Why Cyprus Matters (And The ECB Knows It)

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,


When Zig turns to Zag and the Red Queen is after your head then extraordinary care is necessitated. To quote Holmes, "The game is afoot" on the Continent.
I have been asked, with some frequency, why the bondholders have not been tagged in the Cyprus fiasco. That answer is simple. Most of Cyprus's bonds are pledged as collateral at the ECB or in the Target2 financing program. Then one may also ask why the bonds of the two large Cypriot banks are not being hit. The answer is the same; most are held as collateral at the ECB or Target2. In both cases, remember uncounted liabilities, the government of Cyprus has guaranteed the debt. Consequently if the two Cyprus banks default it is of small matter as the sovereign has guaranteed the debt. However if the country defaults and leaves the European Union then it will matter and matter significantly as the tiny country of Cyprus would wipe out the entire equity capital of the European Central Bank. While it is not a matter of public record it is estimated that Cyprus has guaranteed about $11.6 billion of collateral at the ECB.
On Friday Cyprus made provisions for the re-structuring of its banks. They also imposed capital controls. However what they have not done yet is decide how they will reach the funding demanded by Europe. That decision was postponed until after a meeting with the Troika that will take place today and a meeting of the EU Finance Ministers that will take place on Sunday.
The last go-round on this issue, as you may recall, resulted in not one single vote for the imposition of the expropriation of people's bank accounts or what Europe misguidedly calls a tax. Taxes are legislated, paid from people's checkbooks and not removed from their bank accounts by a government. Taking money from a citizen's bank account by fiat is little more than theft as it is delineated as private property and is the person's own money and not a bond or stock or a security of some sort with the normal risks appended to any sort of an investment. Even in the case of a bank closure where there is a bankruptcy proceeding there is the "due process of law" where decisions are made by the Judiciary and not mandated by a session of Parliament.  Further, not all of the deposits in Cyprus are in troubled banks. There is UBS, several Israeli banks, a number of French banks et al that are not troubled and still Europe wants to demand that the bank accounts in those relatively healthy banks have depositor's money taken out of them to pay for the woes of the government.
Equally troubling to me has been the European process. The ECB gave Cyprus four days to come up with the funding demanded by Germany before they turn off the lending to Cyprus. I am reminded of Mr. Draghi's, "We will do whatever it takes" speech but this was not what I had thought it meant. The word "bullied" comes to mind as well as the word "vengeance." There is some discussion to be had about deposit guarantees as part of this drama but, setting that aside for a moment, to even take one Euro from a person's bank account strikes me as a precedent that will have long lasting effects on all the people in Europe as the seizure of private property is no longer protected by law.  Then to offer shares in a bankrupt institution as compensation is an attendance at the Theatre of the Absurd while I wonder how they are going to force UBS or BNP to issue shares for the money taken from those banks.
In the Press, on this Saturday morning, they are discussing a European proposal to expropriate 25% of all bank accounts in the entire country of Cyprus to help pay the bills. This would be from normal citizens, Russians, other foreigners, British expats, American corporations and any one at all with money in any Cyprus bank. This would include not just the banks of Cyprus but also the French, Swiss, Emirates and  Israeli banks et al with offices there. There is a long history of bank robbery in the world but this is one heist that makes John Dillinger or Jessie James a small fry by comparison.
(Reuters) German Chancellor Angela Merkel told lawmakers that while she wanted to keep Cyprus in the euro zone, it must first recognize it had no future as an offshore financial center.
Given what Europe is attempting to do to Cyprus she might as well have said, "that it must first recognize that it had no future" and left it there. Bank accounts expropriated, a future expropriated and the reputation of the European Union tossed into the Rhine and drowning.
I think that about sums it up.

