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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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Classic Socialism in Action
Backlash from the proposed 6.75% to 9.9% confiscation of savers’ deposits has caused Cypriot politicians to rethink their original plan. Monday’s Wall Street Journal now reports that a revised money grab may be more tolerable to the masses who were outraged, not at the stealing of innocents’ wealth, but at the lack of steep progressivity.
The trial balloon proposal, which screwed even ‘mom and pop’ from their first Euro, set the stage for a revised, “This is much less bad than the original” acceptance by the masses.
Political leaders think the public will be less outraged/more tolerant of their immoral behavior if ‘the rich’ must suffer at a far greater threshold than others.
This was the founding principle of America’s fiscal cliff resolution earlier this year. Jacking up rates only on high earners left the average person ‘all in favor’.
Everybody loves new taxes that they perceive will never apply to them.
The coming implementation of the deceptively named Affordable Care Act (Obamacare) makes it mandatory to disclose 15-pages of financial information in order to qualify for subsidies or avoid penalties. In reality the ACA is the beginning of a push for our government to know everything about everyone’s full net worth.
Once that happens, expect wealth taxes worse than what was just announced in Cyprus to be instituted here in America, all in the name of social justice.
I like the idea of a wealth tax that targets elites and hunts them down in their tax havens. A nice big exemption for the middle class would be a feature.
In the US it is called the "estate tax." Cyprus is just implementing it a few years before death, but otherwise no different. Pure redistributionist, collectivist theft. But that's what the masses want now.
Feeling a little beaten up Bruce? :)
This decision was not made in a vaccuum. Several EU heads of state have come out and said "this is good for the EU and good for xxx (insert country of choice)"
Assuming Rehn didn't wake up Friday morning and said "I hate Cyprus and all their base are mine" chances are the big fish got a tip off that their money was going to go poof in exchange for some shitty bonds and a shitty T-Shirt that says "Cypriots love rough anal"
These idiots have to have discussed this and the ramifications and the bottom line is they want Cyprus out of the EU. They have to know the chance of a bank run is 100%. If I had a bank account in Cypress and got stung I would get my remaining money out just on principle.
Cypress is a small sacrifice to get the rest of the peripery into line in their twisted heads.
There going to have a bank run, why do you think that they decided to close banks at least till thursday. It's because even if they decide to not tax people with funds under 100,000 people will take their money out anyway because they don't trust the govt. or banks. Also I totally believe that most of the big money guys over 100,000 moved their money out months if not years ago when the global contagion was going on. They had to go after the under 100,000 because they need the money pure and simple.
But moved it to where? Where's the safe haven? Gold? Or just another currency someplace else? That's the issue I see here--there are no safe havens as this is a global contagion.
I thought along these lines.
It's maybe a controlled forest fire in a flat accessable area to help eliminate the risk of a mountain catching fire. The whole mess could go up but it's a calculated risk.
Cyprus is a mousefart of insolvency compared to the whole EZ and the bet may be that the news cycle moves on and the rest of the EZ will slumber through it all.
This will get the Troika back to the busywork of praying for a hard rain.
This could also be an exercise of the brain (on my part) to impart rational motives to seemingly irrational acts.
We'll know soon enough.
One spark can start a forest fire. And when it starts you might get the Government Apparatchiks to come and fan the flames. They get paid no matter what they fuck up.
Yes
When you're in a hole, Bruce, stop digging.
no one ever considered the contagion risks.
How many people, economists, finance ministers, bankers, etc, have been working on this problem for the last four years?
Pink slips all around.
I said - that I considered this unlikely. They did consider all of the implications.And yes, this was up for discussion for a long time.
What do you think ZIRP is? It conficates money, same as the EU. It is a 'stealth' grab of money. about 2% a year. I don't see the two as much different.
Sincerely,
Shovel Ready
1wrong + 1wrong is 2wrongs. It's that simple.
"What do you think ZIRP is? It conficates money, same as the EU."
Yeah, but 10% all at once is really bad manners!
In practice they are not that different. In theory, one has the choice to move their money elsewhere (I know, the choices are not appealing). One "tell" that he grab in Cyprus was particularly shady was the timing.
