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Cyprus, Why Now? Follow The Money

Tyler Durden's picture




 

Authored by Steve Hanke of the Cato Institute,

While the Cypriot Parliament may be dragging its feet on a proposed rescue plan for Cyprus' banks, the country ultimately faces a choice between Brussels' bitter pill... and bankruptcy. Cyprus' newly-elected President, Nicos Anastasiades, has quite accurately summed up the situation:

"A disorderly bankruptcy would have forced us to leave the euro and forced a devaluation."

Yes, Brussels and the IMF have finally decided to come to the aid of the tiny island, which accounts for just 0.2% of European output -- to the tune of roughly $13 Billion. But, this bailout is different. Indeed, the term "bail-in" has emerged, a reference to the fact that EU-IMF aid is conditional upon Cyprus imposing a hefty tax on its depositors. Not surprisingly, the Cypriots, among others, are less than pleased about this so-called "haircut".

Still, the question lingers: Why now? The sorry state of Cyprus' banking system is certainly no secret. What's more, the IMF has supported a "bail-in" solution for some time. So, why has the EU only recently decided to pull the trigger on a Cyprus rescue plan?

One reason can be found by taking a look at the composition of Cyprus' bank deposits...

 

There are three main take-aways from this chart:

1. European depositors' money began to flow out of Cyprus' banks back in 2010.

 

2. Indeed, most European depositors have already found the exit door.

3. Over that same period, non-Europeans (read: Russians) have increased their Cypriot exposure.

If the proposed haircut goes through, Russian depositors could lose up
to $3 billion. No wonder Vladimir Putin is up in arms about the bail-in. Perhaps a different "red telephone" from Moscow will be ringing in Brussels soon.

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Mon, 03/18/2013 - 21:50 | 3345466 Iwanttoknow
Iwanttoknow's picture

Rape of cvyprus

Mon, 03/18/2013 - 21:56 | 3345487 DJ Happy Ending
DJ Happy Ending's picture

Nice article Mr. Henke.

Mon, 03/18/2013 - 22:18 | 3345527 icanhasbailout
icanhasbailout's picture

I know the Cyprus haircut is a disaster, people, but relax - Miley can grow it back.

Mon, 03/18/2013 - 22:35 | 3345613 AlaricBalth
AlaricBalth's picture

Just 20 months ago Cyprus's 3 big banks passed the EBA/ECB stress tests to much acclaim. In July 2011 the Cyprus Finance Ministry issued a statement saying: “The measures which the banks are taking or planning to take will further increase solvency.”

Flash forward to present day. Due to a prolonged downturn in Europe, these banks are now in need of 10-13 billion dollars. My question is, if these banks are in such sorry shape so soon after passing tha stress test, how many other European banks are insolvent and how soon until they also need bailouts.

IMO, The unraveling of Europe is beginning to accelerate and in the coming months wealth taxes and capital controls will become the norm.

Mon, 03/18/2013 - 23:05 | 3345702 IridiumRebel
IridiumRebel's picture

13 billion? Is that all? Ben will print that by Saturday....Prepare the Helicopter!!!

Mon, 03/18/2013 - 23:13 | 3345723 Rakshas
Rakshas's picture

Stress test?  Is that the same as a BLS NFP report??  Hmmmmmmm smells the same when you step in it.........

how do you spell DEXIA again??

 

Man when these guys proclaim how strong a bank is based on the "stress test" results Run Forest RUN!!!!

(Or go short either way it all be big bag o bullshit)  

Tue, 03/19/2013 - 02:57 | 3345936 All Risk No Reward
All Risk No Reward's picture

It's all fraud, people.

The debt was ENGINEERED to be INEXTINGUISHABLE.

Debt Money Tyranny is a financial restraint on society, the same way the BTK serial killer might bind his victim before torturing and snuffing the life out of the person.

Unlike that person, this financial restraint is sufficiently abstract so that the societal victims don't realize they are being restrained en masse as they are being set up for their societal torture session and societal death at the hands of these mass murderers.

This is a slow motion financial snuff film.

Debt Money Tyranny

http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77

I'm not kidding - that's what it is and millions, if not billions, will die because of these criminal mass murders and their monetary fraud.

Biggest Finance Capital may well want to create a world war as a pretext to create their totalitarian "utopia" with you and yours as the fertilizer or servants.  You won't accept it now, but you might if they can cause orchestrate the deaths of 100 million Americans.

Tue, 03/19/2013 - 07:51 | 3346223 css1971
css1971's picture

We know. You're preaching to the awakened here.