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Bay of Pigs's picture

Where is the deer in headlights Tyler?

kliguy38's picture

Its now. Just to ATTEMPT to take the deposits is the PRECEDENT.. The fuse is lit........"the game is afoot" and no matter WHAT happens next week they have started it. If you are waiting for the bullet to hit you then you're already dead.......gl

Mentaliusanything's picture

A little help please, its been a while! How do you spell "CREDIT CRUNCH"

sunaJ's picture

Those that say this does not matter because Cyprus is small or this was planned (the panic, not the attempt to take depositors' money) fail to account for fragility.  Remember, this is modern finance, which means that parallel to the bond problem, the depositors' money is not just sitting there.   It has been pledged, reinvested and does not really exist.  So when everyone tries to transform an imaginary store of wealth (ie. a computer database that says this person has X.XX euros) into "unhypothecated" hard currency, well, that is when the fun begins. 

This could mean Germany acquiesces to outright printing (which still may not give much time to them), or the EZ is effectively dissolved.  The trust (or gullibility) of the people is evaporating faster than they can contain.  The Law of Unintended Consequences only exacerbates their efforts at this point, but make no mistake: capital controls are coming to everyone.

Eternal Complainer's picture

What better way to introduce another 'new normal'
Capital Controls.
That's probably what this latest ruse is really all about.
Capital Controls everywhere.

Therefore: cash is soon = terraism

jeff montanye's picture

imo germany asking for its gold back from the new york fed smacks of terrorism.

step out of line the man come and take you away.

Crash Overide's picture

You better stop hey what's that sound everybody look what's going down...

RafterManFMJ's picture

There's something happenin' here...what it is ain't exactly clear...

Vendetta's picture

except ... everyone understands and sympathizes with the 'terraist"

Buck Johnson's picture

You essentially said what I said a few articles back, I'll quote what I said.  But your right, that money that these oligarchs and head of state and money launderers and essentially everybody else have aren't just sitting in those accounts.

"You think this is about Money Laundering operations, it's not.  Look at the Cayman Islands, Isle of Mann, Switzerland, Luxembourg etc..  Those places launder money and to be honest with you they are having serious problems financially also (it was in the news a few years ago that Luxembourg banks are financially insolvent).  I read an article on ZH a few days ago talking about how black accounts aka dark money is used around the planet and I'll add another.  If your a oligarch or a ruler of a country that is hiding your money lets say an easy 1 billion dollars (I know there are people who have a few million but the more money you have the better the concierge).  That money is put into banks in said countries, what do you think the bank is doing with that money besides charging a fee?  The are using that money just like any other bank in leveraged operations and "secure" loans.  And in their minds they most likely did the derivative thing and also pay for insurance just in case it doesn't work out it pays the full amount on the derivatives.  You have to look at it from the point of view of the banks, there hasn't ever been a failure of the derivative system, ever (but now it's come to pass). 

That money and other hot money and oligarch money and such is tied up in much of these banks along all the lines I described.  So if the Derivative system goes down or Cyprus goes into default it means it's bonds and other financial instruments that are associated with the country are in trouble.  Of course the investors would say this credit event would be call for the insurance to come into effect (where the insurance pays the full amount on the bonds and the derivative contracts on thos bonds and on and on).  Since we know the derivatives around the planets if in the quadtrillion, lets say that all the contracts on just Cyprus is a 200 billion.  The banks or AIG (the insurance company that insured most of the derivative contracts) don't have 200 billion (and that is the contracts that is known, remember the derivative market isn't regulated it could be alot more and most likely is) to pay out.  And if they don't pay out then the banks and the insurance company are bust and then not only is the minimum 200 billion dollars they contracted on is not collectable it makes the rest of the bonds and derivatives that was put out there and insured to be suspect (really outright fraudulent).  It's starts a cascade of people trying to redeem billions and trillions that isn't possible.  That is the reason why Cyprus isn't important, it's not their economy it's the fact that who have been insuring there derivatives and bonds can't make good and in so being can't make good on the rest of the planet.

I think the reason why Germany and a few others pushed Cyprus was one big reason, I think Germany wants out o the EU (they are essentially the bank of the EU anymore) but everytime they hint and haw about leaving and such they get shamed via the Hitler and WWII and Germany destroying europe again that they back off.  By pushing Cyprus they can make it seem that Cyprus is the one to blame for the destruction of the EU and euro.  This sounds foolish but in Germany's mind they think that they can weather the storm.  I don't think so but who knows."

