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"All The Conditions For A Total Disaster Are In Place"

Tyler Durden's picture


Authored by Charles Wyplosz, originally posted at VOXeu,

Cyprus: The Next Blunder

The Cyprus bailout package contains a tax on bank deposits. This column argues that the tax is a deeply dangerous policy that creates a new situation, more perilous than ever. It is a radical change that potentially undermines a perfectly reasonable deposit guarantee and the euro itself. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors in Spain and Italy.

The decision to tax all Cypriot bank deposits has attracted massive attention (Spiegel 2013) – and rightly so. It is a huge blunder:

  • In the unlikely event that all goes well, the government will receive a bit of cash – but not enough to cover the loan generously offered by its European partners – and the Cypriot banking system will be history.
  • The alternative is a massive bank crisis in many Eurozone countries – a huge blow to the euro, maybe even a fatal one.

Not an emergency measure

Policymakers have been debating the Cyprus bailout for nearly a year; this cannot be classified an 'emergency action'. They engaged in a lively debate whether Cyprus is 'systemic' or not, the answer to which can only be 'it depends'. It depends not on the size of Cypriot banks but on the way the Eurozone acts. They also debated the Russian deposits that apparently represent a sizeable proportion of bank liabilities. The debate turned around the issues of how dirty this money is and how to do the laundry. They also debated on the size of a possible loan to the Cypriot government. The government itself requested something to the tune of 100% of its GDP, why not? After all this amounts to 0.2% of Eurozone GDP.

Eurozone’s help: Suffocating solidarity

From what is known:

  • Cyprus will receive a loan of about half the requested size under the usual austerity conditions.
  • The gross public debt of Cyprus will rise from its current level of some 90% of GDP to about 140%, a level that is unsustainable and will eventually require some deep restructuring.

This debt trajectory is a forecast, of course, but well in line with experience.

The effects of this Eurozone austerity programme are now well known. Cyprus joins a distinguished list of countries that benefit from suffocating Eurozone solidarity (Wyplosz, 2011).

  • The programme will impose tough austerity;
  • Its public-debt-to-GDP ratio will grow because deficits will not go away and because GDP will decline.
  • There will the need for more loans as economic predictions will be found to be 'disappointing' over and over again.
  • Unemployment will skyrocket, spreading intense economic and social suffering.

Who knows, populist parties could well be on the rise, adding political drama to economic pain. This technology is now well oiled.

The bank deposit ‘confiscation’

What is new is that bank deposits will be 'taxed'. The proper term is 'confiscated'. Like everywhere in the EU, bank deposits in Cyprus are guaranteed up to €100,000. Depositors have arranged their wealth accordingly, only to be told that the guarantee has been changed ex post.

Taxing stocks is optimally time-inconsistent (Kydland and Prescott, 1977). It is a great way of raising money but it has deep incentive effects as it destroys property rights. What is at stake is the credibility of the bank deposit guarantee system throughout Europe.

The system was shaken in 2008 but in the opposite direction. Followed by all other countries, Ireland offered a full guarantee in a successful effort to stem an impending bank run. The cost to the government was such that it triggered a run on the public debt that led to the second bailout after the Greek 'unique and exceptional' one.

That move has now been recognised as a mistake, which may explain how Cyprus is now being treated.

The Eurozone’s ‘corralito’

Because it is time-inconsistent, the decision to tax deposits has been preceded by a freezing of bank deposits. This is remindful of the Argentinean corralito of 2001, which led to economic dislocation, immense suffering and such anger that two governments fell (Cavallo 2011). Hopefully, the Cypriot corralito will not last too long.

The question is: how bank depositors will react in Cyprus and elsewhere? The short answer is that we don’t know but we can build scenarios:

  • The benign scenario is that depositors in Cypriot banks will accept the tax and keep their remaining money where it is. Depositors in other troubled countries will accept that Cyprus is special and remain unmoved.
  • A less benign scenario is that depositors in Cypriot banks come to fear another round of optimal, time-inconsistent levies. This is what theory predicts. After all, if policymakers found it optimal once, why not twice, or more?

Under the less benign scenario:

  • We will have a full-fledged bank run as soon as the corralito is lifted. Since bank assets amount to some 900% of GDP, there is no hope of any bailout by the Cypriot government.
  • Any new European loan would immediately translate into a run on the public debt.

Enter ECB, stage right

At this point in the scenario script, the ECB enters the play. Being the only lender of last resort, the ECB will have to decide what to do.

  • In principle, it could stabilise the situation at little cost as total Cypriot bank assets represent less than 0.2% of Eurozone GDP or 0.5% of the central bank’s own balance sheet.
  • But this would involve the risk that it could suffer losses – especially if the banks are badly resolved, i.e. the bankruptcies are badly handled.

This is not unlikely since the ECB does not control Cypriot bank resolution.

Remember that the current version of the banking union explicitly leaves resolution authority in national hands. In Cyprus, as almost everywhere else, national authorities are deeply conflicted when it comes to their banking systems. Powerful special-interest groups become engaged when banks go bust and governments decide who pays the price. Thus, it is a good bet that Cyprus’s bank resolution will be deeply flawed. The risk to the ECB is real.

Proper resolution under European control could have been part of the conditions for the loan just agreed. But this does not seem be the case. The omission most likely reflects a belief by policymakers that the Cyprus crisis has been solved successfully. The problem is that this belief is false: Cyprus’s predicament remains even under the benign scenario.

All the conditions for a total disaster are in place

The really worrisome scenario is that the Cypriot bailout becomes euro-systemic – in which case the collapse of the Cypriot economy will be a sideshow. This will happen when and if depositors in troubled countries, say Italy or Spain, take notice of how fellow depositors were treated in Cyprus.

All the ingredients of a self-fulfilling crisis are now in place:

  • It will be individually rational to withdraw deposits from local banks to avoid the remote probability of a confiscatory tax.
  • As depositors learn what others do and proceed to withdraw funds, a bank run will occur.
  • The banking system will collapse, requiring a Cyprus-style programme that will tax whatever is left in deposits, thus justifying the withdrawals.

This would probably be the end of the euro.


The likelihoods of these three scenarios – benign, less benign, and total disaster – are difficult to assess.

