that at least 90 % of the deposit must be reimbursed. In Sweden, the FDIC insurance equivalent covers deposits up to €100,000 and 100 % is reimbursed. (Before I began writing this reply I didn´t even know that the regulations of the EU FDIC insurance equivalent allowed an insurance limit as low as €20,000. I was just familiar with the Swedish regulations.)
This has happened before (i.e. Executive Order 6102). Who cares if it is Russian mobster money or NYC bankster money. They are equal criminal enterprises IMHO.
Come on Bruce, fuck the Russians, there are more families and decent citizens losing money than Russians, and they will vote with their bank cards on Tuesday by pulling out all their money!
On Tuesday (or later) you will finally learn how unbelievably, inconceivable stupid regular sheeple are. A few will pull all their money. Many will remove some. Most will do nothing.
Depending on the degree of fractional reserve - if even a sizeable portion of depositors tried that, I'll safely wager many will leave empty-handed.
Also - with all that cash literally walking around, the petty thievery / mugging "industry" would be having quite a good time, so in fact it maybe safer to leave it in the bank after all (unless you feel particularly lucky!)
Wasn't this the main reason why the baning system exists - personal financial security in day to day activities???
There is NO rantional reason for banks, certainly not any longer. The risk of carrying around 1 week pay is much smaller than the chance your bank will steal you blind. Nobody has any intention of carrying around their entire life savings --- that gets securely and secretly burried where nobody else could possibly find it.
"...the guys pulling the strings are idiots" ???
Our state religion is run by the criminally insane.
Unfortunately they have the tanks too
Unfortunately they have the tanks too
Unfortunately they have the tanks too
My theory here is that the EU and IMF are trying to force Russia to bail out Cyprus. Consider that in scenario A - confiscation - Russian oligarchs lose. In scenario B - disorderly bankruptcy - Russian oligarchs lose (more). In scenario C - Russia bails out Cyprus - Russian oligarchs win and Russia loses - but who gives a shit about Russia, as long as the oligarchs keep their skin?
The EU and the IMF are trying to discredit Russia such that it exits Cyprus. THAT is the goal. The EU wants someone like the US in charge/control of ensuring a steady flow of energy (either way one is held hostage- that's what you get for being hooked on a non-renewable resources that you DON'T have).
If Russia just ignores this and acts as though the Russian govt has NO involvement with the money flows there then it comes down to how hard the US and the EU want to push this, with the risk that Russia could crank the gas valves down on Europe. It's a big game of chicken. The "hot money" stuff is, in comparison, just a distraction.
To add one more thing...
The Russian oligarchs aren't going to look for protection from the Russian govt. I don't believe that there's any love loss between the two (unlike US presidents, I don't believe that Putin was really anyone's bitch); and, Russians are less likely to go squealing back for help, not like US oligarchs/corporations.
Mr. Putin wants to control oligarchs. And it is much easier to control them when they have their capitals in Russia. There are some ongoing structural changes in Russia and in spite of corruption and red tape, and there is a strong governmental push for more capital transparency and control. It is much harder to steal money in Russia nowadays than it was 10 year ago. So, I wouldn't exclude a possibility, that Russia actually would welcome this pseudo-default. And as someone here said already, all Russian oligarchs anticipated expropriation risks long ago and took precaution measures in advance.
Cyprus was just the conduit for drug money coming into the European Union from Russia.One gang of crooks is broke (the EU)and needs the bread from the corruption to help it along.They've known about this operation probably for years.The questions are:Why did they wait until now?And was the Russian Government corrupting the EU and NATO countries through bringing Afghan drug money into Cyprus with Putin's and Russian Intelligence approval?I suspect that the Americans were just getting nervous of the Russians doing what the Americans are doing worldwide -using and selling to organised crime and using the proceeds to corrupt and overthrow governments of choice for your own economic purposes.It all leads back to Afghanistan for both the Russians and Americans.Billions of dollars in dope at stake.And none of it reported because both run "government operations".Even when the DEA gets to the bottom of some of the biggest drug operations run by the CIA the Courts throw out the cases when it's revealed it's run by the FEDS.
someone linked this story somewhere else this weekend:
http://en.rian.ru/world/20130312/179959947/Over-20-Tons-of-Heroin-Seized...