The Heart's picture

Dunno, the "Chancellor" is pretty angry about all that hitler stuff. May be reason alone to just say, nine!

Wasn't that a "chancellor" in the movie "V"?

"German government patience is said to be 'wearing very thin,' with Chancellor Merkel reportedly seething at seeing herself caricatured as Hitler on demonstrators' placards in Cyprus."

Pictures of Cyprus and more here:


spine001's picture

"Those that say this does not matter because Cyprus is small or this was planned (the panic, not the attempt to take depositors' money) fail to account for fragility."

Great comment. In engineering terms ( remember that the economic system is a system after all) fragility is understood as Stability of the system measured as its ability to withdstand shocks (black swan type and expected) . I have been writing, including an open letter to BB in 2008 that monetization in excess is extrenely dangerous because it increases the gain of the system, thus amplifying the shocks and risking making the system oscillatory. Economists call this fragility. But is a lot more complex than this, a whole lot....

Until next time,


New_Meat's picture

sunaJ: jfc-- rehypothecated credit!

I'm just a small piglet in these matters, but i know that you have hit the nail on the head.

Thank you.

- Ned


Yen Cross's picture

      I love a  teaspoon of 'potassium chloride', on my '"Credit Crunch'"...

grunk's picture

Helicopters are soooooo 2008.

Ben uses drones now. Borrows them from Big Sis.

hardcleareye's picture

Oh that is very good.......

StychoKiller's picture

Not only rots yer teeth, but yer brainz too! :>D

Water Is Wet's picture

I think there is a lot of internet outrage which will do nothing to stop the PTB from doing this at least 8 or 10 more times.


dark pools of soros's picture

that's what will be on the trillion platinum coin

machineh's picture

Kurgman on the obverse; 'deer in headlights' on the reverse.

One Kurgmanrand = one trillion FRNs

Spend it now, before prices go up!

wisefool's picture

We dont post youtube links in fight club. But if we did, it would be a majestic song about low IQ people who also and at the sametime do not have a good heart. 


Subscribe to the IRS youtube channel while the internet still works!


toys for tits's picture

I'm having trouble remembering all these Fight Club rules.  Anyone have a list?

wisefool's picture

rule #1. You dont cheat on your taxes.

rule #2. If you cheat on your taxes, you must become secretary of tanks on the streets.

rule #3. Tanks dont work well everywhere, so you should learn seaman skills.

fxrxexexdxoxmx's picture

You fight today. After that you will remeber the rules or not. It all depends on how hard you fight.

GMadScientist's picture

"Two men to a fight"

"One fight at a time"

Croesus's picture


I am Vladimir Putin’s assistant, Dmitri Volkov, manager in the Bills and Exchange at the Foreign Remittance Department of the RUSSIA INTERNATIONAL BANK. I am writing this letter to ask for your support and cooperation to carry out this business opportunity in my department. We discovered a sum of $15,000,000.00 (Fifteen million Euros) in an account in Cyprus.


We cannot release the fund from his account unless someone applies for claim as indicated in our banking guidelines. Unfortunately,nobody has come forward to claim fund. Upon this discovery,I and other officials in my department have agreed to make business with you and release the total amount into your account since you are nice guy.


We have agreed that our ratio of sharing will be as stated thus;20 for you as foreign partner,75 for us the officials in my department and 5 for the settlement of all local and foreign expenses incurred by us and you during the course of this business. Upon the successful completion of this transfer,I and one of my colleagues will come to your country and mind our share.It is from our 75 we intend to import Gas Drilling Machineries into Mediterranean country as a way of recycling the fund.


To commence this transaction, we require you to immediately indicate your interest by a return e-mail and enclose your private contact telephone number,fax number full name and address,and your designated bank coordinates to enable us file letter of claim to the appropriate departments for necessary approvals before the transfer can be made. Note also, this transaction must be kept STRICTLY CONFIDENTIAL because of its nature.I look forward to receiving your prompt response.


