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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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"The collective hypocricy of EU leadership and bankster accomodation is astounding. This is what the EU has come to stand for; Sacrifice the individual, prevent the collapse of the Bankster Union at any cost. The sooner Europeans understand this, the better off we all will be."
That's why I'm proud to be an American! Nothing like that happens... oh, shit!
The growth game is up. Mother Nature is telling us to pick up our toys and go home, she's no longer going to put up with out "gimme, gimme" attitudes. WTF were we ever thinking when we figured that we could perpetually grow on a finite planet? (making money ON money? this is the absurd premise that we're running with; you're at the fucking circus, of COURSE all these folks look/act like CLOWNS, they ARE! [we'd likely never shown up had there NOT been clowns]).
We can do the same thing here in the USA. Claim that the "hot" drug money is in the banks and charge all savers a %10 savers tax as punishment. All Cypriots are not evil tax evaders. The honest people there are also being punished.
Just like millions of honest savers and bill payers in the U.S. were punished for the banks gambling with Credit Default Swaps and all the other leveraged crap the banks were hawking.
Banks get bailed out, get near interest free money from the FED, and the FED buys $40+ Billion per month of Mortgage Backed Securities; all this on the backs of our children and grand-children.
THEFT
SKULLDUGGERY
But, for some reason, this and the ECB stealing the deposits of honest Cypriot citizens is justified.
Bruce, examine your reasoning and conscience; your defense of this thievery is sad.
Someone posted this link already, but I figured I'd post it as well since I think that it challenges the notion that nothing has yet happened to US savers:
http://www.wcvarones.com/2013/03/think-cyprus-cant-happen-here-it.html
after the dust settles many if not all greek cypriots will want to approach turkey and stay away from the eu. i would never imagine that this day would come after what happened there in 1974.
Oh the new Ottoman fishing game...
here is my take on that : 3334789
turkey's budget seems fine at the moment. but let's not forget that the government is screwing its citizens with indirect taxes. turkey uses the most expensive gasoline and natural gas in the world. most of the price is tax.
turkey wants to become a financial hub and a top tourist-attraction. most of the manufacturing moved east already. in case of a global financial collapse things may not look as rosy as one would expect over there.
"turkey uses the most expensive gasoline and natural gas in the world. most of the price is tax."
I have to wonder whether this is so bad as it might sound. Bear with me for a moment while I explain...
Given that the affordability of oil is likely to decrease (price up and or wages down), would it really make sense to promote more oil consumption?
Turkey is a net importer of oil:
http://www.indexmundi.com/turkey/oil_imports.html
Creating MORE dependency on a finite resource is NOT a good strategy.
Should this be govt managing this via taxes? Well, consider that MOST related infrastructure is already highly managed by govts and then such doesn't look quite so one-sided. I'd love to have TRUE pricing happen such that none of this would even need to be discussed, but changing the rules in the middle of the game is a bit problematic: we've already had a good 100+ years of "directed" build-out of infrastructure reliant upon oil- NO private entity CAN compete against this (too much weight exists behind current suppliers and means).
On one hand I don't like the notion of high taxes. On the other hand I think that (likely as an indirect consequence rather than intelligent plan) in the long-run they may turn out better off for it. Short-term hindrance, sure.
yas ottomania is not immune to kleptomania!
Europeans deposits are (were...) supposedly guaranteed up to 100k, so yeah, go after "hot money" and shave whatever you need off their accounts, but taxing small, family savings, not only is criminally coward, but when at the same time you're also trying to recapitalize banks by increasing savings and reducing spending (or aren't they any more?) seems to me somewhat counterproductive, or is it not?
Bruce, I think you're giving the guys in charge too much credit. They're just idiots, plain and simple.
They've learned nothing since the Treaty of Versailles. The European tribes can be buried in a world of shit of their own making but one tribe gets all righteous, points the finger and demands retribution, even though it guarantees destruction for all.
