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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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Cyprus is a great testing ground for the elites to see how much they can get away with.
Financially it is tiny. It is an island. It has the cover of housing "hot money" from Russia. The test is being done over a long holiday weekend where people are at St Patrick's Day venues. (Beer anyone?)
Have no misgivings; this is a test to see how much thievery the little people will take. If there are no ripples or if ripples can be contained expect more of the same in incrementally bigger incidents.
The Thievery will not stop until the elites are brought to trial.
But the Russian mafia money-- Is that just a cover or a real fact that turns this from an experiment on a guinea pig to an experiment on a pit bull?
Bruce, i respect you a lot and like your writing, but you really do not know a sh@t about the nature of Russia-Cyprus relationship.
1. For the black money Cypruss is just a first stop on their way to cayman or bermuda or jersey or such. Black money does not like EU regulations. The same goes for tax cheats - Cypruss is just a gate to get the money out of the country and they are not keeping it there.
2. The majority of money which is there is perfectly legal. You see, Cypruss and Russia have a treaty about avoiding the double taxation, so lots of perfectly legal russian business have set up thier sub companies there to take advantage of this and the fact that Cypruss is Eu and thus promised better legal protection and stuff. I recon up to half of russian commertial real estate is owned by cypruss entities. Think of it as US companies are using Nevada or Ireland - all the big businesses are doing it, for russians the only legal route was Cypruss.
3. Cypruss has a 0 tax rate on some financial activities, so it is used heavily by russian financial institutions for doing business. Big state owned banks like Sberbank, VTB etc - all have subs there and it is all perfectly legal as mandated by russian law. VTB has even a sub bank with license and stuff and it is big. And it was used not only by russians - some french banks for example have presence there too.
So who in terms of russians will take a hit there? If you think it will be some gangsters or such - you are naive beyond believe. It will be perfectly legal business and individuals which were operating under the rules set up at the time. Shure they are taking advantage of some loopholes, but this is not illegal. Comparing them to Mexico drug lords is just complete misrepresentations of the facts. It just pains me to see ow you americans are screaming mafia or such without understanding the basics.
And another angle, so that our american friends could better understand the analogy - Cypruss is in many ways like Florida for ex soviet upper class. Many have vacation homes there, send thier kids for summer vacations, teach them there (i personally know some people who attended private schools there) etc. Lots of russian and ex soviet expates there which have completely moved in there as a permanent residents. Nice climate, some rule of law (everyone thought it is EU and hence "civil"), small taxes - what's not to like? Those are the people which are mostly beeing hit, and not gangsters. It is a lot like Montenegro and Bulgaria in this sense - lot of perfectly legal russians having real estate, holding bank accounts, etc.
Ya sure, but who should be taking care of all those fine Russians then? Do EU taxpayers owe them a bailout?
The alternative is to let the banks collapse, and depositors can get what they get when the dust settles. Is that better? Would the Russians prefer that?
Moral hazard is moral hazard. Cypriot banks were well known to be shaky. Depositors (at least above the insurance limit) were careless and can't complain.
Ordinary Cypriots were sold out because their leaders didn't want Russian lead in their skulls, which would have happened if only the excess over insurance was haircut.
I am not saying that those people do not deserve to take a hit like everyone else. They made some choices and they should be accountable. But the name calling in western press is just stupid. Apparently if you are russian - you are Mafia, 100%. Some outlets like business insider even suggested that they should have wiped out foreign money and kept domestic money intact, because foreign money is somehow dirty.
Most of the money is not some mafia, drug money etc - it is all legal, that's all i am saying. They deserve the same treatment as everyone else. Still i think that haircutting deposits(especially under the "insured" amount) and leaving bonds intact is a bad act which will bite EU deciders in thier asses later in Spain or some other country.
That's a good point about not hitting the bond holders first. I wonder who they are, and how big are the holdings. Funny that no one talks about that.
He has lost my respect. He shows where he stands. As a hand-wringing apologist for the fucking predators. "well, there's hot money see, and it's russian, so Cypriot workers and farmers, struggling to get along and save a bit, well they get fucked over, yairs ... unfortunate, did I mention the hot russian money?"
BK: "and therefore the E5.8b ($7.5b) hit to depositors is justified."
Just lost a lot of my respect with that line.
I wonder if he would have written that if he or a loved one happened to have an account there?
He's explaining THEIR rational, not his.
Sheesh.