  • What is clear is that the Cyprus bailout has created a new situation, more perilous than ever before.
  • Once more a deeply dangerous policy action is decided apparently without any awareness of its unintended consequences.

It is also another violation of sound existing arrangements. We have a no-bailout clause in the Maastricht Treaty – a clause that was essential to the Eurozone’s stability. Putting it aside in the case of Greece was the heart of the today’s problem – the reason the crisis spread (Wyplosz 2010). This no-bailout clause has once again been put aside summarily.

We are now witnessing another radical change as a perfectly reasonable deposit guarantee is being undermined. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors.


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Mon, 03/18/2013 - 09:18 | 3341985 LawsofPhysics
LawsofPhysics's picture

When fraud is the status, quo, possession is the law.  Some things never change, time to get your tribe in order folks.

Mon, 03/18/2013 - 09:19 | 3341989 fightthepower
fightthepower's picture

Fuck you Rothschilds!

Mon, 03/18/2013 - 09:20 | 3341998 GetZeeGold
GetZeeGold's picture



Thanks for all the help CNBC.

Mon, 03/18/2013 - 09:24 | 3342013 Careless Whisper
Careless Whisper's picture

Personally, I'm getting sick and tired telling people of the virtues of buying gold, only to get a blank stare in return. Anyone who's still in paper fiatsco, well, efff 'em.


Mon, 03/18/2013 - 09:30 | 3342028 BLOTTO
BLOTTO's picture

Wall Street Last Week: Jump in the water its piss warm and fine


Wall Street This Week: Stay out of the water because its the piss and shit making it warm...



Mon, 03/18/2013 - 09:52 | 3342124 ATM
ATM's picture

Nothing is fixed because nothing has been fixed. The sewers are still full of a tidal wave of more shit and piss and when that clog lets loose, look out below.

Mon, 03/18/2013 - 10:16 | 3342241 gmrpeabody
gmrpeabody's picture

That was a quick BTFD...

Mon, 03/18/2013 - 09:32 | 3342035 johnQpublic
johnQpublic's picture

where is simon black hiding his money in foreign banks?


awaiting his next article where he complains of theft of 13% of his hard won cash(spread across accounts in cyprus, greece, italy, spain, switzerland , hong kong and china, venezuela and argentina)

Mon, 03/18/2013 - 09:54 | 3342141 Popo
Popo's picture

Oh please. He's a broke blogger. He's hiding his cash in the back pocket of his jeans and writing make-believe blog posts about being in the CIA.

Mon, 03/18/2013 - 10:14 | 3342238 Gordon Freeman
Gordon Freeman's picture


Thank you for the note of sanity

Mon, 03/18/2013 - 11:09 | 3342514 CrazyCooter
CrazyCooter's picture

Simon laid a few turds along the way (i.e. articles with bad premise) at which point I realized how useless his posts really are. Charles Hugh Smith is a giant. Bruce Krasting has very unique insights, opinion, and shares his experience.

Sometimes I click on a Simon post and then feel cheated when I realize it was his. I mean, it wasn't clear from the front page what I was going to get.

Sometimes I wonder if he actually pays to be on ZH. He catches almost as much flak as Leo got before he and his solar stocks left the pages of ZH for good.



Mon, 03/18/2013 - 12:31 | 3342982 CIABS
CIABS's picture

If he could afford to pay zerohedge, he probably would.

Mon, 03/18/2013 - 13:08 | 3343155 El Diablo Rojo
El Diablo Rojo's picture

Bruce and Simon are two peas in a pod. Read his at best remedial article about black accounts, and you will reconsider Bruce as credible.

Mon, 03/18/2013 - 17:39 | 3344583 Totentänzerlied
Totentänzerlied's picture

"Charles Hugh Smith is a giant"

Please. A giant among midgets.

Mon, 03/18/2013 - 09:41 | 3342070 aint no fortuna...
aint no fortunate son's picture

opened stocks at LoD and killing the VIX - prolly gonna be an up day in Bernanke land - is there a POMO today?

Mon, 03/18/2013 - 09:51 | 3342120 aint no fortuna...
aint no fortunate son's picture

textbook manipulation of capital markets - spot VIX opened right at it's 50 DMA and they've been selling it ever since, aapl up, classic short squeeze coming in today compliments of the world's central banks

Mon, 03/18/2013 - 10:27 | 3342274 Awakened Sheeple
Awakened Sheeple's picture

Noone was short before today, hence no short squeeze.


Mon, 03/18/2013 - 09:52 | 3342131 FrozenOut
FrozenOut's picture

I disagree. The solution is real assets, that is true, but your gold can be stolen. I say consumable assets. Let's drink it all. Cheers ;)

Mon, 03/18/2013 - 11:26 | 3342646 Meat Hammer
Meat Hammer's picture

Yup, as I sit there being a good sport and the butt of goldbug jokes (Scrooge McDuck is my favorite) I think "joke's on you, bitchez".

Mon, 03/18/2013 - 10:06 | 3342197 freewolf7
freewolf7's picture

"benign" = asleep

"less benign" = less asleep

"total disaster" = fully awake

Mon, 03/18/2013 - 10:51 | 3342402 Super Broccoli
Super Broccoli's picture

you retard, it's not the Rothchilds that are getting fucked here

Mon, 03/18/2013 - 09:21 | 3342001 Jim in MN
Jim in MN's picture

Really....the Russians let themselves get pushed around by that space rock, and now the horse is out of the fucking barn....

Mon, 03/18/2013 - 09:27 | 3342022 toys for tits
toys for tits's picture



Forget the ECB, this is the Fed's second Lehman Bros. moment.  If it doesn't totally fund Cyprus, then the Euro is done.

Mon, 03/18/2013 - 09:53 | 3342135 ATM
ATM's picture

We might all be realizing that counterparties in a fiat scheme are all that matter. when we know they can't pay it's run for the hills.

Mon, 03/18/2013 - 09:44 | 3342090 freewolf7
freewolf7's picture

Fool me once, ...

Mon, 03/18/2013 - 09:18 | 3341986 kaiserhoff
kaiserhoff's picture

Once you begin Soviet Central Planning, there is rarely a convenient off ramp.

Mon, 03/18/2013 - 09:18 | 3341987 fightthepower
fightthepower's picture

Fuck you Rothschilds!

