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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.
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That there is a serious allegation boy'. They sold out?
Or they hunkered down?
Ask a WWII jew what happened to their swiss bank accounts and gold. If you can find one, or even their story. The Swiss have a long history of theft. This suits them well.
Ask the Swiss Banks what happened when the relatives of the Holocaust survivors filed suit, and the Swiss thieves had to FORK It up.
Face it dudes, we live in a sin soaked world, with sin soaked people.
The Something for nothing crowds are global, since time began.
Another interesting perspective on the Holocaust survivors and Switzerland case, is from Israeli journalist Barry Chamish, who had to flee Israel to avoid threats on his life.
Chamish (and others) have spoken about how wealthy Jewish organisations kept much of the Swiss-lawsuit 'settlement' money for their internal use, and basically held it without releasing it to the poor elderly Holocaust survivors in Israel, many of whom are dying off in abject poverty. There are lots of them in Israel begging for tiny scraps of that settlement money just to get help to live decently, but it seems there are always 'administrative problems' in distributing it from the large organisations which 'won' the settlement.
It is so bad in Israel, that Jews who survived the Holocaust as children, are using their EU citizenship rights (due to being born here in Europe), to come here to Europe to get decent health care and elderly social benefits. Some of the Holocaust survivors in Israel, have even been going back to Germany.
Most well-off Israelis get an EU passport if they can, as a place to go after the possible implosion of Israel when the Americans finally decide to pull the plug on it.
Ask the Swiss Banks what happened when the relatives of the Holocaust survivors filed suit, and the Swiss thieves had to FORK It up.
A better question is what did the Swiss banks do with the money of Holocaust victims when there were NO survivers; the majority of the Holocaust accounts. No forking up, just keeping graveyard gains for themselves.
And ask them how they separated the gold from the teeth.
sorry bruce , you got everything wrong..
bunch of rich Greeks keep money in Swiss banks... they dont pay taxes on interest.. now probably EU officials are going to FORCE GREEK GOV to sign treauty w/ Swiss banks to tax/withhold money..
so what is wrong w/ that? i'm saying EU officials are forcing cause its PROBABLY MONEY OF rich/famous GREEKS - politicans, shippers,etc..
of course they dont want to...
try this trick w/ IRS.. put money into SWISS bank and dont report/ pay taxes..
are you gonna see yourself in cell w/ guy named BUBA... :))))
read for info http://www.grreporter.info/en/tax_authorities_draw_bead_greek_deposits_s...
alx
ps
BTW, Swiss already signed same treauty w/ Russians..
there's probably +-1 trln $$$ Russian money in here..
I said in the piece that some of this was tax avoidance. I maintain that the bulk of this is principal that is just looking for a safe haven.
You say that Greece is avoiding tax revenue because of the interest on this. That might be true for a portion. What does that come to? Nothing. Do you know what the Swiss banks are paying % for deposits in these accounts? Nothing. They charge to take the money.
There is no tax loss to Greece when there is no income. This is a grab for the principal, not just a grab for a portion of the income.
please Bruce...
you're seems reasonable man who knows things..
HOW IS IT POSSIBLE TO FORCE GREEKS W/ swiss accounts to move euros into greece? EU will make a LAW.. ? please
ITS JUST IMPOSSIBLE.. period..
Swiss is not even member of EU.. when greek citizen signs papers to open account , papers are saying ' ACCORDING SWISS BANKING LAWS'
it's just another stupid EU trick.. basically EU/Greek gov is saying
'if you move EUROS into Greek bank there will be no penalties and nobody ask about those euros'
anyway,, good job, keep on posting
alx
"Swiss is not even member of EU.. when greek citizen signs papers to open account , papers are saying ' ACCORDING SWISS BANKING LAWS'"
Last time I checked Alex, Switzerland wasn't one of the 50 U.S. states, but that didn't stop them from knuckling under to US demands to snitch off American deposits in their banks...
please, stop reproduce Bruce's nonsense..
you have no idea what you're talking about..
US gov didnt force deposits of USA citizens to be send into US banks..
US gov said to Swiss banks ' guys, stop playing games and inform us about anything' .. some Swiss banks followed rules and said to their USA customers ' 'we are going report you to IRS, even by swiss law tax invasion is not a crime'
, so either you keep account or close..
some banks just closed USA citizens accounts w/out asking.. dont want any problmes w/ USA gov
alx
silly rabbit, you just proved PoolSharks point...
When this sort of thing starts it rolls down hill fast.
If you still have ANY funds in IRA's, 401k's, annuities, etc., get it out now! You may already be too late...
