Cyprus - Oh The Irony!?

Tyler Durden's picture

By Ben Davies of Hinde Capital

Cyprus - Oh The Irony!?

In history seemingly innocuous events portend more serious outcomes – albeit we recognise them in hind(e)sight. This is the dramatic irony of history. Just as a single shot in Sarajevo, took out a largely unknown European aristocrat, Archduke Franz Ferdinand, who would have known then that the world would plunge into World War I. The Cypriot savers must have thought the authorities were being highly ironic, of the Socratic kind, when they were told they were receiving a bail-out, except it was a “bail-in”. I don’t know the Greek/Turkish for – you are having a laugh, but I bet that’s what they are saying. So what is a bail-in?

A bail-in takes place before a bankruptcy, and involves losses being imposed on bondholders, something that has rarely taken place throughout the GFC and euro crisis. In fact taxpayers (the government) have consistently bailed-out the private sector in full. The Cypriot bank rescue is no exception, except this time there is a bail-in and ironically again not of bondholders but of the depositors first. This is a direct contravention to the usual legal claims on the capital structure.

So there you have it – on Friday 14th March Cyprus became the 5th country to receive an EU bail-out (in), except this one was a bail-in but one with a significant and severe twist of fate. The Cypriot government in Nicosia is scheduled to vote on a EU bail-out plan which calls to extract a “tax” on bank depositors (savers) some €5.8 billion: 6.75 per cent for anyone with less than €100,000 in a Cypriot bank account, 9.9 per cent for anyone with more than that.

This is an unprecedented assault on individual property rights and every individual in the developed world should take notice, and far from stabilising the eurozone, the bail-out likely heightens contagion risk across the EU.

Why bother holding a bank account when your government can expropriate your savings? Far from containing a bank run in Cyprus it will exacerbate it, absent capital controls, and likely begin significant depositor flights across the European periphery.

These events I believe signify one of the most alarming developments in the Eurozone crisis and by dint the global economy since the financial crisis began.

 

Cypriot Disputes and Levies

For a sovereign entity so small, Cyprus is a country that has had more than its fair share of international controversy and disputes. Cyprus has a long and convoluted history with the British, Turks and Greeks, whose tensions have wreaked havoc across Europe over two World Wars. This weekend marked yet another period of disquiet in the history of this troubled island.

Cyprus is reeling from an oversized and ailing banking system.  Technically bankrupt, domestic banks stand at €126.4 billion in size, or over 7 times the size of the economy.  Without a bail-in, depositors would be wiped out and Cyprus would undergo economic collapse, bringing along with it all the attendant social misery and deprivation of a depression. 

Ironically Cyprus is no stranger to levies.  The British extracted taxes in the 19th century to cover the compensation they owed to the Ottoman Sultanate, who had conceded the island to the British.

In 1878, under the Cyprus Convention, the Cyprus became a protectorate of the British in a secret agreement between the United Kingdom and Ottoman Empire. The Greek Cypriots believed the British would eventually help Cyprus unite with mother Greece, just as with the other Ionian Islands. The indigenous Cypriots believed it their natural right to reunite the island with Greece; after all the very first census showed the population was comprised of 74% Greeks and 24% Turks.

Fast forward half a century and most of us over the age of 40 refer to the Cyprus dispute as that of the conflict between the Republic of Cyprus, and Turkey, over Turkish-occupied North Cyprus. My knowledge of the origins of the Cyprus dispute is a little sketchy but as I understand it, the dispute originally was born out of the Cypriots’ desire for self-determination away from the British Crown, which had unlawfully declared itself the constitutional ruler after Greece failed to fulfil its WWI obligations to invade Bulgaria; in return the Republic of Turkey recognized British rule of the island.

Eventually this colonial dispute became an ethnic one between Greek and Turkish islanders and their respective mother countries. In 1974 Turkey invaded Northern Cyprus and declared unilateral independence, as well as itself a sovereign entity – the Turkish Republic of Northern Cyprus – but has never received UN and international recognition. There has been a UN no-go zone buffering North and South ever since.