Mon, 03/18/2013 - 09:30 | 3342032 kito
kito's picture

they make wine now........its called the "fruits" of their labor..............

Mon, 03/18/2013 - 09:52 | 3342132 Edward Fiatski
Edward Fiatski's picture

It's a leisurey-cover operation. :)

Mon, 03/18/2013 - 09:19 | 3341992 Tinky
Tinky's picture

Finally we have a post on this topic written by someone with a European-sounding name.

Mon, 03/18/2013 - 09:20 | 3341993 gratefultraveller
gratefultraveller's picture

Did you guys know this?

"Industrial Note" and "Equity Strategy Note" of Citigroup Corp., N.Y. (2006) "Plutonomy, Plutocracy, Plutocrats"


btw, Citi has tried (invain) to keep this off the web with their lawyers ever since it was first leaked. that should tell you something

Mon, 03/18/2013 - 09:24 | 3342014 swissaustrian
swissaustrian's picture

Great stuff. Thanks for posting!

Mon, 03/18/2013 - 10:23 | 3342266 i_fly_me
i_fly_me's picture

20% control 80% ... old news and statistically inevitable.


Mon, 03/18/2013 - 11:18 | 3342586 CrazyCooter
CrazyCooter's picture

Charles Hugh Smith and the Pareto Economy (Zh guest post from back in Feb).



Mon, 03/18/2013 - 15:12 | 3343814 i_fly_me
i_fly_me's picture

Good stuff, I missed that one.  Thanks.

Mon, 03/18/2013 - 09:19 | 3341995 Jim in MN
Jim in MN's picture

I wonder how HFT algos would react to being pounded with a rock, over and over and over again?  Maybe someone should find out.

Mon, 03/18/2013 - 09:39 | 3342058 q99x2
q99x2's picture

I had one of those crawl out of the dvd drive slot one day. I ran outside and flipped the breaker. When I came back in it had disappeared. Got an algo problem; cut the power.

Mon, 03/18/2013 - 11:20 | 3342597 CrazyCooter
CrazyCooter's picture

Hah! Didn't work for Knight Capital!



Mon, 03/18/2013 - 09:20 | 3341997 firstdivision
firstdivision's picture

Shorting some UNG now.  Natty seems to be in a whole other world today.

Mon, 03/18/2013 - 09:22 | 3342009 swissaustrian
swissaustrian's picture

Maybe some got a backdoor deal for all the NG off Cyprus' shores:

Mon, 03/18/2013 - 09:33 | 3342036 kito
kito's picture

dig deep and think ahead, there is a tremendous amount of capital being pumped into nat gas transportation infrastructure.......

Mon, 03/18/2013 - 11:22 | 3342615 CrazyCooter
CrazyCooter's picture

I have no money in this trade, but I am generally of the opinion that Nat Gas production based on shale fracturing is only floating because of all the free money. Further, I think the shale oil boom in the Dakota's also relies quite a bit on the "free money" as it is very capital intensive to keep production up.

Both are going to take a real turn when the free money is gone or inflation takes off. Both are *expensive* compared to conventional sources and that will shine through with time.



Mon, 03/18/2013 - 12:40 | 3343021 kito
kito's picture

input costs are dropping. they are working on the demand side. within 10 years you will see a different world with nat gas and transportation. i would gather 40% of all commercial trucking will have switched.....

Mon, 03/18/2013 - 09:20 | 3342000 Downtoolong
Downtoolong's picture

"Yes we can" just became "Because we can".

Mon, 03/18/2013 - 10:10 | 3342220 post turtle saver
post turtle saver's picture

Best post of the day, sums it up succinctly - I'd give you +1000 if I could.

Mon, 03/18/2013 - 12:54 | 3343083 akak
akak's picture

"Rape We Can Believe In"

Mon, 03/18/2013 - 09:21 | 3342002 Truther
Truther's picture

The roosters are coming know the rest, right?

Mon, 03/18/2013 - 09:34 | 3342040 kito
kito's picture

...and the bankers get tarred and feathered?????????

Mon, 03/18/2013 - 09:36 | 3342043 kito
kito's picture

double post

Mon, 03/18/2013 - 09:40 | 3342004 swissaustrian
swissaustrian's picture

"Once more a deeply dangerous policy action is decided apparently without any awareness of its unintended consequences."

I don't think they're that stupid. This has to be intentionally done to make the crisis worse. They know that they can't get away with all the reforms they want, so they're creating a crisis to offer a "solution":

problem -> reaction -> solution.

Mon, 03/18/2013 - 10:39 | 3342242 Transformer
Transformer's picture

I think it is a test, at least partially.  In the same way that MFG was a test, to see what people will do in response.

Mon, 03/18/2013 - 09:22 | 3342007 magpie
magpie's picture

Since there were no bankruns they will probably stick to the original demands

Mon, 03/18/2013 - 09:23 | 3342010 Yellowhoard
Yellowhoard's picture

When your country, or it's banks, are on the hook to the banksters, your country is no longer sovereign.

The vote of parliament is not relevant.

It's like voting for hanging or firing squad.

Mon, 03/18/2013 - 09:24 | 3342015 Unprepared
Unprepared's picture

The worse news in my opinion is if this doesn't turn out to be that of a bad news. If Sheepriots do not react aggressively to this measure, it will simply embolden the eurocrats and technocrats of the world to do it again, with harsher tax rates. "I told you folks, it wasn't a bad idea after all, and no single banker has been hurt in the process"

Mon, 03/18/2013 - 09:27 | 3342023 Inthemix96
Inthemix96's picture

Lets see what the historians write about when just enough folk have woken up and start fucking hanging bankers and politicians.

If we go down the shitter, which we will, and its not far off now folks, the fuckers are coming with us.  Take heed friends, this is gonna get downright dirty real fucking fast, keep calm and keep your wits about you.

Politicians and bankers who may read this, this is for you lot, there is nowhere you can run, and nowhere you can hide, dead men walking.  You started, caused, and screwed the rest of us.

You will be paid back in spades, take that to the fucking bank.

The rest of you lot, good luck, we is gonna need it.

Mon, 03/18/2013 - 10:49 | 3342393 eclectic syncretist
eclectic syncretist's picture

Lock them in their vaults with mountains of paper money to slowly starve.