I know you market guys will play the game to the end, but a quick move out at the right moment may save your ass(ets) one day real soon.
i don't suppose this works the same as running a country which is a hot money destination? no. but it does bring to mind the S & L crisis, people kept pouring money into S & Ls becuase they were paying double digit interest on CDs, the problem was there was no loan demand at those rates, so eventually the interest they paid the borrowers overwhelmed the money they could make lending depositors money out. and while the US interest rates are lowlowlow if the stock market goes risk off and the banks aren't lending that could become a difficult situation as well.
Bruce, sort of like Solyndra where tax money was appropriated??
you still claiming no foul play there?? you know, your not guilty thread of not so long ago?
captured journalism at it's finest my guess..this thread excepted, but we are watching which way you jump..say hi to Leo will you.
The Sol story was tough for me. I had an insider. A guy who had been with the company from the beginning. I'm a wanna be journalist so I saw this as an opportunity for me (it backfired).
The guy wasn't lying. I think that will be born out. Was this a stupid investment that should never have been made in the first place? You bet!
Was this something that there was a scam to defraud the country by a bunch of thieves? I don't think so.
Leo is on my spam list. Once in a while I look at something in the junk mail. He's still long Chinese solars.
b
Never attribute to conspiracy what can be explained by simple incompetence.
Occam's razor.
Never attribute to conspiracy what can be explained by simple incompetence.
Occam's razor.
Its actually Hanlon's Razor.
Occam's razor is BS. I have to point that out every time someone refers to it. Simplicity is a matter of opinion.
No, in your case, it's black-letter fact.
"Occam's razor is BS."
Is that a conclusion you reached by applying Occam's Razor?
Never assume that the policies designed by elites to further their hold on wealth and power, are instead explained by “incompetence”.
Never confuse the actions attributable to a confluence of self-interests, with the actions of a simplified notion of “conspiracy“.
Never misuse "Occam's Razor" to avoid confronting a multi-faceted problem.
Outstanding. I may have to borrow those.
To ellaborate on my earlier post (which is actually below this one.....so confusing....), IMHO every single government dollar spent on "green" projects is corrupt at its root. There most certainly is an agenda there, and the fact that this (Solyndra) particular scheme blew up without enough of a buffer from the administration speaks more of this admin's incompetence than a lack of a hidden agenda. I'm still amazed that the Chicago Climate Exchange hasn't caused more of a problem for them.
Francis TW Hamster's Razor: We generally only find out about the malice when it is practiced by the incompetent.
Just to be clear, I think almost all government spending is done with hidden agendas, particularly those involving energy. It's just that the green agenda is particularly distatesful to me.......oh, and recommended reading: The Delinquent Teenager. This analyzes the incredible lack of institutional control, scientific methodology, and accountability at the IPCC. Read it and you'll find yourself wondering how supposedly intelligent people can continue to believe that the science of climate change is "settled". Given the very apparent holes in that theory, one can only conclude that there is another agenda beyond that stated.
Sincerely, Captain Obvious
"Given the very apparent holes in that theory, one can only conclude that there is another agenda beyond that stated"
Judging by the people I know in that industry (promoting global warming), it is very clear what that agenda is: fascism.
I'm trying very hard to believe that the whole Agenda 21 thing is fizzling out. It should, given that their flagship has lost its momentum.....but the combined determination of the founders of this and their unaware zealots in local governments has me worried.
Does anyone have a good link to a site that covers this?
"Was this something that there was a scam to defraud the country by a bunch of thieves?"
It absolutely was. The question is whether or not it was a more flagrant violation than the vast majority of government spending. It certainly was more blatant, as in obvious, simply by the closer connection of the parties involved (meaning nobody was smart enough to make it more of an arm's length transaction).
Exactly.
How can "they" succeed? The money flees to Switzerland to avoid the police and authorities. This is not an abandonment of capitalism. This is an abandonment of moral duty. Since the German and English people pay their taxes and support the rule of law the market is rewarding their behavior with incredibly low interest rates. The same is true i might add in the USA (for now), Sweden and to some extent i guess Japan (although that one's a weird one.) There is nothing "weird" about "Europe." This has been going on in Europe since the Crusades...so stop trying to make it sound like some type of "oh, my God!" event. anyone invested in euro denominated assets of any type are now going to be obliterated. end of story. the whole "euro" thing is a law avoidance scam...the so called "Europeans" know it. the "people of europe" hate the euro. now it dies and takes the most staggering amount of actual capital ever destroyed in a free and open marketplace with it in human history. obviously if you're invested in gold in Europe you're a huge winner. The MAXIMUM amount of gold that can be bought in euro's should be executed upon since "that gold window will close shortly." if you can successfully hide your criminal gains in a Swiss bank i imagine you're a winner, too--although given US taxing authority now stretching to that land as well you'd best be careful since "foreign Ambassadors are involved" and that makes this national security business given the three wars we are currently engaged in. the oddity is that people get all bent out of shape over their staggering and permanent losses. hey, dude: this market doesn't get any more free and open... and assets get destroyed as well as created in free and open marketplaces. The only stupid thing you can do is try to steal people's money ala MF Global and now Proton Bank in response to it. "It only attracts attention" thereby making matters worse. "Dossiers get built, patterns emerge"...perp walks, life in prison...the usual...
