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How Black Accounts Work - A Cyprus Connection?
A central criticism of the decision to seize a portion of the bank accounts in Cyprus is that the "bite" hits small guys who have accounts with a balance of less than E100k. As I write, it appears that there will be some revisions to the deal that was announced over the weekend. Those changes will likely minimize or eliminate the hit on these "smaller" accounts.
It is a travesty (and a crime) if Cypriots who live and work in the country have a portion of their accounts clipped. The small guys were not part of the problem, so they should not have been part of the solution. This obvious conclusion begs the question, "Why did they do it in the first place?" There are two possible answers:
The folks who put the original plan together were a bunch of misinformed idiots. They did not consider the fairness aspect, nor did they consider the deposit rules on <E100k sized accounts. The plan was hatched and announced before the big Finance Ministers, politicians and the ECB had a chance to consider the broader Macro issues and the possibility of a deposit run in other EU countries.
Given how so many other aspects of the EU financial story have been mismanaged, there is some possibility that this is how it played out. The whole process was bungled; no one ever considered the contagion risks. It was a complete screw up from beginning to end.
I have a very hard time believing that this scenario is correct. I think all of the EU deciders were involved with the choice. There was consideration of the related risks, the decision was made to go forward in spite of those risks.
NOTE: It's my bet that the decision was communicated to key US officials. Bernanke, Jack Lew and Obama were all informed before it was public.
To me, the only possibility for including the sub E100k in the haircut was because many of the smaller accounts, were also hot money accounts from foreign depositors. The folks in the EU must have understood this when they pulled the plug. (That, or we go back to the "idiots" answer)
Note: I have never had a black account in a Cypriot Bank. I have no black accounts, period. Never had. I have no direct knowledge of how black accounts were managed in Cyprus. BUT, I do know how black accounts were/are managed in other hot money havens. I strongly suspect that what happens outside of Cyprus also happens within Cyprus.
Assume you're a crook of some sort. You have ill gotten gains. Extortion money? Dictator/Politician who stole money from the national treasury? Maybe a pirate, a drug lord or a kidnapper? An Oligarch perhaps? How about a simple jewel thief or bank robber? A tax cheat? Or even just some poor guy who is trying to hide some loot from a wife?
WHAT'S THE MOST IMPORTANT THING TO YOU?
Access to your money of course. What's the fun of having a few mil stashed away and not being able to enjoy what that money can bring? You want bling! $5,000 a night hotel suites, 1st class travel all the time, $1000 bottles of wine, $8g for shoes - you can't have enough of this stuff! And you must have some cash in your pocket. For you, a minimum of $5g in the wallet is necessary. You need to have access to $5g pretty much every day to keep up with all the fun.
How do you do all that? Simple! A credit card tied to a bank is all you need. It's no regular CC. This one is imbedded with a chip. It's better than "smart".
There is no credit involved; behind the CC is a special account. That account is like a checking account. When you hit the VISA for $50k for some bauble, the transaction clears, as there is cash money behind the card. To have the ability to spend serious money on a CC you need a balance of at least $100k in the account. In addition, many banks require that you maintain a minimum amount, say $50k.
How do YOU feed the CC clearing account? Simple! You have on line banking! When inserted into a special reader that you have, the chip produces a one-time code/password, (the code changes every 30 seconds, so log on quick!). The "bank" has a similar code reader device, and it "knows" what that password will be for those thirty seconds. With the account now opened, you can transfer more money to the transaction account. Party on!
Wives/girl friends can get a card too! Those don't have chips, so you can cut them off at will! Cash is a problem, but with a couple of cards, $4k can be had every twelve hours or so.
What does this cost you? To start with, you must have a couple mil in another account. Call that "key money". On each CC purchase you make, the bank takes an extra 1% right off the top. Call that a "service fee". You spend a million on a CC, it costs you $10g - who cares?
Do you live in a City? Pretty much anywhere on the globe? When you walk around today and see all the tourists living it up and shopping like crazy - understand that "hot" cards are a significant portion of that activity. The problem with hot cards is that you don't want to use them in your home town. That draws attention, and YOU don't want that, right? So travel well!
AGAIN - I don't know what happened in Cyprus. However, if a significant number of the "smaller" accounts that are subject to the deposit theft are connected to CC clearing accounts of non-residents, then you have a possible explanation for the actions that were taken.
NOTE:
I AIN'T TAKING SIDES! I'm reporting some information that may or may not be relevant to the discussion on Cyprus. I'm not trying to justify the actions that the EU has taken. I'm trying to understand what motivated them to take such drastic and dangerous action.