Another irony of the day was that in return for the British protectorate the Ottoman Empire received military support against Russia in Asia. As I will cover later Russia has been integral to the demise and now the future well-being of Cyprus. Another legacy dispute that has compounded the Cypriot collapse was their adherence to EnosisThis refers to ‘the union’, literally speaking, of the Greek-Cypriot population to incorporate the island of Cyprus into Greece.  Observance of this tradition led the Cypriot banks to misguidedly purchase vast amounts of Greek sovereign debt before and during the euro crisis. Cyprus became a casualty of the Greek’s very own bailout restructuring. Oh the irony again. 

Creditor Structure

Bank depositors by now will have realised that bank deposit guarantees are not worth the paper they are written on and the legal precedent to label this confiscation of assets as a ‘stability levy’ or tax has no doubt been framed as such so as to circumvent EU deposit guarantee law, which this levy clearly violates. This is stealing – period.

Every saver in Italy, Spain, Portugal, but not limited to these countries, as it potentially applies to any saver in northern Europe and the UK, are at risk of a confiscation of their hard-earned money.  We will likely see depositor flight from the periphery to the supposedly more robust surplus countries – principally Germany. This is despite the very large outstanding Target2 balances owed Germany by the periphery, but don’t expect the man in the street to be aware of this fact.  This is unfortunate as some progress was being made in the reduction of Target2 imbalances as deposits in the periphery showed renewed signs of growth. 

The Troika has run roughshod over the rule of law. By calling for a universal bail-in of depositors (the securest part of bank capital ladder) before extracting money from shareholders, junior and subordinated bondholders, the EU bureaucrats and IMF have unilaterally ripped up the legal framework for property rights. This is a truly worrying and frightening progression – actually regression – in economic freedom.

At Hinde Capital, we have no issue with uninsured depositors contributing to the bail-out of a banking system, even as unpalatable and clearly undesirable as this would seem.

Unfortunately bank depositors (savers) have long been under the misguided impression that they are potentially immune from a bank collapse, with the State providing a safety net in the form of deposit guarantees up to a declared sum.  I would argue that individuals, partly due to government propaganda in the good times, have long since forgotten – or indeed have never understood – that once you deposit your money into a bank, you give up your right to ownership, ie, It’s a LOAN! An asset which is lent out multiple times as is the agreed practice under fractional reserve banking, clearly has a risk of no return, albeit a seemingly a low risk when confidence and trust is high in the economic system.

In truth the correct order of claims on the creditor structure in this ‘bankruptcy’ proceeding has been largely ignored as the Cypriot banks have such a small sliver of equity and debt, and have an unusually large depositor base.  It is the involvement of the depositor base that turns this whole debacle into a plot of immense political intrigue and, indeed, even conspiracy. 

 

Cyprus-sia ‘Tax’ Haven

It has been long known that Cyprus has held a vast sum of deposits from Russian lenders, and because of that Russia has been its biggest direct foreign investor. Low corporate tax rates, sub 10%, were the attraction, with Russians transferring their money into companies based in Cyprus. Some of this was then reinvested back in Russia.  According to Der Spiegel: 

An internal study by the German foreign intelligence agency, the Bundesnachrichtendienst (BND), says banks in Cyprus hold $26 billion (€20.33 billion) in deposits by Russian investors. According to the BND, most of this money has been illegally moved abroad to evade Russian tax authorities. By Cypriot standards it’s a tremendous sum given that the island’s entire annual GDP amounts to €17 billion.

The Cypriot government on Monday denied the money-laundering accusation. A government spokesman said SPIEGEL was trying to besmirch the reputation Cyprus has as an international investment location. The country had effective money-laundering rules and adhered to EU law, the spokesman said.

Indeed, Russians aren’t the only ones who sought the refuge of this once tax safe-haven, and consequently other European countries were not keen to be seen to be using their own tax payers’ money to afford a bail-out for ‘tax dodgers’ and money laundered in Cypriot banks by Russian KGB, mafia and their own citizens. So you could call the tax on uninsured depositors actually a levy on money laundering – call it a 10% haircut for washing your dirty linen. I bet any good money launderer worth his salt would take that cut. 

