Union: One Survived; One May Not

Tyler Durden's picture

Submitted by Mark J. Grant, author of Out of the Box,

Uncounted Liabilities
One of the most interesting issues of what has happened in Cyprus is where was the problem three weeks ago? There was not a mention, not a hint of anything that was wrong. All of the banks in Cyprus had passed each and every European bank stress test. The numbers reported out by the ECB and the Bank for International Settlements indicated nothing and everything reported by any official organization in the European Union pointed to a stable and sound fiscal and monetary policy and conditions. The IMF, who monitors these things as well, did not have Cyprus or her banks on any kind of watch list.
What happened?
Let me assure you it was not some "Miracle on 34th Street" that took place overnight while everyone was in bed and counting sheep. I can also assure you it was not because some bean counter in Brussels or Frankfurt stumbled over some new bit of data and informed his superiors. Nothing of the sort. The culprit is what is counted and not counted in the European financial system and the quite real consequences of uncounted liabilities.
Before I even go on with Cyprus, so you do not glaze over the punch line, I point out to you what has taken place. In just two weeks' time we have gone from not a mention of Cyprus to a crisis in Cyprus because none of the official numbers were accurate. Without doubt, without question, if this can happen in Cyprus then it could happen in any other country in the Eurozone because the uncounted liabilities are systemic to the whole of Europe. The European Union does NOT count sovereign guarantees of bank debt, sovereign guarantees of corporate debt, derivatives or many other types of contingent liabilities. They are all uncounted, but still there, no disappearing act, and as the bills roll in they have to be paid by someone. Dexia was fine, the mortgage company in the Netherlands was fine, Bankia was fine and overnight, "Snap, Crackle Pop!"
And Jack comes out of the Box.
For investors here is the crux of the problem. The Press is handed the official numbers and reports them out as if they were accurate. To be fair to the Press; they have no choice. Some EU Finance Minister send out a press release and the story is printed. S&P, Moodys and the rest have some choice but it is limited if they wish to keep doing business in Europe. In a sense it is the CDO issue all over again. The ratings agencies take the word of Europe, make judgments based upon the faulty data and opine based upon the erroneous information. As the geeks among us would say; Garbage in---Garbage out.
Then many money managers rely upon the official data, rely upon the ratings agencies and make investment decisions based upon the data that they are given. The CDO issue again you see where everything was rated inaccurately. So then we have Garbage in---Investments based upon Garbage. Therefore I will tell each and every one of you; if you are making decisions relying upon the official numbers of Europe and upon the ratings of European sovereign debt then you are going to get burned. You are relying upon falsified data and any ratio that you might run is wrong as the underlying numbers are inaccurate.
Just Garbage---Everyone is talking Trash.
When discussing Cyprus, besides, the systemic mis-reporting of data, I always hear the wrong headed thinking that they are so small that they don't matter. Think of the Senate in the United States. New York has two Senators and Rhode Island has two Senators and the argument goes that only the New York ones matter. Sorry folks, every Senator has one vote and is part of the Senate regardless of the size of their State.
There is a distinction in the law of the United States and Great Britain between private property and investments. Your own money and your own house are treated differently than the ownership of securities. Both countries, also, have due process of law where courts decide who is entitled to what under the bankruptcy laws. The government does not and cannot mandate the seizure of private property without this due process. Then let us compare this to the demands of the EU and Germany.
They want bank accounts seized and part of the money to be used to pay off the national debt. They have not asked for the bondholders to be jeopardized because the bonds in Cyprus are governed under British law and they will not allow for a retroactive change of covenants. They also have not pressed for this because then they too would have to take a hit and they prefer the Russians, the British and the normal, ordinary people of Cyprus to pay the price. What a great message for the Cypriots; you pay your share for the banks of Spain, you pay for Greece, for Portugal and for Ireland as a member in good standing of the European Union. Then when you are in trouble we will seize your assets so that you can pay for yourself. Such nice people.
Germany now says that all of the bank in Cyprus are bankrupt. It is on this basis that they demand the depositors money; all of the depositors or perhaps just the wealthier ones with deposits over one hundred thousand Euros. There are French banks, British banks, Emirates banks and Swiss banks in Cyprus. In the case of Switzerland it is UBS. No one has told us yet that UBS is bankrupt. Perhaps they are waiting to tell us on Saturday night as is their usual practice, but today we all think that UBS is solvent. The German argument is spurious.
There are also American deposits in Cyprus. General Electric, Procter and Gamble, Caterpillar et al do business there and I am sure have money in the banks somewhere. How nice of Europe to expropriate American money along with the rest. Very kind of them. It is not a vast sum I am sure. It is not a significant amount of money; no doubt, but I am not sure that the act of stealing is defined by the amount of money that is taken. Maybe Merkel will send Obama a note thanking him for the extra liquidity. She could certainly send that note to Bernanke given the amount of money that the Fed has supplied to the foreign banks.
"While the Union lasts, we have high, exciting, gratifying prospects spread out before us, for us and our children. Beyond that I seek not to penetrate the veil. God grant that in my day, at least, that curtain may not rise! God grant that on my vision never may be opened what lies behind! When my eyes shall be turned to behold for the last time the sun in heaven, may I not see him shining on the broken and dishonored fragments of a once glorious Union…"
                       -Daniel Webster
A different day. A different time. A different Union. One survived; one may not.