That said, if you still need to shoot the messenger, please feel free to do so. BK
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really?
theft? unless the depositors' contracts with the bank specifically state that the bank is safekeeping the funds as opposed to loaning it out for interest, it is implicitly clear (in fractional reserve banking) that the deposit will be swept out into loans; thus, those deposits are at risk: http://tinyurl.com/cner4my
if you invested in an uninsured company and it went bankrupt and the shareholders were wiped out, but because the company performed a needed service, the bankruptcy manager was able to get some bailout money from govt to keep company solvent and instead of losing all your money you took a 10 percent haircut...would you categorize that as theft or would charactize that a a bad investment that you saved from going as bad as you thought it would.
If you are depositing hot money beyond insured levels at a bank that goes completely insolvent, you stand the risk of losing all your deposits above the insured amount. So anyone who puts more in an account that the insured max, is taking a risk, just like they are in leaving money in gambling site's accounts, commodities trading account etc. If then that bank, gambling site, trader goes broke, you could easily lose everything, or mostly likely get pennies on the dollar. If you came away with 90 percent of your uninsured depositis, from a bank that is insolvent, I wouldn't consider that theft but lucky. If you were putting in deposits greater than insured amount in banks that had deposits 700 percent of the GDP of the country backing them around the time of financial instability in that region, you were taking obvioius huge risks, likely because you had no other option than paying high taxes on the money.
Only in the modern world run by elite parasite bankers and their govt cronies can getting to keep 90 percent of your uninsured, hot money deposited in a now completely insolvent bank,w hich was obviously the riskiest banks to use since Iceland banks be considered theft.
Bruce is right, the real theft here is theft of 10 percent of insured accounts of regular domestic citizens and domestic businesses who need local banks for transfer of cash, paying of monthly bills, payroll etc where 10 percent seizure could take out businesses, keep people from being able to rent etc. That money was insured, it shoudl have been considered off limits.
Stock holders and bondholders should have been wiped clean of their bad investments in the banks first, then any idiots that already try to bail them out with loans shoudl lose their money, then big depositers who were taking obviouis big, uninsured risks. The regular insured deposits, especially domestic ones, should have never been touched, even if how money was hiding in them.
But the bank investors and bondholders are guaranteed to never lose their money, no matter how bad their investment, so they will be protected. Some rich hot money, that can be lost in way that will harm bank stability and trust, so be it, and to really get those, if we need to take out little Cypriots, so be it, but our buddies will never ever have a loss on their investments, even if it means crashing economies and high friction costs of low trust of financial transaction system.
So all accounts should be excluded. Even the dirty ones? No size limitations? A complete free ride?
So who would get robbed in that case? The actual tax payers of Europe? Me, I'm not conviced in the fairness of that outcome either.
"So all accounts should be excluded. Even the dirty ones? No size limitations? A complete free ride?"
The above reads as the view of a rule-maker or rule-decider or rule-enforcer.Such is not your level of privilege or royal ranking.
You are one of us and suffer the angst of being forced, as one of their "subjects", to confront rhe insults.
I read and learn from your posts because you have long experience dealing in financial matters whereas I am/was a remote outsider .
One does not achieve justice by punishing the innocent.
Do they have the right to a fair trial first Bruce? Are you saying they have no right to due process?
And there is a page out of the bankers bullshit playboook.
Fairness has never and will never have anything to do with enablement of tyranny through monetization and the conduit of incorporated lawless money.
The Russians are a red herring. This collossal failure of reason is the product of broken markets and fraud finance.
Get real Krasting. Your denial makes you totally dillusional to anything that isn't synthetic truth, notaby the absense of the real thing.
Dirty money, clean money, its out of the same fucking fraud-press!
"So all accounts should be excluded. Even the dirty ones? No size limitations? A complete free ride? So who would get robbed in that case? The actual tax payers of Europe? Me, I'm not conviced in the fairness of that outcome either."
There shouldn't be an EU bailout of Cyprus, period.
If the money is dirty and they know it's dirty then prosecute them. Then you can confiscate 100%. Presumption of innocence is paramount to rule of law.
I made the argument yesterday that a lot of dirty money is flowing into US real estate. But .gov likes that because it helps re-inflate the bubble. .Gov does not get to pick and choose which laws they follow. Or do they? Seems you are advocating yes
"So all accounts should be excluded. *Even the dirty ones?*"
If they are after hot money, there are laws for that. But when they (EU) decide to take a cut from (supposedly) ill gotten gains OUTSIDE of the law framework then they are no better than the "outlaws" they are persecuting.
And then they take a cut from the good guys too... for good measure, for "fairness".
The whole thing is inexcusable.
By inexcusable you mean business as usual, right?
The Prescott Bush family welcomes your continued support.
Next stop killing -- cause nobody saw it coming!