 

Conspiracy Talk

The question is why have the small savers been penalised? This is the point in the plan which makes the EU bureaucrats look so dysfunctional or at best dishonest – I meant to phrase it that way round. By penalising small depositors, mostly local Cypriots, they, as I have stated, undermined the universally agreed EU depositor guarantee that currently stands at €100,000. The talk is that the Cypriot government who took a line of credit of some €2.5 billion from Russia in 2011, and having utilised it fully, wanted to appease the ‘motherland’.  So they have agreed not to levy the full tax on deposits above €100,000. By doing this they hope for further assistance from Russia. I suspect they will offer support as Russian banks have loaned in excess of $40 billion to Cypriot companies of Russian origin (according to financial reports).

The Private Sector Initiative (PSI) on depositors is a victory for the ‘northern league’ of Europe, for now at least.  With a German election year in full swing Merkel needed to satiate German taxpayers by no longer exposing their euros to the profligacy of the periphery. Yes, a victory in round one for Merkel and the CDU, but ‘ding ding’, here comes round two: I bet the Cypriots pull a few punches by pushing back on the levy on small depositors. ‘Ding, ding’ – round 3 – I say Merkel gets knocked off her feet as depositors flee the periphery and then (eventually) Mario has to step in and decide whether to cite ‘irreversibility’ status as a clause to stem a banking sector collapse in Europe, and provide unlimited monetary support, but without the conditionality clause of austerity. I say ‘eventually’ as Mario had repeatedly slapped the EU finance ministers, and Schauble particularly, for advocating a haircut on bank deposits. So he could really make Germany sweat by holding back on a re-load of its big bazookas’ – long-term LTROs and OMTs.

In the interim the national central bank (NCB), in this case Cyprus is no doubt utilising the ELA (Emergency Liquidity Assistance) to supply the Cypriot banks with sufficient funds to remain liquid in the event of insolvency and failure.  This is at the risk of the NCB concerned and outside the ECB’s refinancing operational framework.  It is completely opaque and in truth it will appear as a Target 2 ledger or on the ECB asset side as ‘Other assets’.

For now the Cypriot banks are now on holiday, forcibly closed for business until at least Thursday at time of writing, so depositors cannot withdraw their money. Likewise, ATMs have been deactivated and electronic wire transfers suspended. They will be opened once the Cypriot parliament has ratified (or not) the deposit levy and other terms of the bail-in. It could well be that the terms change yet to protect small savers as they should have been all along. Either way, the psychological damage has been exacted across European populations. 

 

Contagion Risk

Those who think there is little risk of a levy being imposed on other periphery members are missing the point. The seeds of doubt have been planted. As a saver facing zero yields on deposits and a potential haircut, why keep your savings in a bank? Sure it is convenient for electronic transactions, but individuals can adapt easily. As one of my more amusing colleagues put it, “mattresses now hold a 10 per cent premium”.

Talk of ‘exceptional’ circumstances and a ‘one-off’ are true but only because Germany and the Troika would never succeed in enforcing such illegal measures on Italy and Spain without risking social unrest and a collapse of the euro. The Cypriots have more leverage than they realise. The Russians don’t need a failure as it could mean Russian bank risk. Moreover, Target 2 imbalances likely ensure that the ECB would not cut off the ELA and risk a euro currency break-up. 

 

Conclusion

What this should reaffirm to you all is how the handling of the crisis has only succeeded in heightening the risks associated with this current monetary order.  The excessive amounts of debt have continued to grow and are clearly not sustainable. Policymakers have resorted to draconian methods of expropriating private sector assets (households, pension funds and corporates) either by excessive explicit ‘taxation’ and/or stealth taxation administered by a policy of negative real rates to help reduce the fixed real burden of debts.

It also reinforces our long-held views that when push comes to shove policymakers (the State) will escalate oppressive tactics against their electorate in a bid to maintain their status quo and that of their fiat currency system.