Best Regarde

Dmitri Volkov


Rogue Trooper's picture

LOL +1,000 for the Nigerian 'mem'.

Urban Redneck's picture

I got one of those from someone I actually know recently.  Since I already had his numbers on speed dial I telephoned him to follow-up on his offer, but he wasn't actually offering what he wrote me was offering... or even half as amused as I was by the whole thing... 

The email address displayed in the solicitation actually was his email address.  When the US goes full banana, it will might be the next paradigm of id theft- 

toys for tits's picture

He must have had a yahoo account.  

Hackers have been able to crack many yahoo accounts, mine and my family included.  I still get messages from me, as I had another type of account in the addresses when it was hacked.

Urban Redneck's picture


It would help if business leaders, bankers and goverment officials actually used their official accounts instead of private ones... but then it wouldn't be the wild frontier it is-

GMadScientist's picture

+1 just for "...since you are nice guy."


Banksters's picture

What's mine is mine and what's yours is mine.



The banksters


PS  Jon Corizne is still free.   Why not, he only stole- ok rehypothecated,  1.6 billion dollars..

q99x2's picture

The deer went to hide his green shoots.

css1971's picture

The market isn't there yet.

Yen Cross's picture

     Where is Draghi? Crickets...

ekm's picture

This is a political issue, military issue. Nobody cares about order takers like Draghi and Bernanke.

Yen Cross's picture

    I'll bet Draghi is finishing the 'ESM' blueprints, that he was caught knowing little about (2) ECB policy meetings ago. None of the EU bailout programs are funded or able to be(contractually) implemented, courtesy of 'Chair Satan', and POMO.

ekm's picture

not far from the truth :)

Bingfa's picture

In Moscow, new Chinese leader Xi warns against meddling....


Permanent U.N. Security Council members with veto power, Russia and China have frequently teamed up diplomatically to blunt the influence of the United States and its NATO allies and have blocked three draft resolutions on Syria.

ekm's picture

Drudge headlines it as "new world order" meaning nobody cares about USA any longer.


If that does not shake Obama's brain, nothing will. As a politian, he's the most clueless one USA ever produced. It shows a lot of about the american voter.

fonzannoon's picture

Kyle Bass made it clear Obummer's plan was to kill the dollar. he is probably wondering what is taking so long.

Yen Cross's picture

    Fonz, the $ is the tallest midget in the submarine race...

ekm's picture

Kyle Bass is in a "meredith whitney" situation. He's put a date on his prediction about Japan, which is I think 2-3 years from now. However, he had put a date on it, 2 years ago also.


That is an absolute no,no,no and no. One never puts a date.

So, I'm thinking he's trying to use his world wide fame to affect the outcome, same as Hugh Hendry who trashed gold stocks some time ago, which actually is credited to have crashed the gold stocks.

hardcleareye's picture

Nope, not right...  Bass prediction on Japan is at 16.5 months and counting... 

hardcleareye's picture

I enjoy reading Bass's work and following the lectures etc that he gives...  (have been doing for several years) I looked to find that comment "killing the dollar" in context and found the quote at "Info Wars" (rolling eyes) and Mish's, the link to the video on both sites "does not exist".... 

That comment may have come from this talk given in 2011, and I believe that it is very much taken out of context......



Winston Churchill's picture

They care alright.Care is the wrong way to put it

More like they are pissed with Uncle Sam.

Interesting the Chinese Premier going to Moscow first.Getting very pally.

Ruan ,anybody.

ekm's picture

I agree. But, you know, I'm not trying to choose proper words, it's good to exaggerate something for entertainment purpose.

ekm's picture

re: your comment about imposing 15% on italian deposits on the other post.


I don't think it's ever going to happen. Russians and chinese can be handled internationally. But italian mafia are our own bad guys.


If that happens, Schauble better secures bodyguards all his life for himself and his family, because mafia never ever forgets. Godfather movie in real life.