Cyprus Deal... Or No Deal: "Anonymous" Rumor vs Euro Commission

Tyler Durden's picture

The conflicting headlines continue to spew forth from the union of European nations. Reuters CYBC is reporting that Cyprus has agreed a 'deal' with EU/IMF lenders a 20% levy on deposits over EUR100,000 for Bank of Cyprus and a 4% levy on deposits of the same amount at other lenders (and the Cypriots have dropped plans to nationalize pension funds) citing a senior Cypriot official (who demanded anonymity). At the same time, EU Commissioner Olli Rehn emailed a statement saying that a 'deal' has yet to come forth:

  • *REHN SAYS COMMISSION WORKING HARD TO FIND CYPRUS SOLUTION
  • *REHN SAYS ONLY HARD CHOICES LEFT FOR CYPRUS
  • *REHN SAYS `ESSENTIAL' CYPRUS SOLUTION REACHED ON SUNDAY NIGHT

So who does one believe? And with no market open to test this strawman, what will the decision-makers have to guide their choices? One thing is for sure:

  • *REHN SAYS 'NO LONGER ANY OPTIMAL SOLUTIONS AVAILABLE'
  • *REHN SAYS ONLY HARD CHOICES LEFT FOR CYPRUS

 

Via Bloomberg,

“we recognise the progress now being made by the Cypriot government towards a solution which can pave the way for an agreement on a financial assistance program”

 

“intensive work and contacts will continue in the coming hours”

 

“it is essential that an agreement is reached by the Eurogroup on Sunday evening in Brussels on a financial assistance program for Cyprus”

 

“this agreement then needs to be swiftly implemented by Cyprus and its euro-zone partners”

 

“events of recent days have led to a situation where there are no longer any optimal solutions available”

 

“there are only hard choices left”

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IMA5U's picture

Deal

 

Come on man

Cdad's picture

No deal

I'm hearing that the plan to steal less money to secure/insure moar money has been challenged by a fifth grade Cypriot math class.  Hearing that the teacher of said math class is very proud.

More to come...

toys for tits's picture

They are in Jeopardy, unless the Price Is Right.

McMolotov's picture

Who Wants to be a Russian Billionaire?

Beam Me Up Scotty's picture

I wonder if they have the hot scantily clad girls opening the little suitcases at their meetings too see what is inside?

tenpanhandle's picture

Its all part of the 10,000,000,000,000 dollar pyramid.

bigyimmy007's picture

You're missing a few zeroes. ;)

Mae Kadoodie's picture

Working hard or hardly working?

Cdad's picture

Hearing now that a third grade math class in France is challenging the fifth graders of Cyprus.  They cite the lack of fractals as being the problem with fifth grade argument.  In the footnotes of their supposition re fractals is a note: "US Federal Reserve Bank" w/ a picture of Ben Bernanke.

Third graders in France say "Deal."  

**Additional:  Third grade math students in France also say that they have the support of a class of second graders in Ireland, but so far no one has been able to contact them to confirm their support or to evaluate their calculations. 

Also...math students in Iceland are gathering tomorrow to publicly laugh out loud.

DoChenRollingBearing's picture

+ 1

For weirdest post of the day!

Cdad's picture

This just in...the IMF apparently received the argument put forth by 5th grade math students in Cyprus:  "Less CY deposit confiscation cannot secure/insure moar CY deposits."   Blast!

3rd grade French math students are reportedly "Devastated" by the news.  

In Iceland, math students at all grade levels are already laughing out loud, although unofficially so.  Organizers for tomorrow's math gathering are cautioning students not to use up all of their laughter prior to the event. 

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_23/03/2013_489584

Buck Johnson's picture

This deal if it is one won't past muster for the EU, pure and simple.  Also I don't think for one minute that the Cyprus politicians will do the high percentage on the over 100,000 euro deposits or even a percentage on the smaller deposits.  They know that it will kill their govt. pure and simple.  Also the banks will need more money when people start to pull money out of their banks capital controls or no capital controls.  All the capital controls do is make it a death of a thousand cuts, slow death of the economy and every few weeks needing more bailout money from the EU.  Lets say the control is to allow people only 200 euros a day out of their accounts.  There are at least a million accounts if not more, so lets just say 1 million accounts.  Thats 200 million a day, 1 billion a week.  In 4 weeks the banks will be needing to fill that hole again and again and again. 