Tue, 03/19/2013 - 02:20 | 3345938 All Risk No Reward
All Risk No Reward's picture

TiS,

If the Cyprus banks are leveraged 10-1 and have 10% capital requirements...  how can they afford to give 6.7% to 10% to the ECB?

That would leave 2-3% capital and 30 times leverage.

Is anyone actually receiving money here, or are they just cutting down the money banks owe while nobody actually receives the money that, quite frankly, DOESN'T EVEN EXIST AT THE BANK?

It sounds like nation state bond holders were spared this haircut.

Tue, 03/19/2013 - 03:19 | 3345977 Boris Alatovkrap
Boris Alatovkrap's picture

Screw wrong Russian, is come for Boris with pliers.

Mon, 03/18/2013 - 21:50 | 3345471 whotookmyalias
whotookmyalias's picture

Yes, let's tax the Russians for our poor decisions. What can they do?

Mon, 03/18/2013 - 22:26 | 3345580 Ident 7777 economy
Ident 7777 economy's picture

Cut off the nat gas flow in pipelines, quite literally, "to the west"  ...

Tue, 03/19/2013 - 02:33 | 3345948 Joe A
Joe A's picture

No gas to Europe means no money for them. And they just cannot build a new gas line to China overnight.

Tue, 03/19/2013 - 02:48 | 3345957 laomei
laomei's picture

Why cut it off when you can just jack up the prices overnight and cripple the entire EU economically?

Tue, 03/19/2013 - 02:49 | 3345958 laomei
laomei's picture

Seriously, taking the ball and running home is so childish. Adults just buy out the court in the first place and jack up the usage fees.

Mon, 03/18/2013 - 22:41 | 3345633 FieldingMellish
FieldingMellish's picture

Visit you with a gun, an axe and some plastic bags.

Mon, 03/18/2013 - 23:07 | 3345706 jeff montanye
jeff montanye's picture

polonium 210 

Tue, 03/19/2013 - 00:00 | 3345819 Coke and Hookers
Coke and Hookers's picture

It's clear that the EUbanksters waited until their people had gotten away with their money and then decided to go after the Russian cash. I think the EU elite should check their office chairs for polonium in the future before their teeth start falling out.

Tue, 03/19/2013 - 00:41 | 3345866 El Oregonian
El Oregonian's picture

polonium 210

Wasn't that "Pull-one-over-on-'um 2.0"?

Mon, 03/18/2013 - 23:39 | 3345791 Real Estate Geek
Real Estate Geek's picture

Yes, let's tax the Russians for our poor decisions. What can they do?

 

Seriously?  Russian oligarchs?  I’m betting that they would do something along the lines of strangling you with your kid’s intestines. 

Mon, 03/18/2013 - 21:52 | 3345474 kito
kito's picture

wait heres an idea!!!.............let the banks suffer for their stupidity.................they go under...........the altruistic european union overlords, who are SO CONCERNED for the well being of their union, can protect the depositors, who have no involvement with the idiocy of the bank they rely on to safeguard their money, by covering them.......this would renew confidence in the banking system by all european citizens............................

 

and then we can have peace on earth........

and a cure for all diseases...............

and the earth will flourish..........................

Mon, 03/18/2013 - 21:58 | 3345494 fonzannoon
fonzannoon's picture

"the depositors, who have no involvement with the idiocy of the bank"

I'd say they are involved the minute they deposited their money. That's the problem on a bigger scale. Deposit insurance has created a monster because people could give a shit what the bank does with their money as long as it is "insured" and by now everyone knows the insurance is worthless in a crisis.

Mon, 03/18/2013 - 22:10 | 3345534 kito
kito's picture

yes fonz, but you understand i meant that depositors have no decision making or any say in what the bank invests in.............most are simply depositing their money with the crazy idea that it will be there to withdraw when needed.............forget receiving interest....thats a pipe dream that most depositors have let die.......all they ask is that their money be there....................im not sure deposit insurance has created a monster.............rather its the fed/ecb that has created a monster by putting the well being of banks ahead of the people that give them their money...........................when banks know there is nobody to bail their asses out, then you will see banks acting differently...............its the banks that need to learn their lesson, not the simple people who just need a "safe" place to park their money..................

Mon, 03/18/2013 - 22:15 | 3345551 Ness.
Ness.'s picture

.......................... end scene.

Mon, 03/18/2013 - 22:17 | 3345557 kito
kito's picture

encore...........................

 

merkel, take a bow!!!!

Mon, 03/18/2013 - 22:28 | 3345593 Jena
Jena's picture

Then people can be robbed in their homes.  The way it was intended!

