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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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Kulaks, yes perfect analogy. The old class warfare strategy, us against them, mob against law, etc. The government is always at the center of that battle, fomenting it. Banksters and their political whores have done if forever haven't they? Molotovs for the banksters. Can't wait to see the first Cyprus bank catch fire.
"Molotovs for the banksters."
Well... equal application of the "law," always! The "mob" can also be served up some flaming drinks if they're found to be screwing with the people. Keep in mind that much of the "wealth" that these Russians have was STOLEN: yes, I realize that that doesn't give anyone the right to steal as well, but that should open up the notion of "equal application" as I note above- a warning that henceforth NONE of this will be allowed.
And who really thinks that the "hot" money was still there anyway? I'm sure as soon as rumors started, the bulk of said funds were wired out. Leaving the unconnected to pay the bill.
There's a reason "hot money" is called that.
Yeah, it's because it comes from Cooked Books!
I couldn't agree with you more and I'm surprised how deep in this thread it was before someone pointed that out. BK's hypothesis that 90% of the money seized was hot is ludicrous. The only people left in the banks were the honest ones. Not one of the EU Finance Ministers would be stupid enough to believe that he and his family weren't going to be tortured to death if they actually went after the real hot money.
So - why do it? To appease German voters. Steal the deposits of the honest and slow-witted so that the German population continues to support the EU charade of propping up banks at the expense of citizens.
I do beleive that it HAD been mentioned previously: lots of posting here, hard to read them all.
The PRIMARY reason for ALL of this is to force out Russian influence in order to stabilize the energy markets in the EU. Consider:
1) It has flushed Russian "mob" money out (and with it, influence);
2) It feeds the propaganda campaign to discredit Russia and its influence in the EU zone.
Seems folks here in ZH already recognize #1. And the fact that there's such a focus in the media about "hot money from Russians" provides a pretty good correlation with my above thesis.
I won't qualify/make moral/ethical pronouncements on whether govts or mobsters are better dictators over energy use, but one thing should be perfectly clear by looking at all the tensions around the globe: most areas of conflict, of attention by the US, are in locations that either have energy or are energy routes. I really think that all the banking stuff helps to obscure this: I'd think that people would be better off trying to get access to actual energy than fake fiat...
The fact that the 100.000 euro deposit garantee wasnt respected is the cornerstone of the story.
Apparently this is a guarantee fit for northern europeans, not darker skinned semi-europeans.
The moneylaundring thing is just Gebbelist propaganda, they should know, its part of their heritage.
Switzerland, Luxemburg,Lichtenstein, no problem there apparently, they speak German.
This is clearly no longer a union, it is cutting edge postmodern postcolonialism.
And it is primarily Nationalist. And Socialist.
The Germans did it again... NationalSocialism must have a deep rooted appeal in that nation's psyche...
Have you hit your quota of saying "socialist" yet today?
The DIFFERENCE is that the guarantee is about saving depositors from individual bank failures. BANKS aren't being allowed to fail- this is preemptive, in which case they can dodge the "guarantee."
BTW - This is govt AND business teaming up to screw the common person, nothing "socialist" about this (not in the classic sense of the ideology, though one can twist it all one wants I suppose). And NO, I'm not defending socialism, I'm defending LOGIC (and I detest people playing fast and loose with terms and words, loading them up and shooting them about as though shotgunning PROVES validity).
Jumping the gun there; EU zone stays democratic even under siege. As the scenario speaks for itself :
Merkel's position is very clear : Mr PM I can't sell it to Bundestag W/O haircut. So you know what that means? You lose 30 billion and NOT 6-9 billion! If you don't get your Cyprus parliament to ratify.
...Mme Chancellor I agree, I'll try and get agreement but I don't have outright support.
...Even if you get that vote Mr PM I have to go before Bundestag for ratification WITH the haircut.
So appearances are saved and democracy reigns. This is a crisis beyond the collective capabilities of EU sovereigns, such be the banksta generated crap dump by the looks of it. But hey, they missed the boat in 2009, the same Merkel gang, and now we ALL pay for it 10 times worse!
The crisis is that of capitalism and not all the tears and all the pleas...
But democracy still rules in overt theatre; not behind the curtain where the real power lies!
Even if it means daylight robbery by the EU states collectively; shameful example of failed model.