Spot on. I used to live in Cyprus (thanks God I started to read ZH there, and I escaped right on time, just before they started to raise new flat rate taxes for businesses, raising VAT... and now this scam), where I had a small company (just me working) and my personal bank account ; I am not rich, just living a decent life. How can one make such a statement, like no Cypriots are living there. There are also many expats, retired people, etc.
Another point : it's the banks who messed up with the money, therefore it's not the depositors who are bailed out (russian oligarchs or normal people, whatever, at the end it is not even relevant), but the banks.
Bottom Line:
"Hot Money" or not, the mandated theft of 'someone else's money' will do tremendous damage to the level of confidence that Europeans (and anyone paying attention) have in the banking system.
It also sets an extremely dangerous precedent: what's to stop other banks/governments elsewhere from doing the same thing? NOTHING.
What's to prevent the "tax rate on deposits" from being a lot higher in other countries where similar events will probably happen? NOTHING.
It also demonstrates the lengths that governments will go to, to protect the banking class, as if we didn't have enough evidence already.
Once confidence dies, it's game over.
Bruce - HSBC and Wells Fargo were laundering hot drug money, and received Fed bailouts. The US taxpayer gave money to the criminals and drug cartels, and no one blinked an eye.
The difference is that it was stolen from the grandkids future earnings and not our own accounts. A slow bleed. A slight grumble and a return to the tv.
This is outright theft and a declaration of war on savers by unelected foreign entities against the innocent and the reputedly guilty.
Apparently Bruce thinks it would be justified if every Wells account holder had 10% of their deposits stolen.
Go house to house in your neighborhood saying you lost your life savings gambling in Las Vegas and would this household now pay me 10% of their savings so that I can be made whole again? Well, good F'ing luck with that one...
Let's face it Bruce, The EU screwed up. They had so many other choices to make, but chose this one. In their arrogance they felt it can be easily rationalized, but they crossed a rubicon.
Judging by the tone from the mainstream media, their story is not being picked up, and the focus is on the stealing of ordinary peoples money.
Now, no matter what the elites say, people are going to panic when their country comes into focus. You are going to see money move like a hot potato or simply vanish. We are going to get just like when I was a kid, people keeping their money at home.
As an aside, I don't know if I would be the politician who votes to steal my neighbors money, and if they do vote this down, the money in the banks are going to be gone in a nanosecond on Tuesday. Instead of saving Cyprus, they will destroy them.
Bruce...let's not be naiive. The real "hot" money left a week ago. This is slamming the barn down closed after the horse ran out. And then taking the added step of burning down the barn to "teach the other barnyard animals a lesson."
You'd think that he'd know/understand this by now... Money buys power, and power gets you position (inside information).
The rest of us, we sheep, just enable all of this. If we stopped playing Their game then they are pretty much fucked (no need to waste energy on campaigns of justice, as they'll likely wither and die on their own).
A rational person would have to conclude, that money in a European bank can no longer be deemed safe. Well I would say maybe not a European bank, but ANY bank. The deposit insurance introduced to prevent bank runs has just been violated. By the protectors.
This is one more brick in the wall, clearly demonstrating that digitized or paper fiat money is worth absolutely nothing, if you are not connected. Money is now loosing any form of value as a means of savings. Gold in a hole in the ground seems to be the only solution left.
This will have consequences beyound the wildest imagination of any of the idiots that came up with this idea.
What's more, the genie is out of the bottle and can not be put back in.
The only peaceful rescue option I can see is the re-introduction of a gold linked monetary system.There can no longer be any trust left.
There is no other option, except war, revolution or civil disobedience.
I think this time they might well have pulled the bow too far.
I'd argued elsewhere (in this thread) that there has been no violation of the deposit insurance mechanism. The insurance is only for FAILED banks. Essentially what they are doing is charging people to keep the banks open. I know that that sounds overly simple, but if you want to condense the storyline down then I can think of no better/shorter way of it.
TPTB control all the mechanisms of insurance. It is THEY whom are making the run on the banks, not the people. And when They get their slice they will make sure that there are controls in place to keep the people from doing the same (and thus laying claim to deposit insurance). Never forget that there are always two sets of rules: and if you're here you're NOT in the Big Club, in which case you're assigned coach seating/rules.
Why do you think a gold standard has anything to do with the soundness of banks? Do you really think banks can't go bust under a gold standard, and depositors can't lose money?
You are confusing trust in money and trust in banks.