20 tons of smack confiscated = a smackload of dirty money not flowing through the banking system.
“Twenty-one tons is, in essence, the annual volume of drugs brought into Russia,” Ivanov said.
Not sure why you were down-arrowed.
For sure it's a behind the scenes battle between the US and Russia. I contend that it's ultimately about energy, though cheap/easy money via drugs is ALWAYS a big thing: and, really, it's the same thing- not much left in this world that can make decent returns like energy and drugs.
As to why now? That's pretty easy. Everyone's nuts are being squeezed in the financial decompression. When you have to start groping for quick money you grab at the stuff that's not nailed down so well (kind of hard to really enter into some international court of law and complain that your money from illegal drug activity was stolen from you).
WTF!!!> Krasting justifies bank deposit seizure? He is showing his true colors.
You sound as if you read me? If so, you know I have dozens of articles that detailed the US Department of Justice war against Swiss banks and dirty money. The DOJ took 30-50% of hidden bank accounts. I see that not much different that what Cyprus has done.
I don't like dirty money. Talk about the 1%?? The dirty money crowd makes the 1%ers look like good guys.
Here is a bet for readers? Before this is over, we find out that some Somali pirate characters had money stashed in the banks. Bad boys. Murderers. Wanted, dead or alive, by half dozen Navies; including the USN and the Chinese Navy.
What is the right % to lift from the pirate? Zero? I disagree....
Bruce,
You have truly drunk deep from the Kool-Aid. You CAN'T be this naive ... or stupid.
I grew up in one of those little towns in upstate New York that had a fair portion of the local economy subsidized by the mafia. Bars, restaurants and various other means of laundering money.
By YOUR rationale, the correct method of FIXING the problem would have been to TAKE the same percentage of money out of ALL of the local accounts to offset the "mafia money" that was mixed in.
So what if it bounced checks or ruined the lives of the innocent ?!?
By YOUR rationale, the SCOAMF assasinating American citizens in order to "prevent terror" is equally justifiable.
As we would have said it back in the day in that little town ...
WHO has their hand up your ass and is pulling YOUR strings ?
No Bruce, the bankers should not accept the deposits of the Pirates, rather than accepting the deposits for years - then deciding to steal some of everyone's money.
Your equivocation on this is painful.
The dumbest thing they did was to go after accounts < 100K euros (which apparently used to be covered by "deposit insurance"?) & piss off the little guy....
Now it looks like they're already backtracking a little on that...
If you want to go after the dirty money, fine, but don't screw the local, little guy as well....
WTF were/are they thinking???
Bruce, i read nearly everything you post at ZH (and usually learn something every time), but i'm not feeling you on this one.
that said, it's the first perspective i've read on this showing the other side of the coin, so i can appreciate that much.
##### ALL FIAT MONEY IS DIRTY #####
Nonetheless, all fully voluntary transactions are clean and ethical. That includes all transactions involving drugs, ammo and weapons (unless you know they are being used to harm innocents).
The "state" is nothing but predators-DBA-government (where "government" is a fiction), and their laws are nothing but fictional babblings of predators intent upon enslaving every individual on planet earth.
Yes, a pirate who steals is a bad guy. But he doesn't deserve to have 10% of his loot confiscated along with 10% of the savings of frugal savers. The pirate deserves to have 100% of his loot confiscated, then get hung in the town square. That's not what is happening, and not what this is about. The biggest pirates are the banksters, the EU and Cyprus politicians, and politicians world-wide.
Then investigate and when you find them you seize all of their money and leave everyone else's money alone!