The crisis you speak of is one of socialism .
yes and feudalism is socialism and Caesar was a socialist. Now we can say the pope is a beggar and the Curia is a conclave that runs an institution without money. And the derivatives were all created by socialist bankstas.
The day GBW, JP MOrgan and the Rockafellas are qualified as socialists I'll know that I'm as queer as a pint of ale that smells of Chardonnay.
"...cutting edge postmodern postcolonialism... ."
Can I use that?
Bunga bunga.
Switzerland and Liechtenstein are not part of the EU, so they have other deposit insurance regimes.
Neutral...heh...also at a complete right-angle to reality, in most cases.
The US real estate market is filled with money laundering. Do they start confiscating houses? I assume there are simple hard working people in cyprus. No gov has any right to take their money ever.
" Do they start confiscating houses?"
Yup, through fake eviction proceedings :-( But... no, not on some widespread, whack ALL the little people, carpet bombing scale.
Aren't we talking about a runaway capitalist model now generalised?
Jamie Dimon and his clique are just as corrupt and infinitely more dangerous to first world equilibrium than the Russian MAfia.
THEY RUN THE WORLD AS SCIONS OF PAX AMERICANA, the only real game in town!
Why be selective in Oligarchy bashing and forced haircuts, with its inevitable collateral damage to "financial syrian innocents"?
The impossible conundrum arises from the fact that those who rap the knuckles of the "corrupt" Cypriot banks and shady clients ARE PRECISELY those who protect the banks and rich clients of their OWN corrupt Great Gatsby Mafiosos; aka Merkel/Draghi and BEn/Potus!
And the real danger for first world is that THIS incident could be a signal that Pax Americana scions and surrogates, on both sides of the pond, are losing their hold on their own "impossible" debt pile of potentially bankrupt banksta fiat, unmarked to market.
TWO SIDES OF "ON GOLDEN POND".
This might all boil down to this simple thesis:
The virtual kings (fiat operators) are being replaced by the PHYSICAL kings (actual resources). These new kings, however, aren't going to be corralled along the lines of some OPEC game (one need review the history of the Texas Railroad Commission to see the striking similarities to it and OPEC). And unlike the virtual world where the deception and illusions tended to cover things up until the trap door opened up, the physical world is going to hit us straight up: one way or another one pays...
The only difference is the rubber hose is showing instead of the veiled threat.
The result is the same.
"...PAX AMERICANA... ."
Simpleton, have you taken up trolling for the elite now?
I would correspond to that label if I said : NO TAX Americana!
Pax Americana is like Pax Romana, aka "you are for us or against us"...If you wave that flag you need to understand Historeee.
Bruce,
Do you really mean to take the tone of justification of this?
It is so wrong.
I usually agree with most of your pieces at least in general but this approach smells to high heaven.
It is the next stop down the rabbit hole.
Leave equity and bondholders alone but hit depositors?
Unprecedented and so wrong.
To be so blatant about it!
All the rules of capital structure out the door?
We are all waiting to see the fallout.
We'll see.
The article was "Two sides of Cyprus". I tried to give a case for both sides of this.
I'm not taking sides. If I was, I would have been against this dramatic step.
All of you who say that this is flat out wrong, I ask you to answer the question:
What would have the USA have done if the bailout had been for the benefit of the Mexican drug cartel?
I say it would have been a similar outcome as Cyprus. We are in a new world. The governments are getting hostile. Surprised? I'm not.
Your line about the Mexican Drug Cartel? They are in large part a piece of the CIA. We already showed how we'de treat the above Cartel. Why of course give them many more thousand automatic wepons. Your logig on this was is way off and I am a big fan of yours. Mileestones
Me? I would have started a secret government program and, while I am not a huge Vin Diesel fan, I would call it something like, "Fast and Furious."
That way, I could launder money and sell my excess weapons for a profit.
It's a win/win/win, Bruce!
lets see? wtf is mexican cartel money doing in our accounts, since it is illegal and there are numerous onerous regulations in place that affect all depositors to "prevent" illegal cartel money and drug money. if i want to withdraw 10k the bank fills out a form nad sends it to the government.
so now you justify outright theft of all depositors because there might be illegal drug cartel money involved?
i think that the rule of law that use to be upheld in our country should be restored, and all of this 1% we make it up as we go along theft should be punished, not championed.
my personal funds in banks are kept to a bare minimum to pay my bills. however, my business accounts are in the bank, and i swear to god i'm getting a huge safe and going cash. damned if i can afford to take a 10% hit because, maybe somebody might be doing something illegal so i'll punish you.
punish, truth, honesty, accountability, and what is morally right. yeah, that's why are country is a bubbling cauldron of corrupt puss filled feces now.
