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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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I dont understand how greece avoids a chaotic forced conversion to the drachma.
Their banks and government only exist because of bailouts from the rest of europe.
Default occurs as soon one week after the loan tranches quit being sent to greece.
Do you think the germans will support greek extravagance and fiscal mismanagement forever?
Nobody likes welfare whores. Eventually nationalistic parties gain power in the northern european countries, the greek welfare money stops flowing. Greece chooses betwern paying salaries or paying interwst on the loans, and poof. Default, mark to market, greek banks collapse, ECB will not make swap agreements or loans available to greek banks due to default, and then currency controls, then forced conversion into drachma.
Nobody plans for this to happen, nor can they stop it if a single tranche of loan money is delayed or cancelled.
I dont count on the north permanently subsidizing greece. You go ahead and believe the opposite.
Why would (did) the Argentine government force bearers of US dollar denominated deposits convert into pesos?
Because it could? And because they could print more pesos, but not USDs?
Argentina is a puny and pretty much worthless economy now so yes, "they could." They also have an enormous amount of valuable resources so for the dictatorial regime..which will win in a landslide election btw...they have hard currency coming to THEM while the rest of society has been "pesoized.' great scam if you can get away with it. they've been trying it here for decades but our capital markets are too deep and our resources too vast and our miltary industrial complex too massive for it to have "the intended effect." so now they resort to simply "stealing the customer accounts at MF Global" since "they falied to become the next Treasury Secretary as was the plan."
you MFers can trash pesos all you want but i personally LOVE my libertad 50 pesos gold coins. LOVE'em!
Greek banks, just like all banks in the EU, have deposit insurance. The amounts can vary a little bit, but savers' deposits are usually guaranteed up to €100,000. That's the amount in Greece, according to Wikipedia. (Of course, that guarantee is made by the state. If the state itself goes bust, then all bets are off.)
There is no fund.
Just a promise from a bankrupt state.
Of course there's no fund. Who said there was?
Funny how Mr Krasting has quietly amended his article with an added remark about the guarantee, without acknowledging his initial error.
Give me a break. I said I was fixing it in the comment where it was brought up.
For the record. I do mistakes. I try to avoid them. I fix/acknowledge them. This is the benefit of the comments. They often clarify/correct things.
This came up at Business Insider earlier this week. The exchange:
Pete on Nov 17, 10:21
AM said:
It would be
nice if the author would introduce the acronyms before using them.
bkrasting on Nov 17, 9:35
PM said:
@Pete:
Okay. I apologize. I'm not a professional writer. I make mistakes like this all the
time.
Note: I did have an editor. She was good. Errors like this would have been
fixed. But she fell in love with a guy over the Internet and moved to San
Diego. Go figure.
I'm working with someone new these days. She's from Lithuania. Blond, fit, size
4. She doesn't speak English very well (she thought PD meant Police
Department).
I've thought about the conflict. The risk of errors versus the other aspects
that come into consideration.
It wasn't a hard choice. I'm afraid you'll have to put up with my mistakes....
BK
bruce - you try. but you're a jerk.
@lotsoffun - For the very first time I am going to go all ad hominem:
1. You are the jerk
2. BK is not
Only a good exchange if you're doing more than looking at her, I'd say.
I find it worse than useless to be surrounded by good-looking women if they aren't putting out. I'd prefer a few old baggages, and get my mind on the job.
Then again, it's good to live in hope....
i just called bruce a jerk. but he's not that dumb. dude, she's putting out, or he won't deal with her.
Every time I read Krasting commentary I'm reminded that it comes from the perspective of someone who got rich through taxpayer bailouts, and creating the system that he now critiques.
Rip them off first, then complain.
Nothing worse than a hypocrite, an ungrateful one at that.
Actually you're wrong. I left Wall Street in 1995. I was no way a part of or responsible for what happened since. When Drexel went bust in 1989 I lost every thing. There were no bailouts back then. I had to start all over. I've never been involved with a handout. I've paid for a bunch.
Yours Truly,
Ungrateful Hypocrite
Drexel, huh? I read a book on Drexel and it had a great account of the Crash of 1987, Monday Oct 19th. Also the first written description of how the PPT on Tuesday Oct. 20th used the XMI Dec Futures contract on the CBOT to save the world, really.
https://picasaweb.google.com/larryokarski/TheMissilesOfOctober?authuser=...
