This page has been archived and commenting is disabled.
On Capital Flight and Forced Repatriation
There are some folks in America who will wake up this morning and read that Jefferies has been sued for its role in a bond deal with MF Global and they will vote with their feet (Zero hedge Link). They will close their accounts with JEF and move to a safer address. That’s an example of capital flight.
There are people all over the globe who have looked at the rapid un-gluing of the financial system and have bought gold as a safe haven. That’s another example of capital flight.
Every time that something stupid crosses the tape from one of the EU deep thinkers the US bond market catches a bid. Yet another example of capital flight.
I could go on for a bit with this. There are dozens of examples. All around the globe one can find evidence that money is moving around with the sole purpose of finding someplace “safe”.
Capital flight is a perfectly logical consequence in today’s world. Barely a day passes where we are not reminded that nothing is safe any more. Not our currencies, not our equities, not our bonds and certainly not our banks/brokers.
In Greece there are many example where capital flight is undermining stability. The most obvious is the capital flight from the Greek banks that has taken place over the past few years. This flow of money is also perfectly logical. There are many risks of leaving money in a Greek bank:
-The Bank could default. The principal in the account is at risk.The guarantee (up to E100k) is from the government. What's that worth?
-The government could default. The chaos that would follow would result in a freeze of all bank balances.
-The government could announce one morning that it was re-establishing the Drachma. This would mean that any Euros in a Greek bank would be automatically converted into Drachmas at the old official rate. The value of those Drachma would be worth half (or less) as a result of the immediate devaluation that would occur.
Put yourself in the mind of a Greek who had some savings in a local bank. What would you do? You would do whatever you could to get your money to high ground. It would be perfectly reasonable for you to do that. And that is exactly what the Greeks have done. They’ve moved billions of Euros to Swiss banks in an effort to preserve their wealth. In the process they have crippled the Greek banks and have added to the downward spiral in Greece and the rest of the EU.
There was (IMHO) a very significant development on this front last week. A move is being made in Brussels to “force” the Swiss government/banks to transfer all of the assets of Greek citizens back to the Greek banks. For a Greek this means that your money is hostage. It has been functionally expropriated. It will be transferred into a banking system that is fraught with risk. Some portion of the money that goes back to Greece will certainly be lost.
I have talked with some who I know in Athens. They are out of their minds with this development.
Some thoughts/quotes:
- BRUSSELS—The European Commission is helping Greece negotiate an agreement with Switzerland to repatriate as much as $81 billion believed to be hidden in Swiss bank accounts, a high level European Union executive body official said Nov. 17.
$81 billion?? That’s massive. This is not the shopkeeper or pensioner. This is big bucks and that means the Greek shippers. It is a fact that the Greek government doesn’t tax the foreign earnings of the shippers. Call that a mistake, but that is the law. As a result, the shippers have held huge bucks in Switzerland. It’s not dirty money. Right or wrong, there was no legal tax on this.
The European Commission is working with Switzerland and Greece stop what it believes is an ongoing exodus of money from Greek bank accounts into Swiss and other offshore banking centers, the EU official said.
The only way to stop capital flight is to address the underlying causes of the flight. That can’t happen in Greece for years. The alternative is to trap the money, force it to go where it is at most risk. The owner of the money will have no choice. Any rights they might have to preserve their assets will be abrogated.
I’m amazed at this development. The Swiss government/banks are obligated to cooperate with EU tax authorities when there is evidence of tax fraud. But that is not what this is about. The people in Brussels and Bern know that. The fact is that the Greek tax system is so screwed up that there simply are no taxes levied on certain types of income/capital (the shippers). No doubt, some of the Greek cash that is in Switzerland is there because of tax avoidance. But the vast majority is simply safe haven money.
The word “Repatriation” sounds nice enough but really it means “Theft and expropriation”. There will be nothing voluntary about this. There will be little (if any) due process.
If this happens (the folks in Brussels are pushing hard) a very dangerous precedent will have been set. Flight capital will have been made illegal. Where might this go?
-It will go to Spain very quickly. After that it will go to Italy where there are truly huge fortunes outside the country. I see a development like that as being a lights out event.
-It will come to the USA. EU residents have tons of assets here.
-Money that is subject to forced repatriation back to countries with weak banks and bankrupt governments will seek the last remaining safe haven, gold. If governments go so far as to repatriate money, they would also not hesitate to make gold ownership illegal. That too would be a lights out event.
We have a situation developing where the technocrats in Brussels are trying to institute capital controls. They have put a gun to the Swiss government to achieve their objectives. They will likely succeed. The fear of broader capital controls and more repatriation will spread like wildfire. The fact is, capital flight is a very reasonable response in our current environment. Capital controls that either stop or reverse it will undermine confidence and create a panic.