10 gauge sabot will defeat any body armor known to man, and the time for it's use is quickly approaching
This isn't a financial question - it is a legal one . If you do not discriminate requirements on the sources of capital parked at a bank, how do you then reconcile . If the laws are there up front, then there is no issue . If the laws were skirted in the acceptance of the capital, then attack the source .
Legal enforcement-wise, this is akin to blowing up a disco because it is partially owned by a mob - irrespective of the human cost .
The problem is trying a quick solution to a issue that was years in the making . Everyone know that there was loosness in the banking rules . They'r e just trying to fix it on the back end when it bocomes messy . The responsible thing to do, is to take the losses and FIX the fuckin' rules for all the EU banks . Failing that - well "yer on yer own - mate " .
If I may quote Tevye, "No! There is no 'other hand'!"
This is not an academic exercise.
Lol,
We get it, don't kill the messenger.
It is a rather breathtaking move, nonetheless, at the length the Euro-kleptos will go to save their dream turned nightmare.
With Eric bagHolder as AGUS.
I think we all know that answer.
Eric Bag Holder...very nice.
This whole "hot money" meme is BULLSHIT. utter BULLSHIT. They DON"T CARE about money laundering, terrorist financing, and drug cartels. This is the greatest fucking lie of all. HSBC PROVED IT.
The hot money issue is a CHARADE. WALL ST = CITY = SINALOA = IMF. It's ALL hot money.
This is just the PREDATORS fleecing the SHEEP before they get BUTCHERED. I am utterly disappointed that you are selling this pathetic lie.
HSBC... same outfit that helped legitimize sub prime by buying out Household Finance.
When do we get to strap one of these entities to the electric chair?
of course it is
it is a charade because the red herring of mobster money is more convenient than the truth that what you think is your money in the bank is in fact not your money at all because you loaned it out to the bank for interest: http://tinyurl.com/cner4my
Props, brother.
Hang it up Bruce, at this point the good old USA is a paradigm of fraud.
My wife is from the Philippines, she left there because of the corruption. I looked at her and laughed, saying that where there's the most money is where there's the most corruption- "welcome to the USA!" (I grabbed her from Canada, where she'd gotten her citizenship there) She's a pretty quick study, in which case she now gets it... (all the propaganda spread out in the world about how great the US is is pretty hard to dodge)
and why is it that
could it be that the "good old.." is run by hofjuden owned fractional reserve banking?
Or it could be that the rats in your skull have eaten your brain and are gnawing on the stem.
And why the hell did that dozer driver stop on the sidewalk?
If you're going to make a point, fucking MAKE IT!
Kamikaze that SOB through the front door or at least rope the accelerator, sheese.
What a headline tease.
I guess he didn't feel like doing five years in a Cypriot jail, which I am sure is a barrel of gaiety.
-- Barrel of gaiety, good one.
Maybe Marvin Heemeyer had the same thoughts a la the Granby 'Killdozer' Rampage.
"I was always willing to be reasonable until I had to be unreasonable."
http://en.wikipedia.org/wiki/Marvin_Heemeyer
Bruce, I would bet that the US would NOT have taken this route if the situation involved Mexican cartels. This situation ALREADY exists.
-1.
Bruce- that's a strawman argument. The folks running the enterprise targeted have better access to information than us poor slobs. The only people who get clipped in something like this are those who didn't get the memo. Are you really of the belief that ____ mafia has the same limited access to information that you and I do?
I thought you were around in '94, Bruce.
"Mexico’s relationship with the IMF is especially important because the country seems to influence the lending agency almost as much as the agency influences Mexico"
You can't make up that kind of funny.
A RETROSPECTIVE ON THE MEXICAN BAILOUT
http://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2002...
go long Beppe Grillo's.
"Beep, Greece go a bankrupt"
"It could happen here tomorrow"
The "Beppe" sounds like a great name for an alternative currency.
"Kwatro chinko keelo-beppee."
lol i'm in
bepcoin