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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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Individually mined by Beppe using a Ti49/a....priceless!
Bruce what would the USA have done if the bailout had been for the benefit of a bunch of rich banksters?
It was, and we did nothing, and Kyle Bass tells us it's at our doorstep again.
"What would have the USA have done if the bailout had been for the benefit of the Mexican drug cartel?"
I would hope that our laws would be logical and just, and law enforcement capabilities would be competent enough to prosecute the Drug Cartels, while leaving INNOCENT people alone. Unfortunately they are not. They are corrupt, ineffective, incapable, and unjust. That is why INNOCENT people are getting screwed (in Cyprus) along with the "bad" people. Who wins? Bureaucrats and bankers. Like always.
I'm thinking that any real trial would expose all the worms, show all the connections in/within power, and that this would pretty much bring down the entire house of cards. Going the legal route would be asking them to commit suicide- the last thing that rats are willing to do... easier to gnaw off an orphan's leg or something.
"What would have the USA have done if the bailout had been for the benefit of the Mexican drug cartel?"
Call up a drone strike on the street level dealer stuck in a traffic jam. They don't care about the "collateral damage" either.
Nothing more repulsive to govt than competition...
They would also make sure the drug dealer had his children with him/her. Becuase we all know they just criminals right?
This idea that being Russian and having a bank account makes you a criminal is insane. I mean that is like saying people from Israelare criminals because a lot people who work for Central Banks have families and relatives from Israel. That is a racist and morally wrong statement. Why is not also the same for Russians?
Mexican drug money is fuelling US markets. Of course the US would have bailed them out.
http://solari.com/old-articles/scoop_narco_dummies.htm
the US government was running guns for the mexican cartel, for crying out loud.
maybe this direct attack on the citizens and businesses of cyprus will finally wake some people up.
cyprus should withdraw from the european union and the rest of the world should buy their exports and visit their beautiful country to show support.
Who knows? Just maybe the Cypriots will say no to being sodomized with a broomstick, grow a pair, and then pick up a gun and do something about it. I am fairly sure the American Sheeple will never do such a thing.
Bruce, you are full of shit about not taking sides.
The reason so many posters think that you favor this move is because:
You call Cyprus and Cyprus banks stupid a number of times. And you say to screw the hot money.
You don't use one negative adjective to describe the decision, such as stupid, idiotic, foolish, senseless, assinine, or ill-advised.
After laying out both sides you then discuss the ramifications.
You also fail to disclose that 43B Euros of deposits are locals and 21B are foreigners, which includes Russia.
Sorry, let me be clearer. The Cypriot banks were stupid. And I say screw the hot money.
I think there will be some additional compensation for the Cypriots that got caught up in this
Bruce, I did not hear two sides from you, only a tone of justification for stealing innocent's money.
Bruce, sometimes one doesn't win. This is one of those cases. Nothing wrong with having MANY eyes and brains tear into something and being shown inaccuracies- we should really only ever want to know the facts (only egotists side-step here, and I don't think that you're one of them).
There are NOT "two sides", neither morally nor rationally, to blatant theft.
To even suggest that there is, Bruce, is disingenuous, illogical and morally reprehensible.
Nobody has ever asked, or even allowed, a bank robber in court to plead his case for rationalizing and justifying his thefts. Oh, but when the shoe is on the other foot, and it is the BANK that is doing the robbing, that is an entirely different story, eh?
blatant theft my ass
stop the morality shit. any money left in the crooked fractional banking system is at risk. the moment you left monye in the bank, you gave up property rights. you loaned your money out for interest. the interest is your risk premium for betting that you will get it all back at some point. but if you dont, it is your fault because you should not have loaned it out. http://tinyurl.com/cner4my
I wanted to vote your comment down, but the system won't allow a negative vote right now for some reason. A lot of people put their money in banks for the perceived SAFETY-- since every other investment anymore seems to be rigged by the big boys. You think people are making any interest in the banks that gets ahead of inflation???? That's why the government trotted out the FDIC insurance, so they don't have another bank run.
Now that perceived safety net is even gone, and the disrespect for citizens and capital is totally complete.
"the moment you left monye in the bank, you gave up property rights."
Would you PLEASE provide LEGAL documentation backing up this assertion?
The article that you present does NOT do so. What the implication is is that the banks are understood to be able to USE YOUR money- nowhere does it state that YOUR money magically becomes THEIR money, that you forfeit YOUR money in leiu of "interest."
I agree that the feel of it is as you suggest, but there is ZERO supporting legal documentation to support it. Further, if we really want to pick nits we can say that the "money" in circulation is NEVER actually "owned" by anyone other than the issuing central bank.
DOJ would have sent them some automatic weapons THEN Treasury would have bailed them out. The American way.
Everyone knows that there is money laundering going on....
Ok, how many bankers have been indicted/convicted? *crickets*
the 100k euro deposit guarantee was more a ''guideline'?
The bank shareholders and bond holders have been wiped out first?
The rule of law has been abandoned, and we will mourn this day soon.