Of most importance is the adherence to retrospective changes of law and different rules for different people and countries. Insolvencies are generally well-defined in law. First equity, then subordinated debt, then deposits and senior bonds together, take the hit in that order.  The creditor structure has been up-ended and more than merely tweaked over the last few years.  I suspect with levels of ignorance high amongst populations they haven’t quite woken up to the reality that the state is not in fact here for your protection as it once was and that we all need to take on self-reliance and a heightened sense of responsibility for ourselves. Some notable rule changes of late are subtle but growing in number:

  1. The ECB, holders of Athens-law and foreign law Greek debt all received different treatment
  2. The Dutch didn’t restructure SNS Reaal paper, they confiscated it
  3. The Irish banned lawsuits against the ultimate wind-down of Anglo Irish
  4. Portuguese private pensions were confiscated

The list is long but you get the idea.  Rule-changes are getting ‘regressively’ more creative and sinister. As a friend  pointed out to me this as if the “football referee has gone from being a quasi-neutral arbiter, to pulling off his black shirt to reveal a Manchester United one underneath and awarding himself a series of penalties.”

The bail-out should have been a legal bail-in whereby equity is wiped out, and all bank debt is written down. Then unsecured (uninsured) depositors ie above €100,000 should have taken a double digit hit. By doing this EU finance ministers and lawmakers would have been respecting the creditor hierarchy while adhering and honouring the rule of law. The retrospective change of law is what should alarm us all. The insidious and subtle nature of this encroachment on our civil rights sets an ominous precedent and those who glibly mock libertarians for their ‘rants’ are no doubt those same people who thought PIIGS really do fly.

The bail-in announcement for the Cypriot banks late Friday night was one of those events when we all look back and think that was the beginning of the end of the real global financial crisis. This should leave any individual in Europe under no illusion that the political elite will enact whatever it deems fit to protect their positions in the name of the euro and their own positions of power.

It is very clear that markets and investors underestimate the reality that debt restructurings are very necessary but won’t necessarily be enacted which leaves only more private sector wealth transfers (confiscation) and likely circumvention of the underlying problem of sovereign insolvency by central bank deficit financing.

So much for EMU solidarity…comrades.

 

 

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Momauguin Joe's picture

Simon Black, hanging out in "safe haven" Chile. LOL!

icanhasbailout's picture

This isn't actually unprecedented - remember the auto bailouts? The big deal with those was how they totally overturned the capital structure to benefit politically powerful entities.

 

I have come to assume that every new outrage is just a trial run for more of the same.

idea_hamster's picture

Well, somewhere in Tallahassee around 2000, they decided that it was "opposite day" in the US, and by extension, pretty much everywhere.  They "declared it oppositely by not declaring it."  (Thx, Mr. Watterson!)

ShankyS's picture

Cypriots sucks as a term - can we please start referring to them as Cypriserfs?

toys for tits's picture

 

 

This isn't actually unprecedented - remember the auto bailouts? The big deal with those was how they totally overturned the capital structure to benefit politically powerful entities.

 

What they did to the bondholders in auto bailouts was wrong, but this is like clawing back some percentage of the workers' wages over the last few years.

Doode's picture

In a democracy citizens are ultimately responsible for all actions by democratically elected officials - both good and bad. Citizens "voted" for having unsustainable benefits and debt levels that now have to be paid down. I believe this tax levy on assets is both appropriate and morally justifiable when applied to all citizens. Yes, each individual can say they did not understand or did not know of such and such, but they enjoyed the benefits of living in the free society where they freely chose their officials - they got paid (higher living standards) for bearing risks of always electing qualified representatives. When they did not - they have to pay. Whether this deposit tax is the best way to achieve that is in question, but I believe the general populace has to pay all the ultimate debts incurred by the government in the democracy - always.

PS. This is also a reason why a total war against a democracy is both morally justifiable, appropriate and therefore expected to happen again in the future despite claims that citizens do not directly vote for foreign interventions.

 

Thoughts?

ImfallibleK's picture

Your ideas are intriguing to me and I wish to subscribe to your newsletter. 

Pants McPants's picture

What if someone abstains from voting for these 'elected' officials?  Are they too responsible for the outcomes of the state, for better or for worse?

PS I didn't junk you.