History is rhyming again. Every Eurozone member is in the shit together and if they truly want to get out of it with the euro intact then Germany has to accept inflation. Germany will do no such thing, so it demands retribution and dooms the euro in the process. Cyprus, in fact, got off lightly compared to what the Germans were really pushing.
This has little to do with Russians. It's just Germany flexing some muscle. If it continues to do so then goodbye euro (and good riddance).
Wolfgang Schauble was the guy pushing for 40%. He's never seemed like an oblivious twit to me. I expect he's thought this thorough a little bit before trying to get 40% on all depositors. Pretty sure he realized the incredible implications of getting even half of that agreed to. He knew the Govt could never pass it.
But it did slaughter their banks anyway, i.e. 100% loss.
The German position is understandable if you take the view of a German along with the (true) feeling of a tribal Europe. European unity is, and always was, cosmetic, a skin deep illusion. All the old hatreds and divisions are still there, a few layers down, and all it takes is a little hardship to bring them up.
Germans don't see why the hell they should be bailing out the GIIPS. They all played the same economic game and Germany won. The German corporate engines were simply superior. Now if unity truly existed, Germany would happily pay welfare to the rest of the Unites States of Europe, just like California supporting the USA. But unity is an illusion and what most Germans are really thinking is that they won the battle and they deserve to keep the spoils, GIIPS be damned.
Totally understandable (I used to live in Germany, I get it). The deposit clipping is Germany expressing its opinion (not healthy for European unity, but the game is almost up so screw it).
The problem for them all is, of course, that this mess is bigger than all of them. European banks are monsters, they respect no borders or ethnicity, and they've thrown everyone into the same pot, like it or not. Germany can't just up and run because its banks are fused to the rest of Europe's banks.
The banks, in an effort to save themselves are fighting the nature of Europe and something will eventually give. The banks will eventually lose this, but not before they've committed Europe to a very dark path.
Wow, usually I value your opinion in the highest regard, but here you're off the rocker.
Germans don't see why the hell they should keep on bailing out the GIIPS with larger and larger sums. Somewhat understandable, and it's unsustainable anyway.
Yes, German corporations won. They squeezed employees with almost no wage increases since Euro inception, and compared to all other Euro countries which had strong wages increases that improved their competitiveness massively. Obviously German employees did not win. Other winners were the German pensioners (which includes all retired people as practically no one has a private retirement account) as corporate profits and at least steady employee tax payments kept the "Rentenkasse" Ponzi scheme from imploding (especially in face of demographic trends) - but none of the pensioners are even aware of that.
This also makes it clear why German politicians are caught between a rock and a hard place: exit the Euro and exports shrink drastically, corporate profits go down, taxes too, and Kurzarbeit and later unemployment goes up, and shortly thereafter the pension system implodes. And that's even before looking at the German banks who will all need massive bailouts when the rest of the then Ex-Eurozone devalues or defaults.
Now Schaeuble is a crazy guy, but never underestimate his intelligence.
So for me the question is -especially if it's true he first proposed a 40% haircut to Cyprus depositors-:
Is this now his (or the German) way to pull the plug on the Euro?
Or is he the McNamara of our times (or worse), stuck into not reversing his earlier decisions with a good dose of megalomania?
[NOTE: I'm not intentionally picking on you, just finding things that I think need to be further vetted]
"They all played the same economic game and Germany won."
If the game is to commit suicide and one comes out first I suppose that one could also be said to have "won."
I don't know what metric you're using to declare Germany the winner.
In the past, at the start of everything, before the EU was starting to really shake, MANY people here are touting the greatness of Germany's economy and how Germany would escape the fate (that was appearing to unfold for) of others. I warned that Germany's position wasn't as solid as people thought, that they were/are a nation dependent upon exports and a nation dependent upon energy imports; AND, that this didn't bode well for them if all their trading partners (whom they export to) were suffering economic difficulties.