Mon, 03/18/2013 - 23:05 | 3345701 BeansBulletsBandaids
BeansBulletsBandaids's picture

At home they have a chance of defending themselves. It's kinda hard to protect your assets when they're 0's and 1's in some bank's computer. Got physical Fishes?

Mon, 03/18/2013 - 23:12 | 3345719 jeff montanye
jeff montanye's picture

however in a larger sense, the ability of outside parties, even those with savvy and computational resources far beyond those of the small depositor, to understand the "reality" of bank balance sheets (and "off balance sheets") is part of why this massive control fraud continues to prevent organic economic recovery.

Mon, 03/18/2013 - 22:29 | 3345596 Element
Element's picture

Given the FED and ECB are Banks it's a bit of a no-brainer that they are going to favor banks over people.

Given this, the question is, why do they have any power or capacity to do so at all?

Basic civil checks and balances should have totally eliminated that sort of possibility or abuse from ever arising.

The people who set that up and enabled it and keep enabling it are those who need to be hung drawn and quartered in the town square.

 

Mon, 03/18/2013 - 22:38 | 3345623 nmewn
nmewn's picture

+1

Tue, 03/19/2013 - 08:58 | 3346437 sdmjake
sdmjake's picture

+ 2

Tue, 03/19/2013 - 08:59 | 3346438 sdmjake
sdmjake's picture

+ 2

Tue, 03/19/2013 - 03:53 | 3345993 Tapeworm
Tapeworm's picture

drawn and quartered first, and then hanged.

Tue, 03/19/2013 - 00:14 | 3345843 mumcard
mumcard's picture

Don't bend over in front of these guys.

Mon, 03/18/2013 - 22:26 | 3345559 fonzannoon
fonzannoon's picture

The banks can only learn that lesson when people deicide to yank their deposits and walk with the cash and be their own bank. However, like you pointed out today, people are either too ignorant or too apathetic to see reality. So as far as I am concerned, let them take a haircut every once in a while. Shit they are practically begging for it at this point. They should all get a "beat me hard" t shirt upon opening an account. How the rest of the PIIGS could be so silent today with regards to depositors was fascinatingly awful to see.

edit - I'm sure Elizabeth Warren is working on a disclosure form that Shiela Bair was almost done with that says

"By depositing your funds with our institution, you are giving our bank permission to utilize your funds to purchase credit/equity/derivative instruments. We may use substantial leverage purchasing these instruments. Any losses that occur could result in our bank seeking a government bailout because we all know the fdic ain't got shit"

I heard it should be out by summer. It's going to be a game changer....

 

Mon, 03/18/2013 - 22:33 | 3345610 kito
kito's picture

well, yes, that would be one way for the banks to learn a lesson, and i agree that the herd has nobody but themselves to blame when their country is next on the list of account confiscation......they shouldve seen the writing on the wall......but no fonz, no haircut for the depositor (i assume thats who your haircut reference was directed at)....that is their money, their property, and NOBODY has the right to reach into their account and grab it..................the haircuts need to be with the bondholders, the shareholders, the ones who invested in the bank itself..................that is when banks really learn a lesson, when they fail and others see their stock prices crumbling and big ben isnt there to pick them up...........the wildfire can no longer be surpressed or new trees will never sprout................

Mon, 03/18/2013 - 22:40 | 3345625 fonzannoon
fonzannoon's picture

Of course I agree with you that nobody has the right to reach into their account. But it is glaringly obvious that that right got trampled along with the rest of our rights. I also don't wish these haircuts to happen to any depositors...I just no longer have any sympathy for them.

 

Mon, 03/18/2013 - 22:42 | 3345636 kito
kito's picture

you know, the red pill works in strange ways..........i used to think of "haircuts" as a positive thing......you know.....trip to the barber........a little trim on top...some shaping....a good chat........now i cant help but think of defaults and central banks and debt...........im now scared of the barber........................I DONT WANT A HAIRCUT!!!!!!!

Mon, 03/18/2013 - 22:47 | 3345651 fonzannoon
fonzannoon's picture

I hear you man. I am going to sleep. These ten point moves in the dow are wearing me out lately.

Mon, 03/18/2013 - 23:37 | 3345783 James_Cole
James_Cole's picture

The banks can only learn that lesson when people deicide to yank their deposits and walk with the cash and be their own bank.

Or how about some laws are enforced??

This logic is so ridiculous...it's like you take your car to a mechanic and someone there steals it. And you're like, 'that settles it! Never going back to that mechanic again!!' That's great, but you still lost your fucking car!

People need to get together and demand some good old fashioned justice!

Just because the cops left the beat the solution isn't to run and hide in the forest. 