Doode's picture

Yes, I think abstaining from voting is a vote in itself. Your vote is implicitely with the winning side.

toys for tits's picture

 

 

So you believe in changing the rules after the fact to fit the occasion?

There's other solutions, for example: 

First, leave all deposits under €100,000 untouched. Hitting those deposits was by far the biggest mistake of the Cyprus plan as originally envisaged, and everybody would be extremely happy if guaranteed depositors could be kept whole.

Second, term out everybody else by five years, or ten if they prefer.

That's it! That's the whole plan, and it's kinda genius. If you have bank deposits of more than €100,000, they will be converted into bank CDs, with a maturity of either five years or 10 years - your choice. If you pick the longer maturity, then your CD will be secured by future Cypriot gas revenues, which could amount to hundreds of billions of dollars.

And if you have sovereign bonds, they too will be termed out by five years, giving Cyprus a bit of breathing room to get its act together.

http://seekingalpha.com/article/1285121-a-much-better-alternative-for-cy...

Doode's picture

I am saying that citizens implicitly agreed on a possibility of such rules changes when they voted for unsustainable benefits. They bear risks of such events and get compensated for living in such environment as I stated in my original message. Each individual might not even understand that or accept it to be true, and yet it is true when applied to the populace at large.

Pants McPants's picture

So if you have a choice between AIDS and cancer, which would you choose?

Doode's picture

Vote with your feet and leave if think that is all you have left. If you do nothing then you vote for the winning team again. The choice does not depend on the options. When you do not leave you implicitly choose either one whether you like them or not.

F22's picture

"even if you choose not to decide...you still have made a choice."

Geddy Lee, Rush

Matt's picture

Is this a bailout of the Cyprus government or the banks? 

It seems the bankers chose to buy up Greek bonds, which is the cause of this issue. Surely, you cannot say the people of Cyprus voted for the social benefits of the Greeks. 

How is a Russian corporation, who has no votes for representation in Cyprus or Greece, at all responsible? If they are not, how can their deposits be taken? What about British expats that do not have voting rights?

Doode's picture

It is a risk they took when they put money in - I know it makes regular folks head spin, which we saw in 2008 crisis, but that is exactly what Russkis, Brits and everyone else did when they put their money there. I am looking at the big picture here - in a democracy people are ultimately responsible for all actions taken by their respective governments. People that put money into those banks implicitly agreed to allow local electorate to make choices that could lead to either higher payout or a major loss.

Desert Cat's picture

You really believe "the people" have much say regarding their governance in these nominal democracies?  How quaint.

Liberty2012's picture

People are always responsible, period. Whatever is presented to you, you are responsible for your reaction. You are even responsible, in a due diligence sort of way, not to be robbed. However, the person robbing you is ultimately responsible for that, not you.

People are responsible for electing irresponsible, or bad, leaders.

However, legalized theft is still theft. Two wrongs don't make a right. The the upper level bondholders do not get a free pass because the public is as easy mark. The accepted order of risk has been thrown aside.

Of course that is to be expected. Honor among thieves only goes so far.

The public always being responsible for government debt sounds good, but isn't really. When a few have used their influence to create a government enforced monopoly on money and set up a system to con the rest, then that debt is invalid.

Saying the people that were conned should bear more responsibility than those running the con is wrong. Practically speaking, it may not matter. There's not much you can do after you're robbed. However, it's an insult to the victim to say they are more responsible than the theif.

Liberty2012's picture

Also, we haven't really had a republic or a democracy for the last 100 years. These few that set up the 1913 con have been running the show and their ponzi is now finally being revealed to everyone.

Akrunner907's picture

This is a joke and comical.  They (the EU) attempted to steal money from depositors (negating any idea of deposit insurance) in order to bailout bad decision by bankers.  What is clearly apparent is that the world economy is nothing more than a shell game for banks.  Eventually, banking is going to choke all economic activity because of the toxic decisions they make.  Banks are supposed to be a conduit for an economy to grow, but increasingly it is the reverse where the economy is to support the banks. 
When I say bank, it is collective to include all financial institutions.  