One can argue that "bailing" others in the EU out is hindering Germany. And while I can agree that this is clearly NOT a positive for Germany, I don't believe that it's the primary concern for Germany. I'd think that the actions by Germany to-date should prove this, in that rather than just pull out from the start they stayed on. Ignoring the ramifications of being a more astute country and should have seen where it was all going, Germany, I argue[d], couldn't do it because they had been wired to these other countries for exports. From http://www.economywatch.com/world_economy/germany/export-import.html
There's been a spate of reports of business reporting fraud in Germany of late. It's possible that it has been operating with a lot of cooked numbers.
Does Germany have excellent manufacturing? Yes.
Is Germany better financially than the other in the EU? Yes.
If Germany were to eject from the EU would its economy sing again? No, I don't think so (refer to its primary export partners above): keep in mind "economies of scale" and what happens when they reverse (not enough demand elsewhere to hold the tide, let alone raise it).
"The banks, in an effort to save themselves are fighting the nature of Europe and something will eventually give. The banks will eventually lose this, but not before they've committed Europe to a very dark path."
I agree. I'd add that the "very dark path" is inevitable: this is one ring of the global three ring circus and the Big Top is starting to collapse...
Germany was/is a good looking horse. That matters not now that we're all inside the glue factory.
Germany is just as doomed as the rest. If you think I'm saying anything else, it's just a misunderstanding.
The core extended credit to the periphery ( or to be spent in the periphery). That money turned straight back around and bought (superior) goods and services from the core.
That wasn't the plan. It wasn't supposed to happen. The fresh money in the periphery was supposed to stimulate economic activity in the periphery. How daft. Are Greeks going to develop cars to challenge Germans or will they instead simply buy Porsches, VWs and BMWs? The outcome we got was obvious.
For a while it looked great for the core. Banks booked ever increasing assets, industry booked that credit circling back to them as profits. Then the defaults began.
Essentially, core banks are owed money that now sits with core industry. The core could fix this with an internal wealth transfer, but it'll be a cold day in hell before that's accepted politically. So Germany is schizophrenic, an utterly screwed banking sector needing the piles of cash held by the rest of the German economy and expecting the periphery to somehow unwind the situation by earning money back (or getting it from bailouts).
The point I make is that, ignoring the banks, German corporations clearly dominated....but the banks cannot be ignored. Take them into account, apply a little entropy, and Germany is doomed too. It's not a zero sum game, excessive credit and capital misallocation, enabled by credit Schengen, has doomed everyone involved in the project. If the periphery goes down in a messy, uncontrolled way, then core banks go down, then so too does core industry.
Germans can moan about that undisciplined periphery all they want, but they never complained about all those cars being bought or the Aldis popping up in the periphery and displacing local business. They lapped it up at the time and loved the banks for making it possible.
I have heard you say this a number of times, Mediocritas. I am not sure myself if these guys are crazy like the fox or just plain incompetent.
You say that they are simply incompetent and I value your opinion quite highly as you seem to know what you're talking about.
:D
If they're trying to save their experiment then yes, they're disastrously incompetent, but that's not surprising given how fundamentally stupid, how out of touch with reality, how ignorant of the depth of European tribalism the concept of a common currency is. Currency union requires fiscal union, legal union, social union, cultural union and language union. These incomprehensivly arrogant fools thought they could simply force all that to happen by ramming through the Euro. Wrong. They put the cart before the horse, generations too soon. Had they waited 50 years, the internet would have paved the way, but they sniffed the profits and couldn't wait.
I've met my share of these fools in the flesh. The most dangerous sorts of people: true believers. They honesty believe that their mission is a pious one. They point at the brutal history of Europe and say, "how horrible! We must bring civility! We can usher in a new era of peace and prosperity with our (enforced) unity!" They are going to achieve the exact opposite because trying to force a human to do anything produces an equal and opposite force.
I'm being simplistic when I say they are stupid, they're not, but their actions are. Well educated, well intentioned people, disastrously blinded by flawed dogma and leading Europe straight back into the bad old days of nationalism and violence. Sad to see.