Birds of a feather flock together. If a person is living in Colombia, Grand Cayman, The Bahamas, Afghanistan, Washington D.C. or Chicago, they should be well aware that they are living in a hotbed of crime and benefiting from it. Negative Nominal Interest Rates (NNIR) are going to be what it takes to get the world economy turned around.
Bruce,
It really frightens me to read your comments. I always thought you are one of the most reserved and clear thinking contributors to this site. If you think in terms "so who would get ROBBED in that case?", then I would not dare to imagine what an average crook/politican in the EU or US prepares for us all....
The answer is - nobody! If the situation is such that leads to distress or bankruptcy, then, to the surprise of you and all the negotiating parties in Cyprus deal, there are quite established and LEGAL bankruptcy procedures!!!!! The Cyprus banking system should SHOUD SHOUD go through them!!!! In the end, equity should get zero, bonds should get zero, accounts below 100,000 should be covered, and the accounts above 100,000 should get the appropriate haricut and new equity in the banks. Why, why should I explain it here for you. Apparently, you know these things.....
If money in some deposits is illegal, then the account holders should be prosecuted according to existing criminal law!
Or, i might have misunderstood you. You really hate the robbery process we all see, but just think it is inevitable, and, as we all going to be robbed anyway, it would be better to rob Cyprus "black accouts" and "russian mob" than "EU taxpayer". Well, well, as always - better "them" than me.... Just keep your eye on your own savings.....
HOW ABOUT YOU ACTUALLY PROVE THE MONEY IS DIRTY BEFORE YOU TAKE IT YOU FUCKING SIMPLETON!
Jesus fucking wept.
Mark it to fantasy bitch.
Proof died in 2008.
Cmon, EVERYONE knows the money is dirty. They just know. The New York Times and the Economist said so. Bruce Krasting said so. The EU said so. You want courts and due process? How quaint. /sarc
The time for invoking 'dirty' is when the money comes in, not after the fact.
What Bruce proposes is arbitrary, discriminatory, ex post facto seizure, with no opportunity to contest it.
That's unconstitutional for a reason: it's sleazy, opportunistic and unfair.
That's unconstitutional ...
If it is, according to the Cypriot Constitution, than surely the plan will be voided as unconstitutional by the Cypriot Courts. So why all the fuss here about something that is not going to happen.
Yes because Western judicial systems have done such a fabulous job over the past 200 years preserving individual rights.
If account size had no bearing on the morality of theft, there would not have been Western bailouts in 2008.
This is an interesting metric to consider, because in the US we now know that if you pass a bad check for dinner you wind up in the slammer but if you misappropriate $1.5 billion of customer custodial accounts you get a Wall Street mulligan.
Don't forget the promotion to "Honorable," thereby excusing you from law and order.
Justice monetized, William. It's only for the "honorable."
Go after those evil Russkies! Mafia! Yada yada credit cards and shoes! Somebody takes 10 to 15% of my offshore cash, I'll turn their damn natural gas off, since that's where a lot of that cash comes from. Seriously.
Stupid is as stupid does. They should have not told the depositers what they were doing. They should have pulled an MF Global. The money should have just disappeared without a trace. Then they could turn around and say - "We don't know where it went".
Ah with central bank zero/ negative interest rates to year infinity, isn't this latest rabbit out of the hat kinky double dip penetration. Bugger me blindfolded Ben and please sir may i have another?
Did I miss it or is there a striking lack of clarity regarding what I assume must be a "liquidity"(bankrupt Bank) problem. Where did said liquidity go? Was there a sub-prime crisis in Cyprus? Maybe you should focus your blame on entitlements...it is at least familiar turf for your assumptions.
I'm glad you brought up liquidity, because that's really the heart of this one. The EU thugs knew ahead of time that this would cause a liquidity crisis in Cyprus, with probable contagion in Spain/Italy/Greece. Where have we seen this script before? Funny how "liquidity crises" result in large, illegal transfers of wealth.
If there is one honest saver in Cyprus getting hurt by this it’s still a case of the prudent being punished for the recklessness of others, most importantly the others who are running the show. That’s basically what’s been terribly wrong about the management of the whole centrally planned money system for the last five years.
Golem has an interesting take on it. While he acknowledges the hot money issue, he refers to the action taken as collective punishment and suggests that this action is preferable to TPTB rather than going after money launderers:
http://www.golemxiv.co.uk/2013/03/eu-imposes-collective-punishment-on-cy...
Two points. First, Bruce doesn't seem to know how this works in the banking system...
Second, theft by any other name is still theft. "Society" has somehow determined that it's okay in some arbitrary cases, if enough people think it's okay, to steal things from other people. Theft is theft is theft. There are no criminal proceedings here to determine ill-gotten gains - people are just wiped out because apparently your money is not your property - it's the government's, and they allow you to use it (sometimes) after you work for it.