This won't end well.

mjcOH1's picture

WIld guess....they demand more German tax dollars than Germany taxpayers are either obliged or willing to give.   And Germany tells them to figure out themselves.   Banks fail, and Cypriot 'leaders' bitch about how it could all have been avoided if only someone else (cough....evil Germans) had agreed to pick up the 66% of the tab tha someone else (cough....evil Germans) had originally agreed to pay.

machineh's picture

Tried to charge a Lear Jet to my Bundesbank TARGET2 card this afternoon ... and the terminal flashed back, 'TRANSACTION DENIED.'

Enraged, I rang Bundesbank Customer Service and demanded to know why.

'Sir, your balance exceeds your credit limit,' the clerk told me.

'But it's only €650 billion!' I shouted. 'And I'm going to ... well, uh ... anyhow, you haven't heard the last of this!'

Man, it sucks to take the bus home ...

Jake88's picture

what exactly does, "Deal Come on man" mean?

Jake88's picture

Be careful what you wish for.

Mongo's picture

The hard choice was joining the Euro... the easy choice is leaving it!

McMolotov's picture

Nuke it from orbit. It's the only way to be sure.

billstets's picture

What does this mean?

 

The House of Lords, then the highest court in the land, had its say on the matter in Foley v Hill and Others 1848, duly reported in the Clerk’s Reports, House of Lords 1847-66 (pages 28 and 36-7). In summary, the appellant in 1829 opened a bank account with the respondent bankers. Two further deposits we added in 1830 and in 1831 interest was still added. In 1838 the appellant brought proceedings against the respondent bankers seeking recovery of both the principle and interest. The counsel cleverly tried to argue that it was the duty of the respondent bankers to keep all the accounts up to date at all times and thus there was more to this relationship than that of debtor and creditor.

The Lord Chancellor Cottenham said the following in judgement

Money, when paid into a bank, ceases altogether to be the money of the principal; it is by then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid into a banker’s is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places. The money placed in custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.

That has been the subject of discussion in various cases, and that has been established to be the relative situation of banker and customer. That being established to be the relative situations of banker and customer, the banker is not an agent or factor, but he is a debtor.

http://www.cobdencentre.org/2010/09/the-legal-relationship-between-the-b...

UK debt marsh's picture

It means that when you deposit money in bank, you are lending them the money.

You are their creditor, and they are your debtor.

Anybody who thinks that a bank deposit is "their" money is deluded.

YC2's picture

Too bad with ZIRP you get charged both ways - as creditor and debtor to a bank.

Beam Me Up Scotty's picture

I wish my wife went both ways  ;)

tenpanhandle's picture

Taken in context, it means your wife spends your money and charges you.  I'd rethink that, maybe.

Beam Me Up Scotty's picture

Here's the clarifier:  ;)

Although, isn't that what wives do?  Spend their husbands money?

 

Urban Redneck's picture

That comment (in the context of 19th century legal decision) is deluded.

For purposes of simplicty- international BAILMENT norms with regard to financial accounts have definitely moved away from bailments  for the sole benefit of the bailor. Safe Keeping and Closed Deposit accounts don't still exist even today, there is little incentive to offer them, however, because bailments for the sole benefit of the bailor CANNOT BE REPORTED AS AN ASSET OF THE BANK, and the liability cost for the bank is higher because of the EXTRAORDINARY care standard compliance, as opposed to REASONABLE care, and legal rehypothecation even under Common Law is more problematic.

That website really has no business pontificating on the ramifications of 19th century contract disputes without putting them in proper context, or least providing a copy of the disputed contract.

As a practical matter though- since the was payment of interest TO THE DEPOSITOR, it would imply that the depositor consented to a bailment for mutual benefit, or for the sole benefit of the bailee.