"....There is no other option, except war, revolution or civil disobedience... .'
Unfortunately there are other worse alternatives.
Well said. This move feels different than all of the rest, and the media is not playing ball.
Yes, such a seemingly stupid move smells like it must have some sort of ulterior motive. Instigating a war perhaps? Banks profit tremendously lending their counterfeit money to governments to fund wartime expenses. One should ask, where did a lot of money unexpectedly move recently, that now makes sense given this development. I do know that the number of SLV 2014 call open positions increased dramatically over 4-5 days the week before last, and the put/call ratio is now below 0.5 That seems to make sense now.
How many people are even going to notice what happened if they are outside of Cyprus? After all, I'm sure there is some new movie out, American Idol is on, the French rugby team has a friendly, and there is always football on in GB. If you aren't Cypriot and don't read ZH, you probably don't notice this. All the BS MSM have missed it.
That being said, this should bring people off the couches and out of the stadia with torches and pitchforks. Some depository insurance when it can't even keep you from outright theft. If I weren't all in (plus) on gold and silver, it would be something to heavily consider. I'm glad I've been stocking up on guns and ammo for the past couple of years, but I apparently missed stocking up on tar and feathers. It's time, but the revolution will not be televised. We have to be involved. Get out your bulldozers and excavators, people. It's time.
"If I weren't all in (plus) on gold and silver..."
Careful with that plus, Hoofy. Using leverage in these manipulated "markets" is just asking to be Corzined.
The state has always had a claim on private production and stores of wealth, the very fact that in order for the state to exist it has to steal OP wealth would indicate that the state operates on "Hot Money" if your definition is to hold. It does not. Either we are free men or we are not and if the state was worthy of its hire they would not have to steal.
Obviously there's theory and then reality...
Having "representatives" has allowed the theft to take place under the guise of legal sanction. The paper was signed, theory be damned. Not that I agree, just what I see...
As has been often stated: a govt that can give can also take away (if it can protect your property rights it can also take then away, BY FORCE).
I don't know, seems social contracts always cost. This isn't necessarily bad in and of itself; what is bad is when the reasons for the costs become totally obscure (the Trojan Horse was always the promotion of "defense," the force of violence coursing through all veins of the contracts).
There is moral hazard in not exempting small accounts from the "tax". If they had taken the haircut on accounts over €100,000 (which is what is supposed to be covered under the Deposit Protection Scheme) , it might have looked better and maybe innocents wouldn't have been hurt.
If they wanted to go after hot money, they could have made it clear what they were doing and targeted those accounts.
Yanis Varoufakis puts it this way:
"What was astonishing is that, while the peoples of Europe are sick and tired of the gross inequities and regressivity of austerity-fuelled bailouts, they did not set a threshold below which poorer depositors would be untouched. And that they left unaffected the banks’ bondholders (even though the sums involved in these bonds were small, it was utterly unprincipled to spare them). I have no doubt that this decision will haunt them/us for decades. "
http://yanisvaroufakis.eu/2013/03/17/cyprus-stability-levy-another-sad-e...
Bondholders. ...the new corzine elite
Look on the bright side; the capital is so concentrated now, we can finish the beheadings within a few days of applying ourselves.
This is exactly the kind of thing that discredits the entire notion that we're nothing but doomers! :-)
"Russian" hot money is bs and just cover. Any Russian will gladly pay 10 even 25$ to wash their money.
This is all about irresponsible, reckless regulators and autocrats taking wealth that doesn't belong to them. To do so, one needs either a strong army or a heck of a smokescreen.
Central to this story is what good is an EZ/EU depositor insurance plan if it is so easily cancelled when it is needed?
"This is all about irresponsible, reckless regulators and autocrats taking wealth that doesn't belong to them. "
How many times do people have to be told this- they are NOT idiots, they are NOT "irresponsible." One ought not confuse the show with the product being made. The "product" is to have Western control secured from Eastern control. And, also for the umpteenth time, it's about ENERGY, as control of energy means POWER. When you view it as such you can see the desperation that's happening (do NOT confuse "desperation" with "irresponsible" or "reckless"). The Russians have the upper hand via energy; Cyprus has energy resources, and this is the pot that the West is trying to wrest away from Russian influence.
The reason why the show is absurd is because there is ZERO way that they can come out and declare what they are doing lest it trigger a MAJOR war outright. If this were to occur it would be as good as a loss as most of the EU would be severed from energy supplies: and with collapsing economies, well, angry people are one thing, COLD and starving angry people are another! (internal instabilities are certain to explode).