Kirk2NCC1701's picture

"Simon Black, hanging out in "safe haven" Chile. LOL!" -Joe

"Joe Sixpack, hanging out in 'safe haven' USA. LOL!"  There, fixed it for ya.

Joe, how's that $85T/mo of "bail-in" working out for you?  /s

I think the lesson -- that many here are still missing -- is: Think, do your homework, and allocate/diversify per std. risk theory. One size fits all is not part of acceptable risk profile.

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.

http://www.marketoracle.co.uk/Article35345.html
www.letstalkmoney2012.in

new game's picture

dude these people don't have a conscience like you...

understand the enemy.

wish/think/realize

only one outcome...

spine001's picture

...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.

 

Whether you believe in God or not is inmaterial. The new Pope of the Catholic Church is giving this example to everybody!

Forgiveness and simple life. He recently rejected using the luxurious papal residence and will live in the room he was assigned before his election took place.

Until next time,

Engineer

HulkHogan's picture

Nothing a $22 min wage couldn't fix.

Kirk2NCC1701's picture

Agreed.  But for those of us who do not want to fall victims to banks, or the MBA-Syndrome (Paralysis By Analysis), or what I call the Blogger Syndrome (Paralysis by Keyboarding), the choices are:

Stay in: Participate, but... Spread the Word (fiat, FRB...ZH), mitigate risk of tertiary/paper assets by allocating across asset classes and global geographies.  Hold a mix of primary, secondary, tertiary assets.

Opt out: Withdraw almost all funds from bank(s).  Use cash, hold PM's and hi-value barter goods and services.  Hold real (primary wealth) assets.

Are you In or Out?  Personally, I'm into "In & Out".

GetZeeGold's picture

 

 

a single shot in Sarajevo 

 

Someone gets shot in a dinky country.....and it's on like Donkey Kong.

Oldrepublic's picture

Does the Flap of a Butterfly's Wings in Brazil Set off a Tornado in Texas?

Pure Evil's picture

Or, a fart in west africa cause an east coast hurricane?

new game's picture

taxation didn't work, lets just corzine the money...

The Ponz's picture

inflation didn't work, lets just corzine the money...

scatterbrains's picture

I'd luv it if one of these little country's got some balls stood up to the banksta thugs and corzined their depositors funds.. but for the purpose of going balls deep any and every which way into pm's  that they can in a hurry  then tell the  banksta thugs fuck you we're going hard currency now.  Then sit back and watch the contagion as paper currencies collapse, metals sky rocket, banks explode, other small country follow suit and dump their paper causing pm's to redouble again and again as panic ensues. Once the dust settles use their new pm wealth to introduce a new hard backed currency and start over...  I mean just saying if we're seizing savings deposits why does it have to go to pay the thug ass banksta niggas ?

In one case your selling your people out to these scum bags and in another your a national hero... are you a hero or a zero?

NoDebt's picture

That's actually a..... really good idea, now that I think about it.  Just open the banks back up but with everyone's account about 10% shy.  Then shrug your shoulders and claim you have no idea what happened.  Hold an official "inverstigation" and in about a year, once everyone's calmed down, drop the investigation for lack of evidence.

No broken laws, no bad guy, just some mysterious thing that happened nobody can explain.  Genius!

aka Gil's picture

The whole operation appeared to be a corzine with taxation as a beard.

Quinvarius's picture

I fail to see how taking deposits out of a bank and paying them out to bond holders (euro banks) does anything but force the banks completely over the brink.  This whole plan is nuts.  The bond holders must be completely desperate to get "right now" money.  In typical ponzi fashion, there is only daily maintenance.  There is no look ahead to sustainabilty.  I am more concerned about the banking system now than I have been in a long time.

I smell a whiff of QE5 coming from the diseased bowels of the banking system.  There is a big one coming down the pipe.  I don't see any other way to backtrack on the theft of deposits and avoid bank runs than a Eurowide banking recap of printed money. 

Muddy1's picture

"There is a big one coming down the pipe."

Got Vaseline?

spine001's picture

I fail to see how taking deposits out of a bank and paying them out to bond holders (euro banks) ...