What funny is that we're ten years into ZIRP and half a decade into a banking crisis, and the little fish (who for the most part are every bit as greedy as the big fish) don't demand better of the banks - at least in line with historical norms.  It's not like the .01% APY on their McBank McBalance actually yields any pruchasing power or protextion of real cost escalations, and yet they mostly keep what little they have in the bank, regardless of which fiat ponzi they live under. 

http://legal-dictionary.thefreedictionary.com/bailment

http://fadyart.com/en/index.php?option=com_content&view=article&id=126&Itemid=75&showall=1

 

Pseudo Anonym's picture

instead of "that" website

That website really has no business pontificating on the ramifications of 19th century contract disputes without putting them in proper context,

would you be more comfortable with this website that puts it in proper context? http://tinyurl.com/cner4my

Urban Redneck's picture

Actually the Mises Institute also FAILS MISERABLY to put it proper context.  It's a good idea, but they are just reiterating the bullet points and thowing in the "Austrian" in few times to rile up their organ grinders.

We are where we are.  And there are ceratin things that might help get us to a better place.  Most people these days are some devolved form of lower primate who can't (or won't) understand what text of an FSA means, much less how we got to where we are.  

I hope you don't actually trust a majority of banker bitch wanker MPs not to actually screw things up even more because of the way in which the final text of any law actually modifies the bailment relationship... It's not there aren't an army of lawyers on the banker payroll in the City, and they don't mix socially every day already.

When a bailment for mutual benefit gets the "safe" easy button check box codified into law for the protection of the banks- which Austrian idiot's head should I send for?

This get's back to the simplest notions and earliest history of banking (which a shocking number of MBA branded wannabe bankers can't even articulate)- When does a bank pay or charge interest, and why does a bank pay or charge interest?

Then move on to bailments vs loans as a mechanism/contractual basis of bank "deposits"  But if sheeple don't understand the game the bankers are going to try and play with their pet MPs, then the INEVITABLE result will be that your future LOAN to a British Bank will be marked safe and they can still do unsafe things with it...  See Dodd-Frank for US analogy.

socalbeach's picture

So do you disagree with what Rothbard wrote in The Mystery of Banking ?

(starts on pdf page 114, numbered page 91)

"Because deposit banking law was in even worse shape than overall warehouse law and moved in the opposite direction to declare money deposits not a bailment but a debt...

The first fateful case was decided in 1811, in Carr v. Carr. The court had to decide whether the term “debts” mentioned in a will included a cash balance in a bank deposit account. Unfortunately, Master of the Rolls Sir William Grant ruled that it did. Grant  maintained that since the money had been paid generally into the bank, and was not earmarked in a sealed bag, it had become a loan rather than a bailment...

Thus, the banks, in this astonishing decision [Foley v. Hill and Others], were given carte blanche. Despite the fact that the money, as Lord Cottenham conceded, was “placed in the custody of the banker,” he can do virtually anything with it, and if he cannot meet his contractual obligations he is only a legitimate insolvent instead of an embezzler and a thief who has been caught red-handed..."

Urban Redneck's picture

I don't entirely disagree with what Rothbard writes until numbered page 103, when he goes full retard as he writes, “Under the pure gold standard, there is virtually no way that the money supply can actually decline” (The impossibility of “inflation” under a pure-gold standard is subject to a much hair-splitting over definitions).

For any bank “deposit” there are three critical sources of “governance” – 1) the specific terms of the contract between between the parties, 2) the governing law of the contract itself, in the case of a UK bank account English Law including common law precedent, and 3) the applicable statutory and regulatory law, in the case of a UK bank account English Law and BoE & FSA regulations.

In every distinct banking jurisdiction the same paradigm exists, with a potentially different contract, statutory and regulatory framework. To keep things simple (in terms of rectifying the shortcomings present in the 21st century) we can break the world into common law and civil law traditions and ignore Islamic, Hindu, and Chinese traditions, but these same framework issues have applied since Jesus was preaching the evils the money-changers operating under Talmudic Law.