Mon, 03/18/2013 - 16:20 | 3344250 Tango in the Blight
Tango in the Blight's picture

The vaults are probably empty.

Like the one of that black guy in Game of Thrones who acted as if he had a vault full of gold but instead it was full of BS, he was locked in it and the key thrown away.

Mon, 03/18/2013 - 11:35 | 3342702 farmerjohn2112
farmerjohn2112's picture

'Keep your head down and your powder dry'?

Mon, 03/18/2013 - 13:25 | 3343224 willyt2
willyt2's picture

We do need more sheeple to wake up becasue we do need to hang the bankers and the politicians. This is a bunch of horse dung to say the least. This phoney propped up fiancilal system we live in is becoming more and more of an EFEN joke as each day passes by. Everything is manipulated nothing makes sense anymore none of it's real. Savers are getting penalized for what? It's not their money our money is owned by who ever can get theri hands on it when they need it. WTF

Tue, 03/19/2013 - 00:21 | 3345848 Anti Psychotic
Anti Psychotic's picture



Wish I could up arrow your post more than once.

Mon, 03/18/2013 - 09:36 | 3342030 Kirk2NCC1701
Kirk2NCC1701's picture

Are some people slow to clue in, or do they like to run with other people's ideas? I've been saying repeatedly for some time that the Euro can and WILL be sacrificed if it'll save the USD, i.e. preserve its GRC status.

You think Cyprus was 'unique'? Try the US and its Fed/FRNs: they are so frikkin Special (Chosen!) that they can print at (divine) will.

The war between the US vs Russia & China is escalating.
Libya, Mali, Syria, Cyprus, Euro-trash are all Fed's Roadkill. WTFU (Wake the Fuck Up)!

Mon, 03/18/2013 - 09:30 | 3342031 Shooting Shark
Shooting Shark's picture

I don't follow this stuff all that closely.  I just skim life for the highlights, as it were.  But this is a clear signal because it is so reckless, so blatant.  This parry at seizing deposits is all the indicator I need to know that the EZ in in deep kimchee.  With typical Cypriot savings paying negligible rates, a 10% haircut is like being offered a negative rate of say 10% for just plain savings.  There's a reason nobody has tried that as a business model without using the word "tithe".  Also see "decimate", for another literal translation.

I am reminded of an observation somebody made that one proof of time travel's impossibility is non-zero interest rates--ever.  The fact that the EZ is trying this smash-and-grab expropriation of Cyriot deposits is also proof of what will not work--ever.

Mon, 03/18/2013 - 09:36 | 3342046 Silverhog
Silverhog's picture

Cyprus, the new economic ground zero. Who would have guessed.

Mon, 03/18/2013 - 09:38 | 3342051 The Gooch
The Gooch's picture

Green by 10.

Mon, 03/18/2013 - 09:38 | 3342056 Jayda1850
Jayda1850's picture

It's fucked up. Lose 10% of your deposits and not even a spiderman towel in return.


Mon, 03/18/2013 - 09:39 | 3342061 Caracalla
Caracalla's picture

Looks like this is much ado about nothing.  After opening way down the markets are recovering.  People are BTFD.

Mon, 03/18/2013 - 10:04 | 3342190 ATM
ATM's picture

The Fed is not "people".

Mon, 03/18/2013 - 09:39 | 3342063 Monkeyfister
Monkeyfister's picture

My advice-- invest in European Mattress Companies.


If I were living in Cyprus, Greece, Portugal, Spain, or Italy right now, I would be doing everything possible to get my cash out.

Europe-- RUN ON THOSE BANKS with everything you've got. Get ALL your money out of those criminally corrupt operations, and then torch the buildings and the Banksters.

The very best thing for a Failed Bank to do-- is FAIL! Sadly, it seems the system is set up so that the Failed Banks can only be FAILED.

Time to make that happen.

Time for the Banks to be left empty, smoldering shells.

We, down here, have already suffered, and paid enough at their expense.

Mon, 03/18/2013 - 09:56 | 3342149 Edward Fiatski
Edward Fiatski's picture

We have a great mattress selection here - all those tanned MILFs need to be fucked on something, soft preferably.

Mon, 03/18/2013 - 09:41 | 3342066 falak pema
falak pema's picture

Before you start blowing your head off in doom n gloom euro rants just keep in mind the power equation : 

Cyprus Bailout: 6 Lessons That Germany Just Sent To The Rest Of Europe - Business Insider

The Euro is as flawed as the USD today, its part of the same rotten construct. 

So don't jawbone about Cyprus until the cows come home.

Cyprus is nothing, the geoplolitics of financial war and reset vital to THREE generations of first world people IS the real agenda.

And that is more than some piddling principle on which people start frothing at the mouth.


So don't get finicky about principles. This is a malign fiat bubble tumor and it looks infected for ALL of FIRST world...Its not part of the real economy per se, but as the streets of Athens show those bankstas and their political friends have made it so; to protect uber-wealth. And this has to stop. The uber wealth must now square up. 

The current PTB have to understand where that trade off is : between kicking the can and getting fast resolution to the financial cum economic crisis beyond their current capablities or will.

And its not just Eurozone its Pax Americana zone.

Three generations of first world and third world await resolution of this crisis. PRONTO.

Mon, 03/18/2013 - 09:43 | 3342085 magpie
magpie's picture

What haircut ? The market is rising

Mon, 03/18/2013 - 09:51 | 3342122 falak pema
falak pema's picture

ya! like hairs on a billiard ball !

Mon, 03/18/2013 - 09:52 | 3342128 Uncle Remus
Uncle Remus's picture

What in the fuck are you babbling about? You have redefined obtuse.

Arbitrarily taking x% of a bank depositors funds is theft, plain and simple. There is simply no justification for it, period.

Mon, 03/18/2013 - 10:00 | 3342171 falak pema
falak pema's picture



Now you choose...

You're front line and you don't know it; unless you have your wealth in Caymanista land; otherwise the choice is very different! 

Mon, 03/18/2013 - 10:06 | 3342202 ATM
ATM's picture

They can take it by edict or they can take it by printing. What the fuck is the difference?

Mon, 03/18/2013 - 10:10 | 3342222 falak pema
falak pema's picture

the first is MUCH faster than the other. Cut out the financial tumor fast, this thing is ruining the lives of the young and innocent and that is a multigenerational crime. 