Those officials in Brussels have no idea what they are unleashing.
.
»
- advertisements -
either way...i get more out of "Brucie Baby's" posts then your distempered bullshit...
back to class now, you "bollocks waggling, lazy, vacuous, liberal hed-fuk, slacking, tosser"
Zero govt is the taxi driver in greece today before tomorrow comes; he's had zero govt, is NOW in deep Oligarchical shit, direct result of zero govt and no taxes being collected, now heading for a gruppenfuhrer or GS Oligarchy shill, who will stifle him as debt slave, shafting him TEN times worse than a rule of law, tax framed, democracy.
Its zero govt. who is victim of delusional utopia, of "every man for himself an island be", that always turns to tyranical dystopia. But he is like all idealists of his anarchist bend; totally in denial.
"I hate all forms of government except those of my dreams; inexistent I know in real world, but philosopher stone inspired, perfect efficiency system, where each man is a perpetual machine in unique motion." Wow!
the broken market goes one step more down the road of open central bank control; as financial armageddon raises its ugly head there are only two solutions : pax americana and existing oligarchy kicking the can or euro decoupling and fourth reich ersatz to make game changer financial reset. Who will China and the BRICS support?... watch the cookie crumble...unelss Merkel throws in the towel.
c'mon everybody, place your money in the good ole USA today, i guarantee tomorrow, magic fingers will make it all disappear! but, you can keep the toaster!
http://www.businessinsider.com/greek-italy-london-property-2011-11
http://www.nakedcapitalism.com/2011/11/mark-ames-austerity-fascism-in-gr...
I predict a very "uncivilized" reaction to this EU development. No wonder Kyle Bass suggests "guns and gold."
Crouching Tiger, Hidden Dragon everywhere bitches.
the net effect has to be outright deflationary. hard to see how that helps the situation. recall one talking point in favor of the EURO was that currency spreads cause hidden inflation in products which trade across the Eurozone, and a single currency would improve and standarize pricing. break up the EURO and you add to inflation, repatriate currencies and you deflate personal income in the PIIGS, and increase inflation in those same countries? Buy Germany and France, sell Italy and Spain?
Good article Bruce. I read many people in Europe are buying gold "by the ton" in Switzerland and storing it in their Swiss bank or "wheeling it away."
Must be people are pretty scared since they sampled hyperinflation in the 1930s.
Bruce,
Chilling view of what the future might hold ... There's some disagreement in the comments on what's really happening here. I think everyone would appreciate it if you could follow up on this posting with more detail and confirmation of what's being planned or actually happening.
If the Swiss acquiesce to this, it goes against their constituion and completely undermines their banking industry. If your money isn't at least safe from confiscation in a Swiss bank then what's the point? The US has convinced them to report what US citizens have in their accounts, but they don't actually confiscate it (unless you're a terrorist). This will eventually appy to everyone in the world, not just EMU citizens. Greek shipping magnates make their money all over the world, the Greek government does not necessarily have a claim on it. But with this they can confiscate it, then convert it to Drachmas then devalue it?
One wonders what would happen if the EU tried to put pressure on England to do the same thing? England secedes from EU is my guess.
Thanks Bruce.
btw, Clusterstock is running this piece without attribution or link to your blog.
Looks like Clusterstock fixed the error.
Right Now Officials In Brussels Are Threatening To Cross A Line That Will Set Off Panic Bruce Krasting, My Take On Financial EventsRead more: http://www.businessinsider.com/clusterstock#ixzz1eBYAF0rF
Italy is a perfect example of fascism ehm I mean capital controls. They keep lowering the threshold allowed for cash withdrawals at the counter and for cash deposits (once € 12.500, then € 5.000, then € 2.500 and now sadly who knows what else this terrorist called Monti has in store?). Yes, Mike Krieger is absolutely right about Monti and his terrorist gang. Should get the hell outta here, as soon as I can. At 33, I am too young to let these bastards dictate my future.......great article by Mr. Krasting, as usual
I really cannot see people as worldy wise as Greek shippers waiting for the Swiss to get their ducks into line for the sake of Brussels. That money will go - woosh - anywhere and everywhere. Big loser will be the Swiss banks. Big winners? Who knows could be anything as long as it is liquid....like gold....has long-term value like copper, nickel...
just being devils advocate here;
the swiss banks are awash with cash they dont want more and probably wouldnt mind if some of it left...
it might weaken the swissy and possibly get some brownies points from , say the EU.
might the swiss, therefore, consider co-operating on the greek cash? -i dont know.
.
I'm sorry, what was the second thing again?
That's the stupidest thing I've ever heard.