Google+ screwed up my Picasaweb links, so please let me know if it doesn't work.
Well this is another great piece and I'm one among many who're glad you post here Bruce, it's part of my education.
Whether there's deposit insurance or not is irrelevant I think - the deposit insurance will be paid in drachma - so they get screwed one way or the other.
+ 1
Well said, and a nice piece.
Yours Truly,
An Asian Rolling Bearing
You fucking pile of moron shit. Who the fuck are you to ASSume that BK "got rich through taxpayer bailouts, and creating the system that he now critiques"
You fucking simplistic asshat. Why do you so fucking care if someone is 'rich' mutherfucker? Is it because you want fucking facist to hand you and the loser ass idiots like you 'free shit'?
Goddamn fucking moron.
Stick with huff & firedog you fucking sick piece of fucking trash.
B.T.W.
I make $13.00 useless regime dollars an hour in a completely fucked job. 5 years ago I earned $52,000 useless regime dollars a year in a killer job (with free cell, laptop ect).
I don't blame the B.K's of the world for the fact that I'm hurting now.
I blame the fucking regime that blew this fucking fake economy to smitheriens FUCKTARD.
you took the words right out of my mouth, iseeit
@iseeit
well said!
I guess Bruce touched a nerve. The political trick is to discredit the mesenger rather than to argue the facts.
He has that ability, yes, and I've disagreed with him in the past. I never really considered who he worked for as having control over his thoughts & opinions. He doesn't sound like a bankster. All I know is that he takes all this crap criticism and keeps on pumping out commentaries, that's awesome- nothing can break him from his game. And I've found that what seem like strong opinions are really prods to the reader to think- ha, some people react differently than others. There are many mindtricks we all are subjected to on a daily basis, BK is the least of our worries.
Thanks Bruce, keep up your great work!
Oh, a thought: When will the $1.5 Trillion of Corporate Cash held overseas by US companies be repatriated to the US? Voluntarily I mean, when will the foreign banks (or wherever this loot is stashed) look too shaky to leave it there? Just your opinion, I don't think its happening yet otherwise the USD would start an inexplicable rise. Thanks again.
Ditto that, Swingforce, and how many other writers actually come on here and respond to their critics?
Thanks SF. I needed that....
The corporate money stays offshore until it is given a tax holiday to come home. That requires an act of congress as it changes existing tax rules. The assholes in D.C. can't pass a fart, much less legislation. So I think the money stays offshore for another year.
If YOU had significant bucks offshore and the regime wanted it's 'cut' for YOU to bring it home, how eager would YOU be?
Besides, this is transnational cash. Valued in USD, but with a global corporation, and that fiat having been earned in offshore fiat, why does the DNC mafia have any legit claim to it anyway?
Globalization bitchez!
Well done Bruce.
Theft? Expropriation? Looks like MF Global on a MuthaFukkin' Global scale.
MUTHA FUCKIN' GLOBAL!!!!!!!!!!!!!!!1111
Globalization redux undone!
WOW ! The rope holding up this monetary high wire act is about to break. Got Gold???
+ $55,000
Yes, I have got gold. Here and there. Diversification, bitchez!
Great metaphor re monetary high wire act, that rates more than just one green...
Thanks DoChen , needless to say, this act works without a net...
##
There are many risks of leaving money in a Greek bank:
-The Bank could default. There is no FDIC type of guarantee. The principal in the account is at risk.
##
Bruce , pal... you dont make your homework..
Greece is part of EU.. IT IS CIVILISED COUNTRY..
of course there's deposit insurance in Greece..
#
Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes[6] requires all member states to have a deposit guarantee scheme for at least 90
#
look at http://en.wikipedia.org/wiki/Deposit_insurance#By_EU_country
alx
ps
its sad..
This is what Bruce said:
-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?
Why are you inferring he said something else?
alexwest,
WHO guarantees the funds if the Greek govt defaults/falls?.
IF you lived there would you kep your money there in Euro's.
pal, read my post and try to understand..
bruce said there's no formal deposit insurance.. i said there's. that's it.
alx
Formal deposit insurance in a country that cannot monetize its own currency is a joke.
You would need to get permission from the germans for the funds to be available for deposit insurance, if there is a systemic greece banking collapse
Friend of mine in Greece have taken his money out (not too high amount) and converted into 3 currencies Pounds Euro & USD and wrapped it in fireproof welding blankets hidden in the house.
