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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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"What can I say? You fucked up. You trusted us."
exactly. well said:
those who fail in the due diligence dep't should lose all of it: http://tinyurl.com/cner4my
So the estimates of 50/50 hot russian money are incorrect? It's now all hot russian money?
Of course, the Cyprus, EU and US bureaucrats will be the ones telling us just what this number is. They're very accurate with numbers, we can trust them... </sarc>
Oh, yeah, commies are BAD, "mmkaay" (South Park's Mr. Mackey - http://www.youtube.com/watch?v=E4_tOiLB_Ko)?
We shall see in the next few days where the hits fall. Is this 90% widows and orphans from Cyprus and 10% Russian? No, I think it has to be closer to 90% Hot money and 10% local.
They would not have taken this dramatic step, unless the hot money was a big issue.
The cost here is $7.5b. That is peanuts. Why would "they" have done this unless the hot money was the problem?
Merkel and her re-election.
Hot money, so what.? That's just and excuse. Most of the hot money is in transit in any case.
This is the popular excuse. 1984!!!
'I think it has to be closer to 90% Hot money and 10% local.'
Utterly preposterous.
You are destroying your hard-earned credibility with this nonsense.
I agree.
Henceforth, I will read everything here on ZH from Bruce with a very suspicious and skeptical eye.
Bruce, you have, perhaps unwittingly, declared here today just where your real sympathies lie, and they clearly lie with the banks. Your repeated justifications for this malicious asset confiscation scheme come through loud and clear, and I suspect, if not hope, that the Tyler(s) will reexamine the value of your future contributions to this site.
Now, ak. Don't get all hard-core on Bruce.
As evidenced by this thread, he throws us the red meat and we do with it what we will. His posts have the most enlightened and intelligent discussions on ZeroHedge, bar none. To say that he should be throttled because you disagree with a statement he made (or you interpreted...) is not in the ZeroHedge spirit of things.
Everyone went off on Marc Chandler yesterday but he stuck to his guns and said that he wasn't passing a moral judgement, just leaving it for us to decide. To be able to have a discussion with thse guys is a wonderful thing, whether we agree or not. In any event, it is the substance of the comments from all over the world that helps us to round out a very informed opinion.
:D
I think I see your point, Orly, but it is one thing to play devil's advocate on a particular issue, and quite another to claim that two opposing positions carry equal moral and logical weight when one has none at all --- much less to equivocate and refuse to take a stand against clear criminality and immorality. By claiming that there are, or even can be, "two sides" to outright and unequivocal theft, Bruce has, inadvertently or not, given the moral high ground to the thieving banks. That is what I condemn here.
EXACTLY. If I want to hear parroting of the banks' excuses for their theft, I can watch worthless CNN talking heads. Bruce has just outed himself as NOT being amongst the commentators who have the guts to call "right" or "wrong" and do actual analysis
That's almost as bad as taking the banksters' side.
Well, in deference to Marc Chandler, he came on multiple times and said that this was actually the wrong thing to do. Financial repression was the word he used and it was clear that he did not agree with the actions of the banks. Maybe it is difficult for bankers and money-men to pass a moral judgement on it because it resides in their "neighbourhood," so to speak.
I don't recall Mr. Krasting saying that it was wrong or that he disagrees with it. Maybe he is in a quandary about it and feels it is not his place to say? But maybe I am wrong about that as there are over three hundred comments on this thread alone.
:/
Addo: Oops, I stand corrected:
"I'm not taking sides. If I was, I would have been against this dramatic step." -Bruce
Orly
"Maybe it is difficult for bankers and money-men to pass a moral judgement"
When you are amoral, morality doesn't come in to play.
Doing what is right is never a consideration.
Bruce seems like a good dude. I am excited to see that dimwit Mark Grant or whatever his name is tomorrow try to justify this. He is a bonafide asshole.
Nevertheless, Bruce is just pulling nonsense out of his ass. From Bloomberg:
'Cyprus was also a special case, [Barclays] said, with 30 percent of deposits coming from non-euro countries.'
http://www.bloomberg.com/news/2013-03-17/cypriot-bank-levy-is-ominous-fo...
30 percent, not 90 percent. And a chunk of that 30 percent is British and other non-EZ Europe.
So now what, we start looking for other places that may have "Russian" money?