Can you expound a little bit?
Sure, the '.' response is an internet meme wherein it is understood to represent the silence that comes with recognition of a profundity.
Can't thank you enough Bruce for your contributions.
We have reached that juncture in the timeline. If you don't know how to proceed from here then you are already too far behind. Perhaps perilously behind the curve.
I just have to second that thank you to Bruce. The implications of repatriation of money as detailed in this article will be far reaching and shocking in their effect. Most of us wouldn't have known about it if Bruce hadn't written this piece.
How Bruce made or lost his money in the 90s has no bearing in today's disaster.
This is a global deflationary credit disaster- or a fiat( credit) paper liquidity disaster.
And just think the Greeks a non- consequential turd compared to Spain and France
Very interesting piece, as always, Bruce. You bring great value to this site.
When a couple gets divorced, those assets that can not be easily separated get sold and the monies split. This could very well be what is going to happen with the dissolution of the EU. The twist here of course is to get as much flesh as possible in the process. For Greece to pay its debts it will need to have all its gold confiscated, as well as all of its euros. Then it can go back to being its own sorry self.
so let's play this out:
I, the squid third party, organize a community in which I (or my boss *cough* *cough*) only let folks in who have big debts, but also have nice assets that I would like to have down the line.
We all get together and celebrate that everyone made the Debt-To-GDP Ratio that is required in the Treaty (I helped everyone get their books in order). Kan-Pai! Lots of hot chicks and powder flowing at all the parties!
Several years later the financial condition of some of the weaker members becomes public knowledge. Ooops!
Well, long story short, I (and my boss, too! ) get what we came for.
Chaos.
Assets.
Lots of Juicy War (we sell arms, too!)
Etc!
"Those officials in Brussels have no idea what they are unleashing."
Au contraire, mon ami. They have a very clear idea.
They are thugs who feel they have the firepower (and I don't mean "firepower" as in "EFSF firepower") to prevail in every way over the expropriated class.
They are fully aware of the trite little phrase "lead trumps gold."
Ugly. And about to get worse.
Isn't karma wonderful when someone "feels" that they have the strength to prevail?
"Those officials in Brussels have no idea what they are unleashing."
Au contraire, mon ami. They have a very clear idea. They are thugs, pushing toward an endgame they think they can win. They feel, in the end, that they have the firepower (and I do not refer to "firepower" as in "EFSF firepower") and expropriated class does not. They've heard that 'lead trumps gold' - don't kid yourselves.
Ugly.
"Those officials in Brussels have no idea what they are unleashing."
Au contraire, mon ami. They have a very clear idea. They are thugs, pushing toward an endgame they think they can win. They feel, in the end, that they have the firepower (and I do not refer to "firepower" as in "EFSF firepower") and expropriated class does not. They've heard that 'lead trumps gold' - don't kid yourselves.
Ugly.
Good Post Bruce
Scary to think this could happen......
Great Post today!
I got a message from a friend who read a few recent comments and articles. she said. "now I am convinced were going to see a crash" I wrote back, "That is exactly my point, you don't have to be convinced there is going to be a crisis to act. You just have to think there is a high possibility of one to take steps to protect yourself." Leaving a large amount of money in one big bank is foolish in this environment. Spread it around so that there is no more than the insured limit at each bank.
do you think that the deposit insurrance will pay up. good luck
richard in norway - deposit insurance will pay up - to the penny. but - what will it be worth?
in fact - they are loving and waiting for that moment. because what it implys is that in the in between time - the stealers will have used it at it's full value to purchase real assets, and by the time you get it back, it will be that much devalued. this is EXACTLY what ben bernake and friends are doing in the united states - it is 100% the plan.
that said - i still think having that cash in hand at the end of the collapse will be better then putting it into the stock market (which bernake said last week full force 'if you want to see a return, invest it in stocks') - because the we will sweep that table clean of chips first, then sweep the banks and then they will print the money and hand it out to people.
at this point, just a sad fact. this is the game plan and nothing can stop it now.
and of course, this will be lot of fun for most of us.
What I'm seeing...............
Capital flight, deposit guarantees, country-to-country forced reciprocal fund repatriations, etc., all such 'contracts' wherein the plain rule of law is expected to preside and overrule vagueries of interpretation between the original party intent when they entered into such contracts, that all of it boils down to the ominous developing fact that not only is the devil in the details it's now also within the invisible print's details.
There once was 'fine print' to peruse and fully understand before one entered a contract. Now there's invisible print that magically appears in contracts to suit the whims and whoring fancies of banks, lawmakers, politicians, ad nauseum.