So it is a citizen's moral duty to let himself be robbed and pillaged by his government, which in the case of Greece is just a bunch of criminals? Really? Did you learn this in school? It certainly isn't in the Constitution or Bill of Rights. Now I understand how the sheep in America have elected the wolves and community organizers who are destroying those same sheep.
Attempting to protect your money from being stolen by the government is an abandonment of moral duty? What about basic property rights i.e. keeping what is yours? Sheesh....
Exactly, I believe that was the main thrust of BK's article.
Not omissions by mistake, spelling, grammar, deposit insurance, who BK works or used to work for etc.
I'm constantly amazed at the backflips people will go through to justify their brand of statism...(no slam on DV, just a general observation on the comments section)...on the one hand they will accuse government of starting wars for a pure profit motive, construct vast complicated theories to support their contention...then swing effortlessly to people have some moral obligation and must support government (any gov) with.. after taxed savings.
As if to say, only government and its interests matter.
We are talking about after taxed savings here. Nothing illegal...not a money laundering operation...lol.
Keep on rockin BK!
Great piece.
I also look forward to the images used to end each of your articles.
I get a lot of grief for the graffiti images I use. The thinking is I'm supporting vandalism and destruction of public and private property. Screw that.
Where do you find your images?
I have seen hundreds of trains go by, and have never quite seen the art you have shown.
Note to artists: Avoid covering up the unloading instructions, load limits, and road numbers on the cars. Railroad cars are a rolling billboard for the railroad company after all.
Good article Bruce
Some call it grafitti , some call it art . I see much watsed talent on buildings , fences and coal cars. Actually I like most of it . What would you rather rest your eyes on , a rusted brown coal car alone , as you sit at a RR crossing , or some unique art expression . I'll take the expression , besides its non-violent . No pigs with batons, tear gas , or flash gernades. .
And I thought we (Canada) had polital correctness cornered. Your right screw them.
Lot of debate above on forced conversion, depositers insurance et al. If Greece decides to default with or without their military's assistance what rule of law would apply? Just by defaulting arn't they in breach of half a dozen EU treaties? Serious question here what power would depositers have if the government decides to nationalize their banks overnight? And everything I've read states that would be the governments first act.
Greece would need hard currency to purchase oil so wouldn't it be in the government's interest to sieze all Euro's and forcibly convert them to Drachmas?
From what I've seen, the majority of people at ZH love the graffiti images (me included). Who's critical?
And even if it somehow does support public vandalism to support graffiti art (tagging I detest), I smell the scent of hypocrisy. A while back when I was in London, I visited Tate Modern, the kind of place that showcases art the "proper" way. What an enormous piece of shit that place is, basically nothing inside worth seeing, paid for by government money (ie, the destruction of private property).
A guy who sprays a wall illegally vs a tax to do it legally. The former is probably cheaper.
tate modern - more glorification of stupidity. they do it because it keeps the masses down - they hope that maybe one day i will be the one to think about putting a cleaved cow into formaldhye. and even within that - the funds pissed away still only go to the ones that played the game and were already connected. glorify stupidity and violence. helps keep the sheep from seeing what is really going on and keeps them hoping to win some kind of stupidity lottery.
I read that collectors were upset when the formaldehyde got murky and had to be changed out. Duh.
When visual art can't survive without government support, you know that it's not viable in the marketplace of ideas. You know the saying about how things flourish when you subsidize them? That's why you get piles of trash in the middle of a gallery that is pronounced "socially significant". But in actuality it is just trash with undecipherable artist statements. (The most egregious example I can think of, although I can't remember the name of the artist, chews up paper bags and spits them out to make a pile that sits in one giant lump. He/she is taken seriously because of the socio/environmental viewpoint. I am not kidding.)
LACMA had a show awhile back devoted to graffiti, or street art. It was actually quite beautiful, lots of talent.