Mon, 03/18/2013 - 10:43 | 3342355 Uncle Remus
Uncle Remus's picture

Other than appearances (and perceptions), none.

Mon, 03/18/2013 - 09:42 | 3342071 PontifexMaximus
PontifexMaximus's picture

who cares about the levy? the higher the levy, the better for stock markets.

Mon, 03/18/2013 - 09:42 | 3342073 grid-b-gone
grid-b-gone's picture

At the core of the worldwide central bank liquidity plan is the hope that, by keeping the banking and financial system looking somewhat normal, a real normal will emerge. Fake it until you make it.

This is like keeping an alcoholic half-drunk until he is cured because allowing him to hit bottom is so bad.

World economies need to hit bottom, a point at which everyone understands it can only get better.

Cyprus only reminds the world that the bottom we should have hit a couple years ago has not yet been reached.


Mon, 03/18/2013 - 09:43 | 3342081 proLiberty
proLiberty's picture

While I am as alarmed as anyone over the Cyprus banking sellement, the net effect of seizing 10% of deposits is the exact same as solving the crisis by creating new money out of thin air and diluting the value of those deposits by 10% by wage and price inflation.  In the world of Keynes, it is all theft.


Mon, 03/18/2013 - 09:55 | 3342146 kaiserhoff
kaiserhoff's picture

Not quite. 

Deflationary theft vs. Inflationary theft.

Look out below.

Mon, 03/18/2013 - 10:09 | 3342215 yrbmegr
yrbmegr's picture

Perhaps you have been robbed the moment you agreed to payment in fiat currency.

Mon, 03/18/2013 - 09:43 | 3342082 NEOSERF
NEOSERF's picture

ZH, you need to start drinking your own you really think this is anything but a BTFD opportunity.  A bunch of Russian money launderers lose some money (if they ever will as there will be death threats on Cyprus legislators voting on this which will fail today).  We close green by end of day on some sort of statement that creates a relief rally by noon.

Mon, 03/18/2013 - 09:52 | 3342125 Ignorance is bliss
Ignorance is bliss's picture

My understanding is that the largest banks would fail without the bail-in. The banking failure could freeze all assets and probably start a derivatives domino effect. I am not sure if the Russians prefer that scenario.. In any case, even with the bailout there would be a run on the banks which would start a follow on crises. After all who keeps their assets in a bank that just stole 10% of your funds?

Mon, 03/18/2013 - 10:00 | 3342176 Sandmann
Sandmann's picture

You don't know Cyprus. It is a major British base in the Middle East. Then again the USA spent $700 billion bailing out Oligarchs on Wall Street and saving Arab investors so Russians can think about those US Treasuries they hold and wonder about how many of those have just been expropriated in Cyprus

Mon, 03/18/2013 - 10:57 | 3342426 eclectic syncretist
eclectic syncretist's picture

This development makes it obvious that the central banks want equity prices to decline.  Perhaps they want the banks to instead lend money to people like yourself, who unbeknownst to them would just invest it in equities!

Mon, 03/18/2013 - 09:43 | 3342083 breakyoself
breakyoself's picture

Cramer said it's nothing. He compared it to the cut of the defense budget in sequester. Jim knows it all, folks.

Mon, 03/18/2013 - 09:48 | 3342108 Monkeyfister
Monkeyfister's picture

If Jim Cramer says it's no big deal, then that clearly means the entire gambit is about to fully go to shit in short order.


Invest in Mattress Futures!

Mon, 03/18/2013 - 13:00 | 3343112 akak
akak's picture

I can summarize "The Cramer Effect" in four succinct lines:


Buy buy buy!!!

(Down down down!!!)

Oh Shit shit shit!!!

Run run run!!!

Mon, 03/18/2013 - 09:44 | 3342084 Ignorance is bliss
Ignorance is bliss's picture

Gold and silver should rocket higher. I can't think of a better investment vehicle to have when your currency and a lifetime of savings are at risk.

Mon, 03/18/2013 - 09:45 | 3342092 NoWayJose
NoWayJose's picture

Cyprus should pull an Iceland and let the foreign bondholders and their iwn troubled banks fail. Anything else is death by a thousand cuts.

Mon, 03/18/2013 - 09:46 | 3342096 deerhunter
deerhunter's picture

In watching the History Channel new mini series on the Vikings a condemned man gets to choose his style of execution.  Seems fitting that one would choose beheading over say "please draw and quarter me".  If not just the Eurozone but the world does not realize that there is no longer rule of law or at least any enforcement of the rule of law when it comes to white collar crime then lets just say together,  "draw and quarter me please".  I honestly prefer facing a street thug with a knife in that at least he is honest enough to let you know what he is after.  Then at least your choice to comply or not leave the consequences in your own hands.  I have never been comfortable being referred to as a sheeple but when I look at the whole market and banking system I now understand that we will get exactly what is coming to us and as of now that appears to be ZERO.  BTFD  fellow sheeple.  Markets green by end of trade. 

Mon, 03/18/2013 - 09:50 | 3342115 magpie
magpie's picture

Everyone can imagine Lenin and Stalin staying awake at night and thinking about how to expropriate the kulak best...but this is them staying awake to find out how to take Armand Hammer's and Henry Ford's money.

Mon, 03/18/2013 - 09:57 | 3342163 Sandmann
Sandmann's picture

I don't think they thought about it. They simply killed them and created mass-starvation in the Ukraine in the Holomidor killing 4 million

Mon, 03/18/2013 - 09:58 | 3342164 Sandmann
Sandmann's picture

I don't think they thought about it. They simply killed them and created mass-starvation in the Ukraine in the Holomidor killing 4 million

Mon, 03/18/2013 - 09:53 | 3342134 Monkeyfister
Monkeyfister's picture

I do wonder why these Bankster criminals, and their gubmint enablers are still allowed to walk the streets free and unmolested.

Never mind another "Lehman Moment." I am desperately awaiting a "Concord Moment" when we finally see the whites of those Bankster eyes.

Bring it!


Mon, 03/18/2013 - 09:46 | 3342097 Charles Nelson ...
Charles Nelson Reilly's picture

Cyprus = Marshall Islands.  These fuckheads needed a place to test their evil bomb, and Cyprus happens to be a pretty convenient place.