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GetZeeGold's picture



where was the problem three weeks ago?


It's Europe.....weeks are like doggy years.

toys for tits's picture

Now days when people talk about "bailing out" something, it is meant as synonym to a rescue.

Not to long ago, when you "bailed out" something it meant you were in the boat as well and attempting to save your own hide by means of this was the last resort.



Bicycle Repairman's picture

"There is a distinction in the law of the United States and Great Britain between private property and investments."

You make the point about how perceptions can change quickly, if the official data is faked.  It is the same for "laws".  Not only is the constitution gone, so is the Magna Carta.  If a large percentage of the "audience" expects the laws to hold back Leviathan, we will have more quick changes of perception.

Big Slick's picture

We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact.

And we're very, very pissed off.

shovelhead's picture

Not really,

Only the terminally slow people think that. Or kids who haven't got their first job yet.

A week of making subs and pizzas should cure any rational human of that premise.

Buck Johnson's picture

In America that was pushed for decades and people thought they where one check or one lucky break from being wealthy.  People are finding out and they are not really pissed off but going insane and doing insane things. 

Ghordius's picture

now this is rank propaganda from the article's author. I definitely remember about the Cypriot government and the Cypriot national bank governor having talks about the situation of those two banks - from June 2012 on

see this ZH article of today that points to the begin of Cyprus's troubles in 2011

and let's not forget that those two banks were initially in trouble because of the Greek debacle - courtesy of the great advisory work done by Goldman Sachs in Enronizing Greek books thanks to off-balance sheet scams loaded with derivatives

ArkansasAngie's picture

And yet today MSM is not covering this story.  The topic is taboo it would appear.  Sadly or fortunately most of my friends to not follow global economics.  When I've tried to raise the subject I am meet with ... "well golly ... I wasn't aware of Cyprus."

The idea that Mondern Monetary Theory is based on confidence and all that officialdom must do is control confidence is absurd. 

It is inherently ... inalienably wrong.  

You cannot abridge my right to make decisions for myself that are based on accurate information.  This is not Waco.  I do not accept Jim Jones ... and you cannot make me drink the gawd dang koolaide.

Piss on ya.

PS -- That is a royal "you".

Big Slick's picture

So where were you Ghordius??  We're tanking here?

Zer0head's picture

WTF Cyprus has been on the radar for two years

shovelhead's picture

Marks pointing out the propaganda. The official story that everything was fine.

It's always fine. Until it ain't.

In fact, it's fine right now...just a little bump.

the Troika has everything under control.

You feel sleepy ...close your eyes....zzzzzzzzz

Rusty Diggins's picture

"Some weeks, decades happen"


Joseph something or other.

Bob's picture

Great quote, this is what I found on it:

"There are decades where nothing happens; and there are weeks when decades happen."

Vladimir Lenin

Rusty Diggins's picture

Argh I get my socialist despots confused, so damned many of them.  Thanks for the correction.

Ghordius's picture

"There are also American deposits in Cyprus". Oh, let's be a bit more exact - the majority is Russian, and the next sizable part of it according to my sources is... is... is...Israeli

machineh's picture

'If you have done this to our eternal ally, you have done it unto us.'

Obama's in Jerusalem, visiting his most important constituency.

Ghordius's picture

sorry, my fault - I failed to read "American" in the broader sense

MSimon's picture



So. Germans want Jewish money. Funny. They played that game 70+ years ago. They got the money. It still didn't do them any good. This time it will be different. For sure. This time the Russians oppose the Germans.


Wait a minute. Haven't I seen this movie before? Any one remember how it ends?

Ghordius's picture

not so fast - the Finns, the Dutch, the Germans, etc. are offering 10bn - if the Cypriot do find 7bn themselves

this is btw the way the Germans on the street see this deal

waterwitch's picture

Just Garbage---Everyone is talking Trash

Not ZH!

Cookie's picture

Errr...ZH has had testosteronepit (sp?) posting on Cyprus for months

TruthHunter's picture

"Errr...ZH has had testosteronepit (sp?) posting on Cyprus for months"


Yeah, but who's listening? I don't detect any movers and shakers weighing in here.

Those playing with the real  money seem to be following the rating's agencies and official financial reports.

Cynics don't get jobs except as court jester.

dark pools of soros's picture

So should ZH take Motley Fool's hat?

blu's picture

TP is not the MSM, was I think the point of the original post.