I'll never support this move (or excuses for it), but I enjoy reading your thoughts.
"What do you think ZIRP is? It conficates money, same as the EU"
thanks for stating that Bruce
ZIRP is stealth confiscation and is really no different than what the Eurocrats are proposing in Cyprus or what the Eurocrats have imposed on Greece, Portugal, Italy etc.
The peasants are paying the banksters debts.
likewise for the "leadship" and owners. The CEOs/leadership drive the company/country into the ditch, but keep their wealth and confiscate yours. Roll the mother fucking guilotines already.
<POW>
Still spinning the hot Russian money tale I see.
His first premise is 'Assume you're a crook of some sort.'
Then he proceeds to describe financial products which plenty of non-crooks use.
Guilt by association. Classy.
Better yet, he fails to properly identify the real crooks, choosing instead to call them idiots, then insults any of us who would challenge him by proclaiming his innocence as a mere messenger. Well Bruce, one man's "messenger" is another man's "waterboy."
The fact that it is "dirty" money is moot, as this is just another divide and conquer device to justify open theft. This is a stupid article that should've NEVER been written.
First they allegedly came for the Russian oligarchs...
"Uh... We gots ta have $700 billion right fucking now or we will make the world come to an end !" says Paulson. And if we repay it, it will be in Benny bucks.
No crime there ?
If you deposit money in a bank and we steal it, then go fuck yourself.
Moral Hazard ? No. Just Theft by any other name.
hey fuu, exactly. I posted this elsewhere but to your point...
I've been thinking all weekend and I think I finally figured it out. What is the theme here? Russian hot money Russian hot money....hot money....hot money....illegal....illegal...confiscation...
Maybe a month or two from now you will hear that all that hot money left the banks and bought gold.
So confiscation of gold only makes sense since almost all of it is in the hands of the wrong people.
The few "others" much like the few "other" citizens of Cyprus just have to deal with being collateral damage.
case closed.
and Bruce, to his credit, made this clear himself
"On one hand you might conclude that the effort to snuff out dirty money in banks is going to be a constant source of new demand for gold. And you would be right in that conclusion. But on the other hand, if gold is going to be where hot money goes, how far away can it be where private ownership is restricted?"
http://brucekrasting.com/on-laundering-black-money-and-gold/
Hot money, (or money from hell), is what is left once all the easy money is gone.
Good of Bruce Krasting to say a few words for the little guy ...
But re BK's critique of offshore and 'black' banking
The fact is, honest people need offshore 'secret' accounts for many reasons, because of things in their home country ... Americans are now among that group
And the murdering American oligarchs and Corzine -types of the USA, are no 'cleaner' than Russians or foreigners with bank accounts offshore of their various countries
The only difference is that American oligarch murderers are 'legal' in their own country due to the court and government corruption
And US criminals uniquely have the extensive US-dominated media and internet cover-up for what they do
It's a shame I can only give you one +1 for that comment, Bank Guy.
We are showing the rest of the world just how corrupt and dishonest a "democracy" (hardly any Republic left anymore) can become. If the rest of the world takes notice, and reforms their own dishonest, failed governments (or simply starves them into submission) we will have done a minor service.
Meanwhile, our theft, lying and corruption is doing the world a major dis-service.
Michelle is now proud (selectively) to be an American. It's hard for me to be proud of anything we've done in the last dozen years. Maybe disaster relief, for the tsunamis, various famine relief, similar efforts. Our "peacekeeping", "investment" and "stabilization" activities leave everything to be desired.
My thoughts exactly, Bruce made his living pushing paper and robbing these same "little guys", now he wants to go to his grave with a clear conscience, sorry, fuck you Bruce. For every action there will be a reaction. Just another scared baby boomer.
Yup, BK suffers from that disgusting disease, American Exceptionalism. Blankfein, Dimon, Pandit etc. somehow get left in the cold when BK talks about hot money. The reality is that BK is no better than some middle tier Russian corruptocrat who thinks like BK that only little guys are "tax cheats" while he and his cronies make sure that they get their carried interest deductions.
Yea, short people got no reason to live. While little amusing guys have no money to cheat taxes on.
Better to shoot the messenger than understand the message.