Tue, 03/19/2013 - 00:09 | 3345836 new game
new game's picture

Webster dictionary update submission:

Corzined, the act of putting funds in an institution for safe keeping, investment, or otherwise self directed investmentonly to have it seized, stolen or vanish with no further explanation or be properly investigated much less a prosecution by laws and governing bodies. a more simplier definition is as of 2013; you stupid fuck-you get what you deserve.

Tue, 03/19/2013 - 08:11 | 3346263 Sean7k
Sean7k's picture

Actually, in America at least, they do have the power to do so. You see, banks are "agents" of the federal government (read your contract), therefore, when you deposit money into a bank, you have placed it into an area where your constitutional protections for private property no longer exist. You are now in a "contract" environment and the Constitution cannot impair contracts.

The People, unfortunately, have been put into a situation where having a legal education has become paramount, if they are to preserve their rights and their wealth. The vast majority of the people have no idea just how bad their situation is, brecause the State has not decided to push the point. However, as the debt explodes, that day draws nearer and nearer. 

Having our money in a bank is our first mistake.

Tue, 03/19/2013 - 12:18 | 3347576 phalfa5
phalfa5's picture

they grow up so fast ...  with dreams and the best intentions ...  then comes reality.

grab a pitchfork Kido  (Kito)

 

Mon, 03/18/2013 - 22:27 | 3345587 SDShack
SDShack's picture

The problem is the line between retail banks and investment banks is gone. Investment banks continue to make risky leveraged bets, just like they always have, only now they use insured depositer money to do it. Add the fact that there is effectively no oversight or regulation, and this forces the taxpayer to backstop the risky bets as we careen from one bank crisis to the next.  It's just one big mess, and won't get any better until some country says enough and brings down the whole house of cards. Only when that happens, when the people can't be raped anymore, will the banks stop feeding on the people and start feeding on each other.

Mon, 03/18/2013 - 23:06 | 3345705 Antifaschistische
Antifaschistische's picture

the problem is...there are lots of problems.  fascism, socialistic imperialism using the facade of capitalism, greed, etc.

however, at the real core is the philosophy of money.  what it is, and what it represent.

In the long run, it is economically impossible to store wealth by storing little pieces of fiat.  Whether it's physical cotton fiber fiat...or digitized fiat.  

But as commenters have stated here, TPTB have convinced the sheeple that saving and storing fiat is a riskless and in fact a 'guaranteed' proposition.  The economic events around the world, current events surrounding the EU, and coming soon to Uncle Sam's theater will show that saved fiat is not a means of preserving wealth.  And when the music stops, and people rush to squeeze value out of their fiat...crazy things will happen.

the show will go on... 

Tue, 03/19/2013 - 07:33 | 3346195 Mesquite
Mesquite's picture

Iceland....

Tue, 03/19/2013 - 03:08 | 3345969 All Risk No Reward
All Risk No Reward's picture

The Fed is the Trojan Horse of the Biggest Finance Capital monster - the private interest people who define and control the monetary system.

The plan was to make people uber productive by tricking them, but only for a time, into thinking their chit was actually theirs.  Since money is debt and government / society is beholden Biggest Finance Capital the minute they sign up for Debt Money Tyranny...

http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77

...the people have to be in debt in order to have a money supply,  The minute the banksters restrict credit, well, all that chit the debtors thoguht was theirs is suddenly not theirs anymore - it belongs to a TBTF&Jail Biggest Finance Capital front corporation (tax free, of course).

"If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."
~ Robert Hemphill, Credit Manager of Federal Reserve Bank, Atlanta, Ga.
Source: In the foreword to a book by Irving Fisher, entitled 100% Money (1935)

Monetary Reform Talk, 4.09, Part 7: Robert Hemphill quote

https://www.youtube.com/watch?v=5TTVoNIpBjE

 

Thu, 03/21/2013 - 04:02 | 3356017 Pseudolus
Pseudolus's picture

I've read all your posts on here tonight (insomnia). I'm very much afraid your audience comes here to be dogmatic, not enquiring. It typically considers itself 'awakened'

The good trumps the bad of that: its part of what makes ZH uniquely brilliant

We all have our limits, usualy t the point where, as Wittgenstein wrote, we just 'stop digging'. Few apart from CD here gives a though to their own cog diss...:-)

Personally, I think you should start your own blog as your message merits a more substantial presentation

You'd have a bookmark from me. Best of luck

 

Mon, 03/18/2013 - 22:42 | 3345634 fnordfnordfnord
fnordfnordfnord's picture

 insurance is worthless in a crisis.

But, but, isn't that the only time it's needed? I'm confused.

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