When this paradigm becomes the new ad hoc rule of international law post contract signing we are for all intents and purposes thoroughly, unequivocally, and completely fucked as a civilized society interacting within global interwining constructs. Only highly uncivilized global reactions can result.
When the pillars of contract law fail nothing else can stand.
Nice response Big Cing!
"There once was 'fine print' to peruse and fully understand before one entered a contract. Now there's invisible print that magically appears in contracts to suit the whims and whoring fancies of banks, lawmakers, politicians, ad nauseum."
A much more subtle and difficult concept to articulate. My regards.
Just one example of this from a ZHer's post today....................
"The broker tells him that according to some hidden rule in the contract his account was showing a negative on his longs.... so they had to sell his puts to make good."
http://www.zerohedge.com/news/guest-post-mf-global-fractal-frying-pan#comment-1895725
@Bruce ..:"Those officials in Brussels have no idea what they are unleashing."
I would prefer : "Those officials in Brussels have no idea " PERIOD.
I would prefer: "Those officials in Europe know exactly what they are unleashing."
And I would prefer: "Those officials in Europe THINK they know exactly what they are unleashing."
I doubt that Hitler thought that invading Russia would lead to the rape of 2 million women in greater Berlin.
the leaders are simply pressing random buttons on the control panel and HOPING something will happen.
and they are betting with YOUR money
if you think you see any signs of competence amongst politicians - i suggest that you havent met many (european) politicians.
I cannot speak for US politicians but if obama is an average specimen them you've got even more wankers than we have
It is a mistake to believe that the leaders are so stupid or misinformed as not to realize what they are doing. It is not a problem of getting the “king’s ear”, or presenting the “facts”, or selecting a “smarter” leader vetted by the same insider club.
As I posted on ZH elsewhere:
“The global elite (Trilateral, Bilderberg, etc.) run a global racket which utilizes "Shock Doctrine" methods to garner more power and corral more wealth for themselves. Disasters are "opportunities". They control armies, police, the media, foods, etc. and believe the chances of their overthrow are non-existent to miniscule.”
Bilderberg Coup & Trilateral Takeover
http://www.globalresearch.ca/index.php?context=va&aid=27712
http://www.globalresearch.ca/index.php?context=va&aid=27646Thanks for posting about,and trying to help educate and inform about these fucking scum of the sewer
The Trilateral commission and the CFR(Council on Foriegn Relations) is who is running the show,along with the Bilderbergs.
Many are both.
I hope people who have not kown of the,learn about them.
Thanks again.
Nice piece.
When the Korean government was almost bankrupt during the Asian Financial crisis, the South Korean government went on a campaign to get it's citizens to voluntarily sell their gold to repay the IMF loans.
Being dutiful, patriotic, law abiding citizens, South Koreans lined up around the corner to sell their gold to the government at fire sale prices.
This really happend. They gave their gold to the worlds biggest pimping loan shark for a fraction of its value today.
So if they cannot get it free, I am positive they will steal it this time.
For some time we have heard about the swelling bank accounts of the foreign arms of U.S. corporations, as well as the calls for a tax holiday of sorts to allow for the repatriation of these funds.
Any thoughts on how / if the moves to repatriate deposits from one European country to another will impact the ability of these U.S. companies to move their holdings elsewhere?
Interesting question/line of thought. When the big elephants start sparring with each other, things could get even more interesting.
I thought that one of the driving forces behind the attempt to get a free repatriation of funds was an attempt to sidestep the potential devaluation of holdings in other currencies vs. the DXY if/when things get worse in the EZ and globally. However, maybe they were worried about return of capital vs. return on it.
There have certainly been a lot of talking heads saying how well positioned corporate balance sheets are this time around - flush with cash. May not be so flush on down the road if part of the cash becomes caught up in the situation described by Bruce. Supposed liquidity on one front may not be so liquid on down the road, likely when it is needed the most.
Bruce it's ok, you have to write with the facts you have. but there really are a bunch of thieves in DC you can't throw a stick in congress and not hit dozens. We will just have to disagree on what I think is at it's least money laundering for the DNC.
Even if there is deposit insurance, who is the guarantor ? Greece ? Also what currency would this guarantee be in ?
Operation Fleece Greece is well under way. Big depositors in other troubled EU nations might do well to look into deposits in 3rd world nations not subject to EU dictats. Banco de Bolivia anyone ?
It's been my experience that when the super rich get even a whiff of something like this coming, they move fast. Very fast.
If the Greek tycoons move their money to Banco Bolivia from Swiss banks, what does this do to Swiss bank leverage ? Whoops.
The SWISS are traitors.
They sold out.
For hundreds of years, they WERE the safe haven for not just illegal (non taxed$$), but just funds people wanted protected.
The Fox is in the henhouse, and now there's no getting him out.