The troubling ratio of financial debt to GDP in the UK is a function of its role as a banking center. However, this ratio can be fixed relatively simply by moving the banking somewhere else... (the consequences for residents of the UK, however, would not be so simply fixed). What Rothbard doesn't appear to delve too deeply into was the underlying cause of the rise of the use of notes in the first place-- TRADE and the movement of money, (since the UK is literally an island- it is slightly less relevant when focusing strictly on England, as opposed to the Italian city-states or the Crusade Highway).

Modern civilization demands the consumption of three things in order to exist – water, food and energy. So the rephrase and extend Rothbard, in order for the money supply to not actually decline under a pure gold standard, TRADE must balance. The definition of “inflation” is clearly debatable, but if it is reduced to a constant amount of work/wages being able to purchase fewer and fewer goods and services- then trade a negative trade balance under a pure gold standard would be highly “inflationary.” The land-owning oil sheikhs (whether their traditional headdress is a keffiyeh or ten-gallon hat) would be the beneficiaries of trade imbalance, just as the land-owning Feudal lords of England benefited from the labor of their tenant serfs.

In an age when the masses whine about the disparate wealth of the 1% (or debate Gini coefficients in more erudite circles) – personal actualization of the allocation of scarce monetary resources to a hierarchy of needs would be uncomfortable to the point of destabilization on a societal level.

Money is, FIRST AND FOREMOST, a medium of exchange. When gold is money, is it equally a medium of exchange and a store of wealth. However, with a fixed quantity of medium of exchange, there is only a fixed quantity of trade available to meet the needs and desires of the masses, and that quantity is dependent on the will and whims of wealthy for facilitation of economic activity.

So to get back to bailment and when a bank pays vs. receives interest- if a depositor seeks an iron-clad guarantee of a return OF their capital then they are buying a service and guarantee from the bailee and they will pay for it, whereas if a depositor seeks a lesser promise of a return ON their capital then they are “renting” the use of their capital to the bailee (or bank borrower depending on specific circumstance) and the will be compensated for it with interest (rent).

With a closed deposit (bailment for the sole benefit of the bailor) that deposit CANNOT be put to productive economic use without fraudulent activity on the part of the bailee.

So under a pure gold standard there an absolute guarantee of an effective reduction of the money supply, absent a proper balance of trade a payment (interest/rent) to the rentier class to let their gold “particpate” in the money supply.

socalbeach's picture

Thanks, I didn't get to page 103 since I don't see a gold standard happening in the forseeable future, will take a look at it though.

I think I may now understand what you've been saying: you agree that a depositor at a bank is an unsecured creditor, but that shouldn't surprise him and is not unjust since he's not paying for the privledge of safekeeping, and is actually receiving money in the form of interest.

BTW, do you follow what this article was talking about as asked here ?

Urban Redneck's picture

A depositor at a bank is A CREDITOR of the bank, their seniority, however, would depend on the specific terms of their account contract.  However, under no circumstances would a depositor be in a junior position to an equity or bond holder (unless a publicly published bond prospectus explicitly stated that a holder of these bonds would have seniority over depositors, and depository agreement on the account disclosed that their position may be junior to certain bond holders). 

However, if you look at the structure of most banks' deposit bases- a significant percentage of deposits are in non-interest bearing accounts.  This is the big "grey area" that the bank's lawyers and lobbyists would be most concerned with, because if there is a move towards blanket reclassification as a bailment (as opposed to a fee based opt-in) then the banks are immediately insolvent-- as their primary capitalization is removed from their balance sheet by statute, and the State will never let that happen- so unless the proponents of a proposed law to deal with seniority also explicitly address the capitalization issue (at 10% capitalization a 10% reduction in the deposit base is insolvent) - I would view it a either as an honest effort by the naive destined to fail, or a subterfuge by TPTB seeking to further enrich themselves.

There are currently "options" for bailment accounts in the US, UK and elsewhere (albeit fewer and fewer each year).  But a systemic solution is extremely complex given the number of jurisdictions involved if one wants to avoid just driving business elsewhere, or making the rich richer and the poor poorer.