Mon, 03/18/2013 - 09:51 | 3342111 Mario55
Mario55's picture

Lots of reactions on this website and similar places keen on property rights, but let's face it, all in all this morning the market reaction is very tame in front of this very sad Cyprus situation.

Merkel, Barroso and cy seem to have won. 

Mon, 03/18/2013 - 09:56 | 3342152 Sandmann
Sandmann's picture

Fund Managers churn Customer accounts to make money, this is just another invitation to dip into customer accounts. Why should "The Market" run by FIRE sector gangsters object...they have been given the green light to raid accounts

Mon, 03/18/2013 - 09:49 | 3342113 The Heart
The Heart's picture

“Barnier would like the one-off levy to be weighted so the burden is on large depositors,” said the source.

As commissioner for the single market, Mr Barnier is the watchdog over the EU’s “deposit guarantee scheme”, legislation which protects up to €100,000 of savings if a bank goes bust but in the Cyprus case, say sources close to him, it does not apply.

Officials are billing the Cypriot hit on savers as a “fiscal measure” rather than a bail-in, haircut or loss inflicted on depositors in order to wriggle around the EU deposit guarantee law.

The point is made that Cypriot banks are deposit based, meaning that depositors are the only people to go to for a cash raid, given that the sovereign state in Cyprus cannot underwrite its banks.

Cypriot banks account for 55 per cent of the economy, their debts run to 800 per cent of Cyprus’ GDP – this is a risk unlike any other eurozone country, officials argue.

If the two main banks in Cyprus go bust then the state goes bust too, meaning depositors would lose everything anyway is the case made in Brussels.

“This measure is not necessary for any other country, Cyprus is completely unique in this regard,” said the official."

Officials are billing the Cypriot hit on savers as a “fiscal measure” rather than a bail-in, haircut or loss inflicted on depositors in order to wriggle around the EU deposit guarantee law.

Or, how to explain a bank holiday, and the curency devaluation?

The point is made that Cypriot banks are deposit based, meaning that depositors are the only people to go to for a cash raid, given that the sovereign state in Cyprus cannot underwrite its banks.


If the two main banks in Cyprus go bust then the state goes bust too, meaning depositors would lose everything anyway is the case made in Brussels.

Wanna bet it is the same in the USA?


Mon, 03/18/2013 - 09:49 | 3342114 astoriajoe
astoriajoe's picture

I was driving by Liberty Precious Metals today in Del Mar and I swore I saw someone that looked like Charlie Munger by the door waiting for them to open. Probably just some other old guy with thick glasses.

Mon, 03/18/2013 - 13:03 | 3343134 akak
akak's picture

If he was wearing Depends, it was probably Charlie "Magoo" Munger.

Mon, 03/18/2013 - 09:50 | 3342119 Roandavid
Roandavid's picture

To quote Barry Ritholz, 

"This is not about punishing savers. It is about a 1 million person island that has become a tax haven for Russian oligarchs. It is not another MF Global. No one is confiscating."

Mon, 03/18/2013 - 09:54 | 3342144 Sandmann
Sandmann's picture

How about a 10% levy on JP Morgan Customers to help foreclosure victims ?

Mon, 03/18/2013 - 19:03 | 3344883 mkhs
mkhs's picture

Close.  Actually, with ZIRP, we already have the confiscation of deposits.  No one noticed because nominal amounts remained the same.  Also, the savers in US were many hats, so they probably are heavily invested in profitable stocks, like appl.

Mon, 03/18/2013 - 09:56 | 3342155 FrozenOut
FrozenOut's picture

Then why not confiscate only foreign national accounts? Or non-eurozone national accounts, to be more PC about it, and let the Russki's go whistle?

Mon, 03/18/2013 - 09:57 | 3342159 astoriajoe
astoriajoe's picture

Good one Barry...

Mon, 03/18/2013 - 09:51 | 3342121 GoldIsMoney
GoldIsMoney's picture

It's not some years ago that I recommended all the greece banking customers to get their money out of the Euro zone. Till today they have not had to "pay". But Cypress is the blue copy of how things may come. And so I repeat myself. See that you get do not have all your money in but one country. What the EU can, other will be able to do also. 

And just see who will not have to suffer. Those having bought gold/silver etc those having their money at home, those having invested their money in different areas. It hits those which have done the least speculative of theem all, just keeping your money in a bank, has cost your dearly. Just imaging one day you own "100 000" € and the day after 10 000 € of it are gone, no action needed from your side. 

This is pure socialism and will be the start of the ending.

Mon, 03/18/2013 - 09:53 | 3342133 Sandmann
Sandmann's picture

Deposit Insurance lowers the cost of capital for Banks. The simple fact that if Cyprus defaulted and its banks went belly up those with Deposits <€100,000 would be FULLY insured but those >€100,000 Euros would NOT.

So in whose interest is it to EXPROPRIATE those with Deposits <€100,000 in order to prevent a Default which would not affect smaller Depositors ?

It is evident that the EuroZone cannot permit an Iceland Default because it would be contagious and drive a coach and horses through the fictional Balance Sheets of global banks.

So now they have destroyed the notion of Deposit Insurance hoping those with <€100,000 will not notice. How stupid are politicians nowadays ?

The situation is much worse now because Default in Cyprus was more manageable with Russian help than a run on an Italian or Spanish bank

Mon, 03/18/2013 - 09:54 | 3342142 orangegeek
orangegeek's picture

The Dow Jones is in a total collapse - down 0.43%.


I guess government confiscation of cash is almost bullish.

Mon, 03/18/2013 - 09:57 | 3342158 ak_khanna
ak_khanna's picture

Now the politicians are competing directly with the bank robbers who walk into a bank with guns demanding that the customers deposits be handed over to them. 

The world debt crises can be eased substantially by just cutting the salaries and perks drawn by the elected politicians and reducing their lavish lifestyles to one that is borne by the majority of the country's citizens.

Mon, 03/18/2013 - 10:14 | 3342233 falak pema
falak pema's picture

agreed, we need to take steps to get resolution fast and stop the can kicking, one way or the other! 

These guys just have lost it completely.

Mon, 03/18/2013 - 09:57 | 3342160 Shooting Shark
Shooting Shark's picture

Interesting opportunity here for a Sino-Soviet split.  This Cypriot debacle would strengthen the Yen, and Russia opposes it.  China wants a stronger Yen, and Japan opposes it.  China will take crap from the US, but this reduces the amount of patience they have with deflated Japanese crap.