JustObserving's picture

The culprit is what is counted and not counted in the European financial system

And what is not counted in the US are the national unfunded liabilities though every business and state and local government is required by US law to account for them.  They are only $123.2 trillion and growing at $6.9 trillion a year. 

It is 8:20 am in the US, so silver must be hammered.  Just another fraud.

kralizec's picture

All PMs are getting the PTB beat-down!  BTFD!

Big Corked Boots's picture

This article is a bit silly - They lied. They fucking lied. They all lie, all the time. They lie in Europe, they lie in America, they lie in China, and so on...

WTF do you think? That there will be an effort to solve the problems of the economy that might cost the PTB one copper-clad penny? There will be no solutions that don't involve a wealth transfer from those with little, to those with much.

This is the future, in the current day. Get used to it, or do something about it.

disabledvet's picture

We're all made to be in the dark. We never have the complete story let alone the story itself. When "it" pops up we can either read from the script, drink from the Kool aid or start out next round of best guesses. So no...this is not a silly article at all. Sure...we've been talking about the problems with Europe (starting with me and Greece long before those interest rates hit 300 percent) and ZH has been the only consistent "lodestar" on what has been the "un-reeling" of the whole euro zone and quite possibly the failure of the euro itself. (I once called it "the zero" actually. So far it's been even worse.) as it relates to this article one of our Merry Band of Commentarians pointed out "what the he'll is a euro group" and this INDEED is a great question one i've tried to as a former graduate student at George Washington University who worked on what that town calls "a working group." these things are DEADLY "devices" (a "panzergruppen for the mind) and I can't get it out of my head that that's what that "euro group" in fact is. "mums the word" of course with these things but to say there isn't some spillover effect from Cyprus is to be ridiculous. The question therefore seems simple...to what extent is the "spillover effect" already understood "before the deed is done" and to what extent can that be anticipated and in CAUSING the island to be collapsed "containing the matter." needless to say equities have rallied...and what I find surprising is that people find this surprising. It was the basic plan of the USA's policy response to 2008...why should we expect "the euro groups" plan to be any different?

dark pools of soros's picture

What happened with the Kulaks should be a lesson to all on the endgame.. If you have stock market 'wealth' or sitting duck deposits in a bank, they will happily let you keep your land and your production as they raid the markets and savings from time to time.. but once those place holders of wealth are gone so is the buffer keeping them away from your real wealth. Anything real you own is fair game once the paper games are done

Big Corked Boots's picture

I needed some education - I had heard of this but did not recognize the name Kulak.


VERY instructive.

onewayticket2's picture

"You gotta collapse it to find out what's in it..."

Doña K's picture

The US pretends to be saving Europe and is doing it partially and openly. But the reality is that it will actually let Europe collapse and buy it with printed dollars as the USD will be the king once the euro and pound get totally trashed.

Financial World war III without bullets. Maybe some here and there to guarantee resources.


shovelhead's picture

Buy Europe with dollars to sell at a discount to Russia and China when they kill the petro-dollar?

Theres a lot of oil moving without dollars already. Soon to be a lot more.


Doña K's picture

Very apparent that someone went down the list and gave down arrows to everyone. ORGANIZED HATE? or a bankster?

Kobe Beef's picture

Noticed the same thing. Probably just another Khazarian who hates us Kulaks.

Temporalist's picture

+1 but I'd reword it to "You gotta collapse it to find out what isn't in it..."

philosophers bone's picture

Yes but the point is that you get money managers who manage billions of dollars and flakes like Steve Liesman reporting and analyzing the numbers without questioning their accuracy

Fips_OnTheSpot's picture

one can ignore reality - but not consequences. proven again.

Kobe Beef's picture

And if you control the government, then you can shift those consequences onto the Kulaks as they arise.

Motorhead's picture

Sure deflects (yet again) any banking/financial/budgetary woes in the U.S.

francis_sawyer's picture

So does March Madness... Europe should just start a BRACKET picking contest to determine the outcome...

Motorhead's picture

LOL.  And I'll take Gonzaga over the EU minus 10.

bigwavedave's picture

Cyprus took a stop-gap loan from Russia extending the inevitable. This is why Merkel is adamant of sticking it to the Russian money. Hopefully it will teach them a lesson. LOL

Motorhead's picture

Merkel had better be careful.  And she might want to stay away from dudes carrying umbrellas, hot tubs, and thermal baths, just in case.

otto skorzeny's picture

she is ex-stasi- which is pretty much KGB so she has connections from the "good old days"

max2205's picture

The cb s hold markets till the news hits and then they let it drop a little and buy the dip.   Rinse repeat


And its your money they are playing with that you get no interest.  Who could have thought of a better plan


Oh wait.....

youngman's picture

out of nowhere...just out of nowhere...amazing isn´t it....and the rating agencies were on top of it...lol.....I will say one thing...they really have let the cat out of the bag as to their end game...its wealth confication.....just steal it to keep the bankers whole....amazing really..to me this is the end...the final nail...if you have money in a bank...its yours to lose at this point....