Snoopy
"the 100k euro deposit guarantee was more a ''guideline'?"
http://www.youtube.com/watch?v=b6kgS_AwuH0
Welcome aboard the Black Perl...
Exactly what I have been saying . This is a financial response to a legal problem . Using the wrong tool for the job .
Surgery on a person using road construction equipment always ends well .
Allen "Stanford"
Before
After
This is Socialist. And it is Nationalist. 20 years after being allowed to reunify, Germany has again gone NationalSocialist!
"O" for "ten." Care to roll again?
Swiss Banks are behind the move.....pretty obvious
No, German politicians are behind it: http://www.businessinsider.com/report-germany-told-cyprus-they-could-tax... . There's no point for Swiss banks to go after Russian dirty money. It's already here. It's flooding high end real estate and private banks. Money flows from Cyprus have already been going on for months. Only the stupid have still kept their money in Cyprus. This deposit tax is only hitting locals and small fish.
The really big money goes to the City of London.
http://www.vanityfair.com/society/2013/04/mysterious-residents-one-hyde-...
Easier to pick on small fish in Cyprus than to demolish the world's largest haven for flight capital.
Great article!
And YET, it is THESE fuckers that cause mayhem elsewhere, forcing draconian regulations on others. Anyone have odds for "friendly fire" (from, perhaps, drones) occurring there?
something going pop, real estate or the sudden Coba recap ?
Coba has been a zombie for a while now. But I can't imagine that the German gov. would recap them before the elections in autumn. They've actually "repaid" some of the last rescue money. That was obviously just a political move, though.
I love the smell of chaos in the morning...
Wednesday morning, to be exact.
"Everybody who knows any thing about Cyprus also knows that the domestic banks were a parking lot for Russian hot money."
Even if so, so what?
This is thermonuclear. Are they going to vaporize a continent next because "everyone knows" there are criminals living there somewhere? We don't need any investigation, messy trials or actual proof, we'll just know we got them.
Yes, much better to cram through a law to make a known injustice "perfectly legal" to avoid the ethical challenges and complete immorality of it all.
Whats next?
Prying open Swiss bank accounts for people who value their privacy and discretion more than the next person just to see if there are any criminals hiding in there? ;-)
And droning innocents is of course justified using that way of thinking.
Thank you for pointing this out.
I'm sick of it Banzai...the flawed premises we are subjected to daily...like we are fucking third graders instead of grown adults.
Some criminal is laundering his money...so the state must step in and snoop through EVERYONES financial accounts...somebody gets into a wreck and gets killed...so the state must step in and mandate EVERYONE wear seatbelts or it fines you...some deranged fuck massacres children...so EVERYONE must give up their liberty.
Then we sit back a year or two later and say, what the hell just happened? Who do we blame now?
Its disgusting.
There is nothing new about this kind of paternalistic thinking and it lead to a bunker in Berlin.
If I may insert that it is not a "flawed premise," it is a "false premise."
Yes, you're right...but you will forgive me if after twisting my brain into sausage links in order to comprehend what I am virulently opposed to (that is, think like your enemy) I can't get it all the way back in short order?
Its hard to get it all untwisted and the blood flowing properly again, sometimes I mis-spell two ;-)
I think you meant 2 ;-)
Yes, 2 & (-) too ;-)
Bruce,
There is no justification for stealing peoples' money.
They did not make the bad loans yet they are being charged the damages. Bond and bank equity holders who assumed risk should be wiped out 100%.
Instead they are being bailed out at the expense of non-players in that game.
"Bond and bank equity holders who assumed risk should be wiped out 100%."
And it is THESE people who effectively endorsed/supported the practices of the institutions, in which case it makes perfect sense that they should be whacked for bad decisions, not simple depositors. And if THESE people have a problem with it all they should seek address through the courts, perhaps suing those not performing proper checks, or, perhaps trying to claw some of the "hot money?" BUT! Why the fuck the average depositor?
Bingreka!!
I just love the smell of Dozer exhaust in the morning.
Not every single Cypriot is involved in Russian black money, but their deposits are being seized just the same. Their money is simply being stolen to bail out the big banks.
This is the scenario playing out all over the western world. The socializing of private, big bank debt. Krasting has a nasty habit of doing the Oligarch's heavy lifting.
My sister stands to lose 40k euros .
Last time I checked she isn't a mobster.
A large amount of deposits in Cyprus banks is from the Orthodox Church ,as well as other religions. Are they exempt ?? If not, expect a reaction crusading for forgiveness or are they in the same basket as hot Russian money ?? Perhaps same principle will be applied in US towards hot Mexican drug money which US banks have already been implicated in laundering. The entire banking system is corrupt and now they are seeking confiscation rights in partership with enelected polititians.
'Last time I checked she isn't a mobster.'
NATO rules: anyone between 16 and 60 who shares the same bank with a mobster is a hot-money combatant.
And subject to a 'signature strike' on their bank account.
Well she still owns a part of Blenheim P! So I wouldn't cry for her over tea and sympathy.
I hope she has nice tits to qualify as mopster!
Oups...thats not kosher of me! Just kidding. My apologies to Lady Chatterly Churchill.