So where does China shake out on the EZ snagging a remium from depositors?  My guess is they'll stay silent as long as it looks like it's going to happen. 

Mon, 03/18/2013 - 10:07 | 3342201 Sandmann
Sandmann's picture

There will be NO Sino-Russian split. Soviets went out 24 years ago but probably the news hasn't reached you in your Cold war Bunker yet.

Mon, 03/18/2013 - 09:58 | 3342167 Waterfallsparkles
Waterfallsparkles's picture

Think about all of those Corporations with HUGE amounts of Money in overseas Banks.  10% hair cut would be devistating.

Mon, 03/18/2013 - 10:05 | 3342192 Sandmann
Sandmann's picture

Johnson & Johnson apparently lost $100 million through a devaluation in Venezuela so go figure how much Apple etc could lose if their $40 billion offshore gets a haircut

Mon, 03/18/2013 - 10:00 | 3342170 NoWayJose
NoWayJose's picture

It was interesting to see a German finance guy say how great this plan was. Northern European banks and politicians LOVE this, as it will trigger a flight from southern european bank deposits into the north - almost as if it were planned in order to help weak northern banks...

Mon, 03/18/2013 - 10:04 | 3342189 Sandmann
Sandmann's picture

I thought $109 billion of funk money went into Chinese banks - presumably Hong Kong in January......I don't think deposits will stay in Euros since the policy of depositor haircut is now EuroZone Policy

Mon, 03/18/2013 - 10:00 | 3342174 GoldenGal
Mon, 03/18/2013 - 10:01 | 3342180 yrbmegr
yrbmegr's picture

What has been forgotten is that most governments around the world find it easy to change the rules, and can do so very quickly.  Mostly such rule changes only go one way.

Mon, 03/18/2013 - 10:05 | 3342196 d edwards
d edwards's picture

Seems like the perfect way to commit eurozone economic suicide, accidently on purpose.

Mon, 03/18/2013 - 10:07 | 3342204 yrbmegr
yrbmegr's picture

Isn't it obvious that the Cypriot banking system will be dissolved and acquired by the ECB for Deutsche Bank and UBS at pennies on the dollar?

Mon, 03/18/2013 - 10:22 | 3342262 Sandmann
Sandmann's picture

Largest Shareholder in Bank of Cyprus is RUSSIAN....he might not agree with you.

Mon, 03/18/2013 - 10:17 | 3342206 steve from virginia
steve from virginia's picture






"It is also another violation of sound existing arrangements. We have a no-bailout clause in the Maastricht Treaty – a clause that was essential to the Eurozone’s stability. Putting it aside in the case of Greece was the heart of the today’s problem – the reason the crisis spread (Wyplosz 2010). This no-bailout clause has once again been put aside summarily."


Sound what, dude? There was nothing in Maastrich that prevented the banks from lending against collateral 30x or against capital 50x. There was nothing to prevent Northern European banks to pimp credit in the South w/ negative real interest rates.


There was nothing in Maastrich or in so-called 'prudent regulation' preventing asset price inflation or ballooning consumption. Maastrich sat back while the interests of German and other North European mercantilists were satisfied along with the Chinese.


Offering the bailout in the case of Greece is NOT the heart of today's problem. The heart of today's problem is the same as yesterday's and the days and years before, an economy that must borrow because its primary activity -- pointless consumption of capital and non-renewable resources -- does not offer any returns. Our modern, industrialized economy simply cannot pay for itself.


There is no way to jigger the banking system to engage in non-stop lending for more than the shortest period. The point is reached -- now -- when the banking system is overcommitted, there is no worthwhile collateral, when debt-service costs are greater than lending capacity ... when there is no real output, no real goods or services, nothing useful to do as 'shopping' does not provide any real utility ... there is nothing to repay the vast loans than settle over economies like dark clouds of mustard gas.


Bailout or no, the Greek banking system was bound to collapse, so is today's Cyprus banking system. Cyprus does not produce any goods or services, only access to some small beaches. It supposedly has some offshore natural gas but its Russian depositors offered proxy access to that country's 50 trillion cubic meters of gas -- more than the other major producers combined. Now ... that proxy access has been given an arbitrary 10% haircut and the fuel managers are painted as criminals! Currently, not ONE METER of Cyprus gas is flowing into European houses. Talk about counting your chickens!


If you are going to torment a lion you better be able to run away. The Europeans are dependent upon the Russians for motor fuel and heat, they are tied to the lion by a very short chain, they have pulled the lion's tail. What stupdiity!


Or is it desperation. The European managers have been trying to borrow short-lend long since the euro introduction, they try now to force lending when the system no longer is capable of it. The deposit levy is a form of negative real interest rates. The borrowing short tactic has failed, there is no more capital, even if the banks aren't emptied on Tuesday or Wednesday, there is nothing real in the banks anyway. All are the final claims against capital that went up the tailpipe a long time ago.


Europe is bankrupt, so is the rest of the world but Europe is more bankrupt than the others.

Mon, 03/18/2013 - 10:21 | 3342260 Sandmann
Sandmann's picture

You should read the Maastricht Treaty. It seems you do not know what is in it. It referred specifically to SOVEREIGN Debt Art 125 and Art 109 in the Amsterdam Treaty and Art 125 in the Lisbon Treaty and pooling of liabilities.

The destruction of the Deposit Insurance Scheme has blown up all the banks because now they will be forced to hold much more CASH reserves and become increasingly liquid to avoid bank runs.

Next stop CAPITAL CONTROLS....Easter would be a good time to introduce them

Mon, 03/18/2013 - 13:25 | 3343242 steve from virginia
steve from virginia's picture


There is nothing about Maastrich about regulating banks, this was left to the sovereigns, the banking lobbyists wrote the treaty to benefit their clients, there never was any real oversight and the outcome was a massive credit bubble.


Only in the past year is the EU talking about a centralized banking regulator ... looking to close the barn door after the cows are long gone.


Capital controls: what is the point of the euro, again?

Mon, 03/18/2013 - 11:05 | 3342493 eclectic syncretist
eclectic syncretist's picture

"The heart of today's problem is ... an economy (based upon) -- pointless consumption of capital and non-renewable resources.