"If they're trying to save their experiment then yes, they're disastrously incompetent,"
No they are NOT!
You've got to understand the basic premise. Everyone glosses over this. The EU, or any other collection of people that predicates itself on perpetual growth on a finite planet (ALWAYS about increasing GDP) is an utterly doomed premise.
There is absolutely NO way that the collection of these people or any other collection is going to change an illogical premise into an logical one. NO WAY!
The wheels are coming off because the road charted was always full of potholes. Changing drivers doesn't change the road. Further, assume that we "paving" the road (doing whatever magic to sort things out in all of this), that STILL doesn't change the fact that we will either have to STOP, or, run OFF the cliff!
By constantly blasting these people as incompetent it keeps us from questioning the underlying premise: well, yes, we do question "A" premise, that of the EU (or euro), but that's not THE premise; it would only be like sorting the train cars in a different way or giving up the train and going all automobiles- we'd still be on the SAME path/road.
"I'm being simplistic when I say they are stupid, they're not, but their actions are."
That's close, but still not correct (and, again, distracts away from hitting on THE premise). Their actions are totally rational given that they are working within a totally irrational scheme. That it looks like a big clusterfuck should be of no surprise.
NOTE: I'm not CAPPING off at you, it's just that I'm trying to get people to get away from name-calling and belittling so that they can start from the beginning, start from THE fundamental premise (if you just wiz on past the premise then anything can be made to sound/look good- on one side you have all these actors portrayed as heroes, and on the other side, us here, you have them all as utter fools; I think that the measuring tape isn't being applied to the correct thing).
We can have that conversation if you wish but there's not much to say that we don't both already know.
When it really comes down to it, we, as a species, are no smarter than yeast. Our economic system, utterly dependent on exponential growth, blew us well past carrying capacity and into overshoot a long time ago.
We're just following the same dumb biological course that every other life form follows. Banking and banksters are simply manifestations of the Maximum Power Principle, an extension to the laws of thermodynamics that suggests entropy increases rapidly where there is an option to do so.
Any population that tries to live sustainably, to eliminate the Ponzi system of credit, to curtail reproduction, ration resource use, etc, is a population that is selected against in favour of a rival population with no such constraints. Evolution's a bitch.
We have a new breed of commentators - Bruce now joins Muck to Market and Jim Ricktards in studiously avoiding a moral stance behind the cover of "analysis".
that would have been fine with me if their analysis is correct. Otherwise.....
Bruce,
All of the public using the Euro are now going to see that if a bank is in trouble depositors will be charged a sales tax without buying anything thus causing a run on all Euro banks Monday (except ironically Cyprus).
Not only will your justification be missed it is wrong.
Shouldn't it be tits for toys LOL!
I'm sick of this "we all knw it's Russian money" crap, never with a substantive citation. The entire tone of this "Gee, this is probably nothing but let's see what happens" is galling to say the least.
This is sovereign theft and a breaking of the essential trust all depositors everywhere put in their banks. True, it may be "glossed over" - in the financial press - but if so it will merely add to the ultinate charge whent does go off.
Suddenly bitcons could become a whole lot more attractive. Shifting bitcoins is much faster than transferring gold or silver.
Let me know when I can buy my groceries with bitcoins.
So it looks like global MSM, from Reuters to FT are running hard the "sacrifice of the commons for the sake of those dastardly Russian oligarchs' capital to be seized in the name of justice" meme, regardless of how it affects the collective working middle class who might not be partaking in any money-laundering practices of its own.
Or was the low bracket 6.75% up to 100K "bail-in" was meant to target the more frugal oligarchs? I wonder.
The worst was that despite my worse yet dominant judgement, I decided that it would seem rather ungainly to exhibit my smuggness during dinner with extended family, by telling them that "I had told them so" when I pleaded that they move the bulk of their wealth out of Cypriot banks, two years ago.
Relatively difficult to be a cunt when you eat with people who had their deposits clipped by both State and SuperState; so can't even be myself.