I look forward to Bruce's use of the imagery too. Almost as much as I enjoy the articles.
i gave you a thumbs up - but you miss your own point. they simply move the graffitti trash into the gallery. only the smart ones make it. the guy that 'chews up paper bags' is really no different then the guy painting the train. you're half way there, when you get older, you'll see the distinction
Interesting. The graffiti artists that were exhibited in the museum, not a gallery btw (since their art wouldn't be a viable commercial entity at that level -- yet) had attained a certain level of skill and also, some originality. Same with the paper bag mastication crap, as it wasn't for sale although that was in a gallery. (It was 'installation art'.)
Awhile back -- I put it around the time of Pop/Op Art, or mid 1950's to 1960's, the art became less important and the dealer/critic/museum curator became more important. Art that required less skill to produce (and could easily be reproduced) became more prevalent. I'm not saying that there wasn't great art produced along the way because I think there was but the 'art stars' anointed by these mega-gallerists and super-critics aren't the ones whose works will stand the test of time. I almost feel sorry for the people who bought the million dollar-plus pieces of crap in the last decade or two because they were told they were the ones whose work would appreciate when anyone with two eyes should have seen that they were indeed pieces of crap.
Really?
Some pedantic little twerps were given you a hard time for showing the 'voices out on the street'?
Figures.
Prolly the same types that want Mark Twain's books banned or anything else that is revealing or speaks of the times.
Keep doing what you do.
And like you said....'screw that'.
BTW, great piece Bruce!
#
-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.
#
why would they do that ? are they going TO BAN EURO? i guess no...
so why would Greece gov force bearers of euro denominated deposits convert into new drahma? what is the point ?
of course Greece gov would force everybody to exchange old drahmas to new ones? thats ok..
v,..v. sloppy bruce
alx
They will do it because they always do it, check out Argentina and Brazil. Much of the attraction of such a conversion is the ability to rob savers.
they aren't going to reintroduce the Drachma moron. These clowns have long ago given up on the idea of paying their debts. It's not going to happen. The purpose of a currency is to settle cross border accounts and keep trade flows moving. The bank exists to deposit said money...not as the case with Proton bank "to steal it and haul it off to Switzerland without the usual 'heads up.'" the bottom line is the "mother of all capital infusions" is going to be needed once the official demise of the euro is (alarmingly) understood..which should occur within days. as the premier experts in capital infusions the USA stands to benefit "beyond the dreams of avarice." that would be Bernanke's Fed. i recommend to any who listens "be friends with that guy." of course "we'll need to see the books first." that means "the Swiss need not apply."
:(
i believe it was bruce's idea about new Drahma..
"... " are Bruce's words.... its not complicated stuff to figure out
alx
"so why would Greece gov force bearers of euro denominated deposits convert into new drahma?"
For answer, look to Iceland. Their banks have yet to return the deposits of Euro-based customers from UK, Germany, etc. under the terms of the IceSave protocol. Since the kroner collapsed against the EUR, making those claims good has become prohibitively expensive for capital-starved Icelandic banks.
Greece would face the same issue, unless they forcibly converted the Euro deposits into drachma with a value controlled by the Bank of Greece. Remember that Greece is a very small economy driven by a population about the size of Chicago. The new drachma would not fare well if forced to compete with a much stronger Euro as transactional medium. Inevitably people would prefer and likely demand that they be paid in Euros rather than drachma, leading to a likely collapse of the new currency in a short time. Low quality only survives under a monopoly franchise.
totally different situation... why?
#1 germans/brits/etc are not citizens of iceland? they dont vote in Iceland.. so why Iceland gov should cares about it..
#2 those banks's branches were governed by germany/GB/etc bank laws.. so it was duty of those central banks to protect customers and/or compensate..
#3 if Greece wanna stable new drahma they wont touch euro deposits, so citizens will be assured money are safe..
if Goverment forces to exchange euros into new drahmas , that will be called confisaction, people suffer, and never trust local goverment/currency again..
so there's no even point in introducing new currency..
alx
ps
Russian did that in 1998... banks were gone.. so $ deposits were exchanged into rubles but old currency rate was used.. before crisis it was 6:1, after
1:25, so $$$ were confiscated by factor 4..
The people of Greece already don't trust their government or currency. They particularly don't like having a Goldman Sachs veteran and ECB vice prez in charge of their country.
A "stable drachma" is not the point of the operation. A "plastic drachma" is the point, since it allows the Greek govt to control the size of its obligations in currency terms.
Your comment about the Russian default is the perfect illustration. The Russian govt transferred most of the people's life savings to themselves through the devaluation. You call it confiscation, I call it stealing, the government calls it a solution.