 

 

As to that article, I took somewhat the same position as Mark Grant, but I don't have hard data to prove or disprove that what I simply said was "elsewhere" is actually the ECB.  Someone with access to Euroclear data would be able to quantify the scale and (hypothecated) source of the ripple (tidal wave) in the event of a haircut to bondholders, but I don't think anyone in the know wants to publish that sort of analysis.

That often large percentage of the deposit base in non-interest bearing accounts is also the most likely to commence a bank run and trigger a freeze in the wholesale funding markets which lead to financial Armageddon and/or ludicrous speed money printing.

http://www.zerohedge.com/news/2013-03-23/cyprus-deposit-levy-vote-delaye...

 

Schmuck Raker's picture

What ever happened to Debtors' Prisons?

tenpanhandle's picture

They changed the name. It's now called planet Earth.

Pseudo Anonym's picture

this:

The money paid into a banker’s is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money;

is very consistent with this: http://tinyurl.com/cner4my

GeoffreyT's picture

The first 2/3rd of the ruling is not controversial - all it means is that the depositor can not force the bank to deploy the money in specific ways (unless there are specific terms in the deposit contract that are specified and are enforceable at law). The bank gets to use the money as if it was their own, in other words.

The very last bit of the ruling is the 'sting in the tail', since it refuses to view the relationship as one of agency: that means that if a bank goes 'phut', depositors are just part of the list of unsecured creditors (and in the modern world, have precedence lower than tax debts, secured creditors and possibly employee entitlements).

In other words: when you deposit your salary into the bank, you are making an unsecured loan to the bank (which is obvious once you think about it: if it was secured, why would there be a need for FDIC deposit insurance?).

swissaustrian's picture

It's all over German news sources, but only PressTV (Iranian mouthpiece) and a Nigerian website are reporting it in English right now:

Head of Orthodox Church in Cyprus favors leaving eurozone

...

The Orthodox Church is the largest landowner in Cyprus and has stakes in a wide range of businesses, including in the country's Hellenic Bank, with total assets estimated to run into tens of millions of euros.

http://www.presstv.ir/detail/2013/03/23/294906/cyprus-mighty-church-favo...

UK debt marsh's picture

There are only hard choices left ....for Europe, for Japan, for the USA.

Van Halen's picture

This article was posted by another ZH reader (forgot who - sorry!) - absolutely fantastic and worth the read regarding all things Cyprus and how the "vote" might turn out.

 

http://synonblog.dailymail.co.uk/2013/03/the-new-soviet-union-cyprus-sho...

Van Halen's picture

Fantastic video! And so sad that less than 2000 people have viewed it...

jonjon831983's picture

Video SOUNDS good... however, who TF is this this guy and how do we know what he is really saying.  I am not a Russian lip reader and who knows if the english translated dub is correct.

(I say this for all translated video clips on news channels, youtube, etc)

Van Halen's picture

I forgot to add that if this article is true, it appears that there are bad things in store for Cyprus... unless they pull an Iceland. (In which there will be more bad things in store but they'll probably be better off in the long run)

Koffieshop's picture

Dude, they can NOT pull an Iceland because they are not the masters of their own currency.
Either they (help) crash the EMU or they will continue to sink into the shit pool slowly, along the other EMU nations.

The whole thing is so utterly fucked up exactly BECAUSE they can not do a semi-orderly bankruptcy, like Iceland did.

swissaustrian's picture

Why is the troika so massively opposed to "plans to nationalize pension funds"?

swissaustrian's picture

And the deposit confiscation will not be blamed on them?

Telemakhos's picture

Because the Troika, as bankers at heart, see pension funds as liabilities that must be paid, while they know the governments see them as assets to be raided and spent. After all, why else would a regime want to nationalize a pension fund? Every now and then the Troika has the common interest in view, or else they're at least provident enough to foresee having to try to bailout the soon-to-be-raided pension funds and would like to save themselves that headache.

Urban Redneck's picture

Pension Funds are currently managed (and leveraged, hypothecated, rehypothecated, etc) buy BANKERS, who use the lucrative fees to supply the copius cash for the large bonuses that fund their bitchez & blow binges....

It's a ponzi scheme, you're not allowed to make significant withdrawals or there might be a Madoff-like event on a systemic scale...