I'm so sick of the leftist attitude that is simply pervasive in the world as a whole now...
Great... I provide you with a detailed look at something very few people even know exists - and "Evry-whatever" says I don't know how the system works.
Evry, a favor, please give us an explantion that shows how much you know about the banking system. You being sure I've got it wrong, maybe you could set us straight on the facts. Seeing that you seem to know how the banking system works and all, that should be no problem, right?
Tell us how the hot money works. How does it flow? How is it accessed? Who is involved?
Undress this with one word: incorporation.
That is how it all works.
I'll tell you what I know about the banking system. Instead of stealing from customers they could have just legally counterfeited (excuse me, printed) the money. Which immoral choice do you see as the lesser of two evils? Please let me answer, STEALING FROM PRESUMABLY INNOCENT PEOPLE WHO HAVE NOT BEEN CONVICTED OF ANY WRONGDOING WHATSOEVER!
You think that is good and fair, end of story, end of credibility.
"Detailed look”? Not hardly. I maintain that this article is completely void of insight and at that the readers on this site were already well aware of money launderings existence. Your version of a detailed look into "Black Accounts" was stating that they were laundering money by linking a credit card to an account. That was it, nothing more. That would be the same as explaining to a child from a third world country that had never seen an incandescent light bulb how electricity works by explaining the on/off function of a light switch. Utter Bunk.
And the only way for "hot momey" is Cyprus? what about Chelsea and other football clubs in England? What about properties in California or South America, real estate in US and so on.... What are you talking about?
You might need to be lineared up, cause you don't sound like a brit to me.
'Hot money' is a pejorative term.
Why don't you tell us when you stopped beating your ex-wife?
Yeah, it's all the leftist's fault. What idiocy.
Even if 50% were accounts as you describe in your article, it doesnt justify the action. You need to prove the deposits were from illegal sources otherwise its all the same. This is weak support for protecting bondholders who should take 100% of the hit prior to any deposits REGARDLESS of the nature of the deposits. Cyprus is a test case for future bailouts in order to protect hedgies and other fraudsters. So far, it has gone well it seems.
Bruce is an idiot shill who doesn't realize, either because he's too stupid or because he's being paid not too, that it's the banks that are the criminals here. He is taking their side and fighting to justify the crimes they are committing. He is a fraud and should not be allowed here.
So here's some INFORMATION for you, Bruce: Out of 70 bln in deposits nation-wide, 63% are domestics, 7% other EU citisens and 30% is the rest of the world.
You may not be taking sides, but you're leaning on this bullshit angle that there are no innocents here, dickcheese.
USD deposits may become scaled down, as capital flight ensues from those 30%, but we'll be just fine, if they come to their senses and remove the 6.75% theft levy for the little guy under 100k.
P.S. Per your definition I'm hot money. Review your definitions.
I wouldn't be proud to be among the worst, and then brag about no doubt.
Residents you say? What consititutes a Resident in Cyprus:
Immigration Rules:
A permanent residency permit, can be
sought by those people from third countries, who buy a
residence in Cyprus of a value not less than €300.000.
People with the intend to invest in
agricultural, fishing, animal farming business,
provided they have acquired the analogous land and
they have a capital of €430.000
Mining business provided he has
available €350.000 capital
Any other business who intend to invest
in Cyprus for €260.000
Employees of any business provided they
can prove that their employment will not be
antagonistic circumstances in the sphere of the work
that they carry out.
So if you have a measly $300k you can become a resident of Cyprus, and you can also hire whover you like, and they too can get resident status.
Give me a break. These accounts that are domestic, are not what they appear to be.
So Bruce, when the United States "has to do this" to your bank account because they refuse to fix budget issues like Social Security, you're going to give it the thumbs up?
I think that Bruce has finally outed himself as the pro-bankster shill that he truly is. His repeated disingenuous diversions and evasions on this subject speak for themselves.
Go to Hell, Bruce. Your credibility here is dead.
Interesting how you only argue along the same moot point as your article.
As I said earlier, this is nothing but carrying water for the banksters.
Given the lack of adherence to the facade around here, perhaps ZH isn't the place for you?
You can pretend these actions are legitimate all you want, however, it will never make it so. All these "solutions" are doing is to ensure that WWIII is absolutely coming.
He's a clown in this case, and is advocating outright theft of private property.
Bruce, don't find yourself on the other side of the bet, when/if your brokearage/bank account(s) get seized due to negligible activity of third party "funny money" in a particular system.
I doubt he's a clown, since we lost most of them in a stage coach accident some time ago, what else you got?
The Sun, hot bitches & the seaview from my villa.
Also, a pending haircut on a local bank account, but that's been hedged already. :)
Well then here is some music to lighten your day.
http://www.youtube.com/watch?v=0PGdgIZ4gRA