Sad to say, you have lost your ability to reason. I expect fear or self interest has clouded your brain. If everybody in European finance knew that banks in Cyprus were full of hot money, then the problem is not the hot money, but the complicit silence and the laws that make money laundering so easy. Secondly, no one forced the stupid banks to use that hot money to buy crappy Greek assets, so, again, the hot money is not to blame, stupid bankers are. Everyone also knew that the Greek assets were crappy, so most of the blame for the problem again rests with inadecuate transparency and regulatory policies.
If you want to continue to try to justify theft, Bruce, what won't you justify?
Bruce, you are only digging yourself deeper here, and demonstrating your allegiance to the criminal bankster powers by your specious, illogical and insulting line of argument.
So it is OK to unjustly penalize tens or hundreds of thousands of innocent Cypriot citizens, and confiscate assets from them with no due process whatsoever, as long as some putative Russian criminals are penalized in the same process? REALLY? Are your senses of justice and moral outrage that atrophied, if not outright dead?
By your 'logic', it would be OK for authorities to confiscate a fraction of YOUR assets merely because they were held by the same bank or brokerage holding the assets of a suspected criminal. I wonder how much YOU would then rationalize such a capricious and broadbrushed confiscation.
My growing lack of respect for you here is starting to turn into outright contempt.
If the money that was in my accounts was ill gotten gains it would be seized. That happens every fucking day in most countries.
Bruce, Bruce, what the fuck is going on in your mind here?
The fundamental issue here is not the ill-gotten gains (still unproven, by the way) in any particular bank account, yours or somebody other's --- it is about the wholesale confiscation of funds from hundreds of thousands of OTHER bank accounts, none of their owners being guilty of anything other than trusting that their funds in the bank would not be capriciously and summarily stolen by their own government. How can you speciously and disingenuously continue to ignore the rampant and unambiguous injustice inherent in damning and punishing the innocent along with the (supposed) guilty?
Seriously, does the concept of "due process of law", and justice itself, mean literally NOTHING to you?
You have yet to honestly confront this issue. Until you do, you will have no credibility as an honest or intelligent financial analyst or commentator with me. I wish I could downarrow each of your posts in this thread 100,000 times for your continued weasel-like evasions of the one truly salient subject here.
Unless and until you are willing to grow a spine and condemn this action for what it truly was and is --- outright criminal theft --- you are unworthy of having ZH as a public forum to spout your pro-bankster bilge.
"By your 'logic', it would be OK for authorities to confiscate a fraction of YOUR assets merely because they were held by the same bank or brokerage holding the assets of a suspected criminal. "
Anyone know if the Comprehensive Forfeiture Act of 1984 can, or has allowed the confiscation of properties in cases where the defendant HASN'T been found guilty? I recall hearing stories about how even a landlord could lose property if one of his tenants was caught up in drug trafficking.
I'm beginning to understand who these banking and government 'leaders' are. They were the kids who used to whack hornet's nests with sticks when we were growing up just to see what would happen
No, they were the ones who shot squirrels with BB guns, blew up frogs with M80s, and set fire to kittens, because they knew what would happen.
ouch. i grew up in the ny state region and i knew the kids that did that and i know how they turned out.
they made wonderful husbands and fathers. (sarcasm).
blowing up frogs.... the start of W's path to the Presidency......
What to make of this - not much.
It is only the new normal.what we are seeing is the slow death of the western society as it developed after WW II. Due to the great rebalancing west-east due to the rise of Chindia and such. Do you really believe that any western country (incl.US) will be able to live on current standard when rest of world is outexporting and outsaving us? To try to delever in a somewhat orderly fashion - the various political systems will have to steal more and more from their citizens.
However it was extraordinarily gutsy to shortchange the KGB crowd - and other assorted gangsters. Getting into business with those folks and then stealing their money is something that normally does not end well.
I guess a number of IMF and ECB crats will have to be chalked up as collateral.Ande the god people of Cyprus will absolutely NOT have seen anyone digging up the road and planting a huge land mine in broad daylight for hat Mercedes convoy.
And the FX and stock market will continue to belevitated courtesy of microprocessor.