Right now we're seeing an escalation along the lines of what John Perkins wrote about in his book "Confessions Of An Economic Hit Man." The people of Cyprus are being forced to take sides; BUT, while they will be the losers just about no matter what, the BIG players are likely going to put up a pretty big stink, whether one or the other decides to take it to the next level or not will be seen- so, either a wet blanket appears (and chills the people and the tensions between the BIG players) OR, a fan appears and whips it all into an inferno.
Popcorn time?
Can this have a serious effect on capital markets? Well, if one understands that there are dueling forces in all markets, then one understands that you have given fuel to certain forces in the market. If these forces are successful in spreading fear and uncertainty, then it is quite understandable how this confiscation of deposits could easily create a cascading ripple that could build to a tsunami. Can you say derivatives? Or, Minsky? It's all leveraged, now, isn't it?
Might any in the Russian "hot money" crowd have access to a loose nuke or two?
Serious question...they would not have to light the candle, there's plemnty of others who would do that job.
When it comes to arms they're not even in the same ballpark as the established rulers. AND, if they should try and use any then that will only go against them by ensuing that TPT[currently]B will lock EVERYTHING down and be sure to unleash the hounds of hell.
The logic just isn't there. Really, all they have to do is to wait for TPT[currently]B to finish blowing themselves up. It's all in motion, no need to waste energy trying to push it along...
I have full faith and confidence in banks, my money is safe there,..(cough, cough!)
The excuse to loot saving accounts is Russian hot money? WTF!
Quick, rush to see which druglord/armsdealer/terrortrainingcap/kiddiepornring/ciaslushfund is sharing the vaults with you!
Bond holders should be taken to the cleaners first.
The original demand from the EU was for 40% cut....they compromised on the 9.9%....great victory for Cyprus...hah...
Many people from Israel and Greece also had funds in Cyprus banks...all cummngled with Russian mafia money?
Something smells very rotten here.....they are hiding something much bigger than that...
I don't think that the IMF/EU/ECB apparatchiks are that stupid not to know that this action is gonna create more capital flight from other peripheral countries. So the question is: why do they want another escalation of the crisis? The Eurozone is already sliding deeper into recession this year, so why are they working on intensifying this trend?
They have NO choice.
Clearly it's the banks and the bond holders who are balking, who are dictating the show. Greed NEVER stops on its own. This whole thing is going to run off the tracks (though I see this as better than staying ON the tracks that lead over the cliff), and it's not by design. And, this won't be some eternal death match like the Star Trek episode "Let That Be Your Last Battlefield" (http://www.startrek.com/database_article/let-that-be-your-last-battlefield) in which two opponents were locked in a death struggle/match throughout eternity- this thing won't last, and my bet is that the forces are shifting away from the govts/banksters and institutions and toward the mobsters/war lords. It is my hope that the regular people speak loudly and clearly that the next changing of the guard is going to come with ready-to-use guillotines, operated by regular people (community level).
Even if this were justified as pillaging Boris Used Cars and Narcotics Emporium Ltd. Fund for the Virtuos Widows and Orphans of Brussels, it discredits any further Eurozone banking union and deposit insurance schemes.
But, BUT... really, it's all been about crony anarchism! You see, they cannot even do chaos correctly!
Something is SURE to give...
Hey Bruce:
"as of Friday, the markets hated ... the EURCHF"
Well, look at an intraday chart of EUR/CHF from Friday. It looks like buying started once the rumors began circulating. I'm expecting more buying on Monday.
Seizure is justified because of all the Russian hot money? WOW!!!!!
"We have to seize bank deposits because of the pending shutdown of Social Security."
"We are now in a war footing with North Korea and we must take drastic measures, including the seizure of bank deposits."
"Michelle needs a new vibrating dildo, because I'm gay, so we must seize bank deposits."
LISTEN: the money might have belonged to the Russian mob, but it was THEIRS. Just like mine is mine.
dont be an idiot:
the money might have been "theirs" until they gave it to the bank, presumably for interest: http://tinyurl.com/cner4my
ENOUGH!
Provide actual legal documentation supporting this position or (please) refrain from spouting it! (and no, the article does NOT support it)
LISTEN: the money might have belonged to the Russian mob, but it was THEIRS. Just like mine is mine.
Undisputed winner of the comments. Welcome, young kulak.