What with all the hellbentness to crusade against the Russian untaxed, because God-forbid some of their ill-gotten morsels are parked outside the Square Mile, I guess the thought of taxi-ride through fucking Mayfair utterly evaded them.
Why don't they just seize all the hot money everywhere and use it to cover the bailout hole...
Oops, that puts them out of business!
Who is worse?
A mobster who conducts business between a willing drug manufacturer and a willing drug user
or
a pensioner who knowinly takes many times more than they ever contributed, the balance being promised by the labor of chldren not even born
???? - with the only justification of "it is a contract!"
Is there a thief? Is there a form of child slavery?
Who is the real criminal?
Just sayin' A union thug (well dressed and full of platitudes, natch), a fulltard sellout politician, and willing masses are as unethical and immoral as the drug dealin' rusky, IMO. At the end of the day, Granny and her political henchmen are much worse, as they destroy society entirely. Don't get me wrong -granny desreves what she saved - but not the labor of future generations....and that is what they have done.
Nice comment.
Yeah it's probably best to not be smug with people who will be living with you soon.
I think we will see a natural gas shortage for Europe as Putin tightens the screws.
"Let me first (try to) give you a justification for the seizure of bank deposits in Cyprus."
Wow....The power of the ponzi. Seems the Stockholm Sydrome has struck Bruce.
I need to tell my pensioner Cypriot neighbors who are going to lose thousands of euros that they are oligarchs and tough shit on them anyway.
What fucking nonsense!
Think Cyprus can't happen here? It already did.
Greeks are lazy, Italians are mafiosi, Spaniards are corrupt and have siestas, Cypriots are moneylaundering... this Goebbelist morality tale convinces fewer and fewer by now.
This is a clear German Nationalist agenda to turn the EU periphery into a postmodern, postdemocratic, postcollonialist Lebensraum. This is not a "Union", this is a 4rth Reich, with virtouous Northener Ubermenschen, worthy of the bank deposit guarrantee and rotten Southern Untermenschen, who need to be flogged into submission. This morality tale is Goebbelist propaganda, enabling a racist, postcollonialist, postdemocratic EU. The EU project is dead, time for the people of Europe to bring it down with the least possible bloodshed, time for the Euro farce to end...
Guys, take it easy on Bruce. He is just like Niccolo Macchiavelli analyzing politics in the 1,500s. Did Niccolo mean to say that a prince should have behaved the ways he described? Absolutely not! That's always been the poor interpretation of his works. Niccolo, just like Bruce today, was simply getting on someone else's shoes to deductively come to conclusions, without taking sides...
Actually, Niccolo did say politicians should be liars, hypocrites, and butchers. Read the book.
The political class does, and they live by it.
Me thinks Confudido is aptly naned.
You've lost it, Bruce. There is no defense for armed robbery.
The rule of law is like virginity. Once it's gone, it's not coming back soon.
wtf ar you talking about:
it is in the fine print that your money with the bank is not yours. you loand it out for interest to the bank. you gave up property rights. deal with it: http://tinyurl.com/cner4my
Fuck you, Bruce.
How about you identify those accounts with "HOT, BLACK RUSSIAN MONEH" and fucking slap a 20% one-off tax on them?
If this passes, September of 2008 will look like a joyride.
Like virginity !!
Lady Justice is a sagging middle-aged whore at this point. Where have you been?
The "rule of law" left a long time ago bro. Look at Lehman, AIG, GM, Greece, the Federal Reserve, and try and say that in the mirror with a straight face.
This is an escalation to a new level, which will cause the worst unintended consequence, because it is telling depositors, 'You're now responsible for the banks' debts.
Yes, 50 shades of gray at best, but there will be consequences for this particular cluster fuck.
Cyprus is the canary in the fraud mine.
This new black (swan) is yellow (canary)
White Swan in a coal mine ?
Mixed metaphor Sunday.
The shadow banking tsunami is heading our way. This outright theft is the water starting to rush out to sea, before the roaring deluge smashes us all.