 

As you well point out the only thing it does is decrease the liability side of the balance sheet, allowing it to remain still way out of balance, since the true value of the assets is way less than the value of liabilities.

But the point here is that maintaining their balance sheets in equilibrium is already a lost game. They know they can´t that it´s impossible. All the worry now is to have enough income plus growth in the liability side of the balance sheet to be able to pay the liabilities that come due. So it is a cash flow problem, meaning do you have enough money to pay coming in (Ponzi scheme at its best) to pay the money that you owe today. Fortet about maintaining an equilibrium between assets and liabilities.

THAT IS WHY PEOPLE TALK ABOUT BEING IN THE ERA OF ¨FINANCIALIZATION¨. That is what they mean...

Until next time,

Engineer

Spigot's picture

And this so called "confiscation" supposes there is a vault somewhere with bags of money in it. The fact is the money was lent out. Its all gone. SO, what use is there to confiscate electronic digits? Now, possibly, this means that they then transfer bondsowed to the bank as payment for the "tax", but IMO this is getting to be too much like Alice in Wonderland.

Al Huxley's picture

Electronic digits confiscated, to cover electronic digits owed somewhere else, but then the population has fewer electronic digits to exchange for real stuff.  This is the flimsy fabric the entire global financial system has devolved into.  It happens gradually, over a long period of time, so it doesn't really get questioned as long as it works, but ultimately it's a trust-based system, and since there's absolutely no reason left to trust the system, it's doomed.  There's no patchwork solution that's going to be able to repair a bankrupt system of electronic debits and credits, and once the tipping point is reached in terms of the percentage of the general population that realizes how fragile their 'electronic digit wealth' really is, is when things start to unwind in a big hurry.  Something like stealing 'electronic digits' straight from the bank might be what it takes to trigger that kind of realization.

digalert's picture

Why hold a bank account?

Peasants repeat after me,

Why hold a bank account?

disabledvet's picture

"because it's insured." interesting form of insurance of course. "no good deed goes unpunished" folks. if the regimes really believe the best way to run an economy is the create a Bailout and Tax regime...hey, go for it. Let's be clear however: Cyprus never wanted to leave the euro. "here's the sanction for your stupidity." Greece, Spain, Italy...all the same. The true irony would be if Germany leaves actually. ye olde "taking it to the man by being the man." plus Germany would finally get the devaluation they secretly wanted for years now.

johnQpublic's picture

safe deposit boxes have proven they arent safe

bank accounts also not safe

stocks not safe because they can crash at a moments notice

currency isnt safe...see zimbabwe et al

gold isnt safe as it also can be confiscated

property isnt safe...taxes, eminent domain

whats that leave?

lead and jacketed lead delivery systems?

at least if some one comes to take it, you can "let em have it"

Eally Ucked's picture

It's simple. For years people were taught that using electronic transfers to pay their bills is easy and free. After they eliminated all other ways of doing it it's not anymore free and in contrary is expensive. Electronic system lets them have all info about you and your activities. They're in total control of your life.

It will be very difficult to unwind that system, if possible at all.

Whoa Dammit's picture

And the next step is that cash will be outlawed and all monetary systems will be totally electronic so they can quash any Sealy hoarders.

toys for tits's picture

 

 

On a positive note the post office may not lose as much money and we'll be able to use the 'check is in the mail' excuse again.

RealFinney's picture

Because otherwise my money might stolen. Duh.

Svendblaaskaeg's picture

"Why hold a bank account"

because the law say so - no account, no pay - all by design

a quote comes to mind

Q:"why do you rob banks?

A:"because thats the place where the money is"

funny on all levels..

freewolf7's picture

Great writing. Thank you, ZH.

toys for tits's picture

 

 

Der Spiegel also printed that the IMF found that there wasn't the claimed money laundering going on in Cyprus.

Germany, Austria, Finland and the Netherlands don't trust the findings reached by a team of IMF experts last autumn with regard to Cypriot money laundering activities. The experts from Washington came to the conclusion that Cyprus is largely playing by the book and only minor legislative amendments are required.

http://www.spiegel.de/international/europe/imf-and-europe-disagreement-c...