Thanks Steve in Virginia.

It's time to read Henry David Thoreau's chapter on economy from Walden and get our minds unscrewed.

Mon, 03/18/2013 - 10:22 | 3342264 Reefer
Reefer's picture

They either take a 10% hit or...... It's back to the 'new' Cypriot Pound at around €0.40 for starters.

Mon, 03/18/2013 - 10:27 | 3342271 Crash Overide
Crash Overide's picture

Order out of chaos, the game is getting old. *yawns*

Mon, 03/18/2013 - 10:31 | 3342289 NoTTD
NoTTD's picture

Well, that all sounds correct - except for the part where the ECB enters from "stage right".   Clearly, the ECB will always enter from stage left.

Mon, 03/18/2013 - 10:36 | 3342326 s2man
s2man's picture

Charles, you left out the other disaster scenario; Don't bailout the banks, they fail, causing bank failures to cascade across Europe.

Of course, that is the least likely outcome since the bankers are the politicians best buddies. 

Mon, 03/18/2013 - 10:37 | 3342330 Vooter
Vooter's picture

The people of Cyprus should respond by levying a 10% property-damage tax on the Cypriot government...

Mon, 03/18/2013 - 11:04 | 3342489 Sandmann
Sandmann's picture

Just like the American public sequestrated Wall Street assets as collateral for TARP

Mon, 03/18/2013 - 11:49 | 3342642 falak pema
falak pema's picture

who r bankrupt...more so than the people. 

In any school they teach you to count. 

Cyprus govt. = 30 billion debt.

Cyprus people = 30 billion deposits.

The government is the people in name + Oligarchs who scam admittedly...but that part has zilch, (its all in Swiss land if they are like greek scammers), not so the private wealth which is sitting pretty in Nicosia.

If u want the EU to cough up 10 B somebody has to provide the 6B missing...and it wont be God! 

A sovereign state has to shape up or give up. And the people should beat the shit out of their elected; like every where else for being scammers!

In the end whether its the US or its Germany or its Cyprus, its the people who have ultimate responsibility, and no amount of libertarian anarchy knee jerk can change that reality, except to make it worse, IMO.

Mon, 03/18/2013 - 10:41 | 3342349 Longing for the...
Longing for the old America's picture

All the problems that brought down/will bring down these various entities were the size of their notional guarantees versus their actual ability to pay promised claims.

None of the issuing bodies was/is capable of paying off in the event of a castastrophe. The guarantees were illusions fostered by governments/companies.

They only work until they are actually needed.

Mon, 03/18/2013 - 10:50 | 3342399 Montezuma
Montezuma's picture

Greece has been a tax haven, money laundry and citizenship country for alot of Russian "business" men. Rest of the Eurozone shouldnt pay for shitty little Islands fucked up policy which was "lets buy loans from Greece, since we are basically the same people".

One thing I dont get why are they fucking their own people over? Taxing some 6.75% of grandmas pention?

Mon, 03/18/2013 - 11:03 | 3342478 Sandmann
Sandmann's picture

Greece is NOT an ISLAND

Mon, 03/18/2013 - 11:43 | 3342754 Equites
Equites's picture

It's starting to get quite scary, all-in-all... Though I wonder how the 'Foreign' depositors are mainly Russians, as Israelis also tend to have huge sums with the Cypriots. It's extremely intriguing, as well, as Cyprus for years has been the last stop before traces were wiped (in anti-money laundering)... 

Mon, 03/18/2013 - 12:26 | 3342959 supermaxedout
supermaxedout's picture

Cyprus is since long a wooden stick in the flesh of Eurolands banking industry. A left over from UKs colonial past. A financial no mans land offiacially but controlled by the City of London.  The ideal place for the real dirty money.  The Russians, oh the pour pour Russian oligarchs. Uk has to protect them. Whether Euroland is paying or London. Its that simple.  Since Cyprus was since centuries the show from UK, why should Euroland pay now anything at all. Its clearly the UKs responsibility. They are in coalition with the US still the real master of this island.

As I wrote it was controlled till now by the UK and the US. What is happening now is a simple system change. Cyprus is moving away from the fraudulent Anglo-Saxon banking scheme and is becoming part of ECB controlled territory. hu, hu hu . Nothing to worry about the City of London has still many other places comparable to Cyprus.

But the UK wants to make this as hard as possible and tries to make it sour for Cyprus and Euroland.  But Euroland just said to the UK: We have enough of your games which are now already lasting years in Cyprus and do lead to nothing. Pack your things and take your black Russian money to London what is left. This is our offer, the rest is your problem. 

Anyhow no sane person was holding a savings account in a Cyprus bank. Only big time speculators holding wealth which is anyhow no wealth anymore its just numbers on toilet paper sheets.    Eurolands offer is now on the table. Take it or leave it. The next offer will be zero 00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000


Mon, 03/18/2013 - 12:46 | 3343045 JayKitsap
JayKitsap's picture

So the banks asked their depositors to save with them for a paltry interest rate compared to other investments, but there is a no loss possible with the 100K insurance.  People put their day to day money as it is easy and safe.

Now it is paltry interest rates with the same risk of haircuts and other investments.  If one is paying attention to their accounts, typically you can move out before a 10% loss.  Now, come thick or thin the accounts carry a -10% tax. Just hold cash then or invest elsewhere.


Obama in the Chrysler bailout fixed the rules on bonds to take care of his friends.  Now, any buyer of bonds knows that he must follow the rules but the borrower doesn't.  We've done the same thing with all the housing foreclosures, these poor smucks bought 5 houses and are now defaulting, shouldn't the banks cut a deal.

We live in interesting times.

Mon, 03/18/2013 - 23:59 | 3345818 StavropolJames
StavropolJames's picture

Can anyone tell me the difference between a guaranteed bond and a non-guaranteed bond after this fiasco?  Aren't they both the same now? Aren't the ideas of collateral and guarantee moot now?

If I'm assured I can't lose on a purchase of a risky bond, which of course would have a higher rate of interest to reflect that risk, why wouldn't I take the risky bond and take a shot at getting the high interest rate?

Why would I buy a 10 year German bond and take 1.4% when I could get almost 5% for the same thing from Spain when in both cases, my money isn't at risk? 

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