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Cyprus Has Given a Glimpse Into What's Coming During the Next Crisis
The world continues to believe that Europe’s woes are solved.
The EU Crisis went into overdrive in the spring of 2012 when the Spanish banking system as a whole nearly collapsed. Having pumped €1 trillion into EU banks via its LTRO 1 and LTRO 2 programs in December 2011 and February 2012, the European Central Bank found itself facing a problem far greater than Greece (Spain’s banking system is over €3.7 trillion assets in size, compared to Greece’s €338 billion) and on the verge of losing control of the entire system.
To understand why this happened, you first need to understand that European banks as a whole are leveraged at 26 to 1. In simple terms, this means they have just €1 in capital for every €26 in assets (bought via borrowed money).
When you are leveraged at these levels you only need the assets you invest in to fall 4% before you’ve wiped out all of your underlying capital (€26 * 0.04 = €1.04). At that point you are total insolvent.
In the case of Spain, Spanish banks were leveraged at 20 to 1 with most of their borrowed money invested in Spanish sovereign bonds. At these leverage levels Spanish Sovereign bonds only needed to fall 5% to render the Spanish banks insolvent. And in the spring of 2012, Spanish bonds were plummeting.
At this point, ECB President Mario Draghi had to do something to make Spanish bonds rally. He couldn’t simply start buying them because Germany had stated time and again it was against the open monetization of bonds. And the ECB cannot do anything without Germany’s support if it wants to keep the EU whole.
So Mario Draghi delivered the mother of all head fakes, first hinting at providing unlimited bond buying for EU sovereign bonds in June 2012, before officially stating that this would be the ECB’s policy is September 2012.
Note very carefully that Draghi didn’t actually buy any bonds. He simply stated that he would if he had to and if countries formally requested a bailout (handing over control of their finances to the ECB and Germany in the process).
The promise worked, effectively putting a floor beneath EU sovereign bonds. Investors, now convinced that the ECB would buy if it had to, began to buy Spanish debt again. Spanish bonds rose, and Europe’s banking solvency crisis was considered “over.”
And then came Cyprus.
With some €83 billion in assets, Cyprus’s banking system was well over FOUR times the size of its GDP, putting it in far worse shape than Spain, France, even Greece.
The Cyprus situation had been brewing for months, with Cyprus first formally requesting a bank bailout back in June 2012. The media largely ignored this development due to the country’s small size. By November 2012, Cyprus announced it had reached an informal agreement on the bailout terms, though the actual amount requested wouldn’t be formalized until Cyprus banks had been reviewed by the EU, ECB, and IMF.
Then in early 2013, Cyprus formalized the bailout amount at €10 billion (lower than the expected €17 billion). However, it lowered the amount by stating that it would raise €6+ billion itself by TAXING Cyprus savings accounts.
Words almost cannot describe the seriousness of this. Cyprus proposed to simply STEAL money from those with savings accounts in its banking system to help fund a bailout of its banks. The theft was presented as a “levy” or “tax,” but the act of confiscating someone’s property without permission is THEFT no matter how you word it.
Indeed, the very fact that this option was even considered, indicates several MAJOR issues. They are:
1) During times of Crisis, personal property and common rule of law will be discarded if deemed necessary by the political and financial elites.
2) Germany has reached the limit of its willingness to aid Europe.
3) The IMF and ECB are essentially out of options and funds.
4) European leaders are growing truly desperate. The next time a crisis hits there, they'll be virtually out of options
If you’re an individual investor worried about what Europe’s Crisis really means for your portfolio, we’ve published a FREE Special Report outlining exactly that. It’s titled, What Europe Means For You and Your Savings.
In this report, we outline the risks Europe’s banking crisis holds not only for those in Europe, but for savers around the world. We also explain how this crisis will most likely unfold, including which areas are most at risk in the financial system. And we cap it off by listing multiple backdoor plays on Europe that investors can use to profit from Europe’s Crisis.
You can pick up a FREE copy here:
Thank you for reading!
Phoenix Capital Research
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Look no further than the IMF document "Taxing Times" released last October -
A One of Capital Levy?
The above is found on page 49 of the said document.
Taxing Times:
http://www.imf.org/external/pubs/ft/fm/2013/02/pdf/fm1302.pdf
Just catching up on your reading, Rip? Pretty sure the IMF, FSB, FDIC, Fed and BOE made it pretty clear back in Dec 2012 that bail-in is the new normal. Let me google that for you...
http://www.fdic.gov/about/srac/2012/gsifi.pdf
http://press.princeton.edu/chapters/reinert/3article_setser_bail-ins.pdf
That's the day this country blows an artery, let them try that. So let me guess, gold and cash are wealth so to avoid theft one must participate in the realestate market, the teetering stock market and bonds. Pretty much tells you were it would have been smart to be.
Real estate is in a big bubble though, so guess when housing market crashes again it could be called a 'bubble tax'.
"The haircut of deposits, will allow major shareholders of Cypriot banks to reduce the legally required capital in cash, through the fractional reserve rule, while a large part of the bailout package will be returned to the banks for the sake of "stabilization" of the banking system. But the money will just take a trip to Cyprus and then return as major shareholders' funds back to the ECB, after robbing the depositors."
http://failedevolution.blogspot.gr/2013/03/the-new-big-trick-of-neoliber...
Crime begets crime.
"When economic crisis hit Cypriot banks, the Cypriot parliament initially voted to reject the plan for the "haircut" of deposits, which was the term in order to receive a 10 billion euros bailout from EU and IMF. This was something that exposed Greek government as the small Cyprus dared to say "no" (even if later forced to retreat as was left totally alone without any support from Greeks, Russians or any other EU "partners"), while the Greek government was always saying "yes" to the lenders without any attempt to negotiate since the beginning of the crisis."
http://failedevolution.blogspot.gr/2014/02/examples-of-friently-governme...
Sure it is theft. But consider this: stealing from the savers is like eating seed corn: ie, non sustainable. So when eventually the banking oligarchy collapses, it will be remembered who was responsible, and there will be no hiding then.
Yes, but the plebes have a pretty short memory. When it comes down to it, it will only be remember that "They" stole the wealth.. The faceless they are un-assailable- who are ya gonna reach out and touch? so their anger will just be redirected at other plebes and the viciousness spirals ever downward. Like beating a dog until its good and pissed, then throw another dog in the cage. What happens then? (I love dogs btw- just an analogy)
When/if that day comes, the conductors of such theft will be sitting on their private island surrounded by the true wealth they converted from fake fiat, manipulation, fraud and abuse. Their bug out bag includes a contingent of well taken care of private security. Guaranty you the men and women with real wealth ALL have a solid plan B. I'm pretty certain that they will not be worried about the townspeople with pitchforks and torches.
Exactly, like eating the seed corn, once done then nothing is left and then it all falls down.
Franklin D. Russivelt did not confiscate US gold, which would have been unConstitutional, he officially nationalized it. That made it A-OK. George Orwell spelled out the rules for Newspeak in 1984 so just revisit that if you need the road map for what new crimes against humanity will be "labeled"