Last question is a joke, right?
"They" did it because they could. All funds, no matter where located, belong to the State.
There are not "two sides" of this. In trading, maybe. In reality, no.
A better question would be:
Why should ANYBODIES money be stolen to prop up a banks gambling on worthless assets.
Maybe some of these Russian depositors will do what the ordinary Cypriots cannot do and bring some 'accountability' to bankers.
I hear that some have very persuasive methods that would cause a bit of anxiety to other denizens of the financial world.
This will definitely be a gamechanger. Cypriot bankers will be very lucky if people vote with their remaining money instead of ropes.
Welcome to the jungle. No rules.
Are you certain they didn't already take it, and are just now getting around to reporting it? That would be consequence city.
The remaining hot money will be on a plane tuesday morning leaving Cyprus
All 32 euros of it.
I'm not looking at the money ratio, I'm looking at the people ratio.
EVERY Cypriot with a penny in their banks is hit by this, EVERY SINGLE ONE!
Hollow points
I think you mean hollow point ammo, which is the proper response to this theft
"Why would "they" have done this unless the hot money was the problem?"
German elections in autumn. Merkel can't spend any money on foreign bailouts right now.
It's $7.5b. Not much. Will it be worth the gamble? We shall see.
Obviously the deciders thought it was justified.
Merkel is in a bind either way. What would have happened to her at the polls if she had given the Russians a free ride?
Bruce when they made the call to try to do this they knew damn well it could set off a massive bank run. Yet they went ahead with it. What's your take on that?
1) They think their plan B will work. We haven't seen it so maybe they're correct.
2) Things are so much worse than they let on that a chance of bank run is better than the alternative.
3) Someone has a plan that benefits from chaos.
4) They're economists so they just "assumed" no bank run in their models.
The banks that are in the big club are massively short PIIGS debt.
The banks that think they are in the big club are massively long PIIGS debt
5) some combination of all four
Maybe it's a trial baloon.
I don't think her opponents would have understood that it would have been a free ride to Russians.
Since they've already have a market manipulation system up and running, all they need to do is to show it off on monday again, and then the "market" will draw a sigh of relief, and continue trading up the multiples. The markets problem is that most participants have adjusted to the driving of the indices and just lean back and wait to see where, when, and if it will finish. If it finishes at some point, there will be no buyers at all left.
It's becoming harder and harder to increase the number of spinning plates...
HSBC has actually been convicted of something... where's the haircut for their depositors? Laiki, on the other hand, well I've read something in Der Spiegel that says "everyone knows" they have crooked Russian money, and that's proof enough for me.
What's amazing is that the Russian government seems to be willing to go along with this despite the Germans' basically saying that all Russian money found outside of Russia is the proceeds of criminal activity.
What's the saying about not crossing a Russian...
Many of those wealthy Russians are in the energy business. What goes around will come back around soon enough.
I would like to relate something to the crowd. Russians now have money and just because that is difficult for us to get used to, does not mean all that money is "mob money." I experienced this first hand staying in a Thai resort that was full of well to do middle class Russian families.
In fact, I have noticed that there seem to be more Russian tourists running around Asia now than Americans.
Obviously, this "Russian hot money" business is just a convenient method of misdirection from the substance of the matter.
"Many of those wealthy Russians are in the energy business." Always need to turn back to energy... energy IS power. And Russia has it (though, like all finite resources, this power will be fleeting).
Europe would pretty much get shut down if the Russians got sufficiently pissed.
'This "Russian hot money" business is just a convenient method of misdirection from the substance of the matter.' -- WB7
Our CIA-coopted MSM have plenty of experience with the 'dangerous Russian bear' meme, having practiced it ever since the Cold War began.
Now instead of spreading communism, the devious Russkies are spreading 'hot money' into our squeaky-clean western banking system.
I heard this on TV, so it must be true!
Ruskies have no leverage w/natural gas anymore. If they decide to cut supply, all it will do is accelerate construction of U.S. export terminals. They would end up permanently impairing their market. Yes, the get higher prices and "teach Euroland a lesson" for a couple years, but a big long term loser.
"Yes, the get higher prices and "teach Euroland a lesson" for a couple years, but a big long term loser."
Let's hear you further expand on this.
How come only "a couple years?" How are things going to change in a mere two years (given the current trajectory of austerity and economic decline)?