Force the leadership (who lead us here to begin with), management, owners, shareholders, and bondholders to take the loss, if they refuse, execute them. That better fucknut?
Did it have to be done this way in a whole universe of solutions? A variation of Occams law goes like "never attribute to malice what can be explained with stupidity". This is a stupid solution because it take sooo little effort to devise it. Better solutions require a lot of thought. Stupid ones don't.
Malice and Stupidity are not mutally exclusive.
"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"
TOTAL.ABSOLUTE.BULLSHIT
That is a media generated and pushed criticism being used to try to make the little guy think someone is looking out for them.
The media will come out swinging for the "little guy" all week. "We are on your side" is the msm agenda until further notice. It's a bullshit line being fed to the sheep.
If you asked someone with under 100k in a bank if they would keep their money in a bank if they were only going to confiscate account holders with over 100k, I would think they would answer "no freakin way".
But either people are totally braindead or not getting real information. The fact that there is currently no bank runs taking place in Spain etc. means no one knows or no one cares. Why would they wait another minute if they really did?
Do not give too much credit to common people.
They still go and vote either for Bush or Obama. My friend with PhD from MIT in Physics thought that Romney was the real thing, i.e., a businessman who would fix America.
"The fact that there is currently no bank runs taking place in Spain etc." This is all about trust. As long as people think their money is safe and protected there will be no bank runs. People still trust to their government. These are the same governments who pay their pension, medical, and welfare bills. These are the governments who promised so much and people are eager to trust to these promises.
But Cyprus is a canary in a coal mine. Things have started to change, and people will stop trusting to their governments. Just give people a little more time.
damn, someone gave you the script of this week? up to the point where all the little guys are saved? ;-) you are a dangerous man, fonz, with a dangerous mind ;-) ;-)
euro ghord, on another thread: the grist of what you posted was, the common folk of cypress let the banks do what you consider crimes, therefore all those hairdressers and barbers and cooks and such deserve what they get..I am getting to really dislike the snake you seem to be.
I'm not that sure that this was the gist of what I wrote. please note that the Cypriot parliament has not made any law yet, and no hairdressers and barbers and cooks have been hit, yet. sure, it sucks having your funds blocked, but read again what fonz is suggesting
Okay, there is money-laundering in Cyprus. Prosecute the guilty parties and make them pay.
This exaction has nothing to do with money-laundering which is an excuse ... to rip off persons uninvolved with crimes and hand the funds to bankers.
Hundreds of years of effort on the part of the establishment to convince depositors of the safety of 'trusted third parties' is up in smoke ... so that greedy bankers can make a few more euros.
Let the senior creditors, the ECB and the preferred shareholders shoulder the costs. They are largely responsible the Cyprus mess in the first place ... not the depositors.
I don't have half the knowledge of many on here, yourself included. I just try to learn and put whatever I can together.
bling bling, the oligarchs always ring first and win next.
The other poor suckers get caught in the swivel doors; like Woody Allen, in everything you've always wanted to know about sexy money but were afraid to ask !
Is it a way to get savers to spend money instead of save in Europe...? might work actually
doom and bloom
Only saved money in a mattress doesn't get into the economy. If you "save" money in a bank account it is scooped up every night and lent out all over the world.
Banksters is not bungle, is underestimate reaction. Not is sorry to rob from Cypriots, is sorry to get catched.
It's simply the bond holders who do not want to take a hit, they make the laws in their favor, and collect when they need money.
I have one of those and for everyone's info the use of the money out of the country is 3%. That's only okay in an emergency. They are thinner than CC's and have a button and a screen displaying a multidigit number.
Additionally, if your account is in the US too many eyes watching. From .gov to bank employees etc.
There are better ways. Those who have the bucks know them.
There are also banks that give you multicurrency checkbooks.
You walk at the bank in Monte Carlo, you cash 30,000 euro and they give you some cash and load up the rest in a disposable CC.
Good for a few days at the Hotel de Paris, Jimmy Z's and the "chambre Americain" at the casino.
Blast away
All of Boris credit card is disposable - charge to max and in default. Many merchant is receives secret instruction from card swipe to keep card and cut in piece Boris' CC.