At least, they know its there.
I had advized him to buy British gold sovereigns, but he missed the boat two years ago and now he claims that the price is prohibitive and hard to find. High commission charges there.
oracle,
tell your greek friend to buy silver then.
If the ECB maintains greek banks on life support the next five years it is possible confidence may return.
Everyone knows greek banks are completely insolvent and depending on chronic ECB bailouts that are very thinly diaguised.
"bruce said there's no formal deposit insurance..."
Reading Comprehension 101 Alex?
alx,
Ok, I get it, Bruce was misinformed.
BUT you did not answer my question.
Good point Alex. But who is behind that guarantee? The Greek government? I say the principal is at risk. Anything over E100k certainly is. It is the people who had that amount+ who opened the accounts in Switzerland. They obviously did not trust the guarantee or the banking system.
I did clarify this in this piece. Thanks.
bk
Bruce great piece as usual.
Can you clarify as the way I read your piece it insinuates that ALL funds will be forced back to Greece wheras I read the following and read it as they just want to tax the hell out of people who have foreign accounts. We are talking the difference of Billions in taxes flooding into the Greek exchequer or many more billions flooding into the Greek banks.
The EU is helping Greece to negotiate a tax agreement with Switzerland to claw back at least some of billions of euro in unpaid taxes that has fled there.
The clawback is to form part of a wider Greek clampdown on tax evasion which is costing it an estimated 60bn euros a year.
Greece has opened negotiations with Switzerland on a bilateral deal such as those struck earlier this year by Germany and the UK.
European Commission experts are advising Athens on the deal and working to ensure it complies with EU laws.
The Greek government has already launched 165,000 court cases against suspected tax evaders in a bid to recover 30bn euros in unpaid sums due.
About 8bn euros of this sum is seen as easily recoverable.
"Solutions are being explored to provide Greece with an adequate way to increase tax revenue, taking into account the vast amounts channelled to Switzerland by Greek nationals," said a report by Horst Reinchenbach, the German head of a task force trying to help Athens reform its economy.
"We want Greece to get the best deal possible using EU and IMF experience and legal support," added an EU official on condition of anonymity.
This official said that of a missing 60bn overall in tax revenues identified by the IMF, just half is "theoretically collectible".
Bruce...I don't always agree with your thoughts, but I do appreciate you being willing to put it out there. I come here to Zerohedge to have my thoughts provoked into thinking about different perspectives so that I get a clearer picture of the road ahead. You seldom fail to give me something to ponder.
I am not amazed about how far and how much the banksters are willing to f@ck over the average citizen in their pursuit of obtaining fiat to pay a debt that really is leveraged vaporware. The Swiss will cave because they already have....to the U.S. IRS, so what will make this time different...nothing. Greece doesn't have any laws about this and their citizens can legally have those accounts....the Swiss should say frack off to the EU and Greece, but they won't. Capital flight is the natural response to a corrupt and bankrupt system and those banks should be allowed to fail, but JPM & G.S. can't and won't let this happen. Crazy stuff!
I would like to say that this will cause the mass to rise up against this type of "Theft".....but, again, the sheeple will sheered and this can will BE KICKED.
ditto and more props to BK for more good shit. BK's stuff on ZH has become a must-read for me personally. i esp. like that bruce offers his views without peddling anything unlike some others who says shit we all are too aware of AND tries to sell a used car-like bullshit (i'm looking at you, phoenix capital).
Limit of €100,000.
If the State is bankrupt don't expect the deposit guarantee to be honoured.
Same applies in Ireland.
There is no fund.
DUH....
same applies to US and FDIC insured banks.. how much money does FDIC have ? 10 bln, 20 bln.. there's only +10 trln $$ FDIC insured deposits here.. you do math..
BTW,, tell that clients of FMGlobal .. they thougt they were protected too..
( not FDIC of course)
alx
Well, alexwest, it may be you just pointed out when the Hyperdrive (hyperinflation) on the money printing begins. FDIC blows up, the fed prints trillions to cover it. Compete with de facto devaluation...
The FDIC is one INCH away from insolvency.
They couldn't cover 3 or 4 TBTF's depositors, UNLESS the Fed cranked it up.
Their Reserves are the lowest EVER.