And, how "long term?" Ten years? Twenty? Where is the NG coming from, how much is there and what is the draw-down rate (local consumption as well as exports)?
Listen, if you're selling something you best have something to back up the claims. That's a basic requirement for ANY reasonable debate.
I suppose you are setting up a great argument for tagging all the depositors of the other money laundering bailout queens we know as well: Barclays, Wells Fargo, JPM, Standard Chartered, HSBC to name but a few. Afterall, these entities are all known depositories of hotmoney from drug dealers, Iranians, arms smugglers and gangsters, yadda yadda.
Yes indeed, screw the hot money crowd.
The same rationale should certainly apply to Cayman Island depositors as well. After all, they are all gangsters are they not?
I think that rational is a bit near sighted.
Let me ask you a different question: Did you think the American Nazi party should not have been entitled to First Amendment protections in Skokie? Is it ok in your book to set legal double standards based on a societal smell test?
Another question: What is the new principle that says that it is ok for governments in the European Union to lie to bank depositors?
williambanzai7
Isn't the entire City of London hot money ? What else does Great Britain produce beyond churn ?
Well someone took down the twin towers, didn't they?
Banzai - You read me, thus you know I have dozens of articles on the broad topic of the authorities going after hot money.
The US, UK, France, Germany, Swiss, all of the pigs, etc. have being going after the hot money. This is a ramp-up of what has been happening for the past four years.
Don't read me to be saying that what has happened is "okay". It is not, and it may just tip the applecart.
"The US, UK, France, Germany, Swiss, all of the pigs, etc. have being going after the hot money. This is a ramp-up of what has been happening for the past four years."
Hand-slapping is "going after?"
ALL of TPTB absolutely KNOW that w/o the black market funneling money through their banking system that the entire house of cards woul collapse: it's suggested that the BM held things together during the Lehman crack-up (BM was the only money flowing).
And, really, it's all a Ponzi, in which case to call any part of it "illegal" ("black market") is kind of silly.
"Hot money" is likely the only thing that's really held the ponzi banking system together. Birds of a feather...
Here is how I read this. It is all related.
They have now crossed the Rubicon by telling the world that those at the top of the pyramid will be kept whole at all costs.
As is the case with many things that are happening around the world now, I cannot agree that is ok to make exceptions on fundamental principles in the name of chasing or punishing evil boogeymen.
They have made a short sighted decision and now they will have to live with the consequences. Its ok to bail out the pigs that run the circus but the little guy has to pay the tab with his nest egg. Them telling everyone that it is somehow a special situation because half the money in the banks is "hot" is an insult to our intelligence.
If this is the brave new world of "deposit protection schemes", we tax your money to bail others out, then I would say going very bullish on Hong Kong and Singapore banks as well as PMs is a very sensible way to go.
'Them telling everyone that it is somehow a special situation because half the money in the banks is "hot" is an insult to our intelligence.' -- WB7
Specific legislation against 'hot money' and 'money laundering' only began in 1986. It is a direct outgrowth of the War on Drugs.
http://www.fincen.gov/news_room/aml_history.html
WB7 is right: parroting the 'hot money' meme is for those who have been co-opted into informing on behalf of our overlords.
The War on Drugs and the War on Money Laundering are evil.
I should add that justifying the forfeiture of bank assets by referring to the ethnicity of the owners is something that we have also seen before.
Naturally, they don't give a flying fuck what this looks like. But I will tell you there are many legitimate deposit owners who are absolutely justified in being offended..
Agreed, but probably a better option than "QE to ?"; we will see in time.
Of course, if you let the banks fail, and only backstop the depositors----and THEN take the haircut ----the losers lose and the savers win----nah, everyone knows that! Besides, it is too simple---everyone would understand it
and the US is in a much deeper hole than the EU or Asia.
On the other hand, they could have backstopped the depositors to 100,000 euros for nationals, hit foreign deposits for 5% to 100,000 euros and 15% over that amount, but
maybe they know that the Russian oligarchs will do more than park a tractor in front of the bank or protest in the streets----these dudes know where the banksters live!
I prefer the Cypriot bank bailout to this QE nonsense, and it is more transparent and cheaper.
Something tells me there won't be long lines in front of U.S. bank branches tomorrow. That's troubling.