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This Is How A Country Ends: Not With A Bang, But A Bailout

Tyler Durden's picture




 

Curious how in the New Normal a nation is brought to its untimely end without a single shot being fired? Dimos Dimosthenous, who has worked at the Bank of Cyprus for over 30 years, explains:

"That will be the end. Our jobs, our rights, our welfare funds will be lost and Cyprus will be destroyed."

In short: not with a bang, but a bailout.

... But at least it still has the symbol for all that is wrong with the broke(n) status quo: the

First, however, much more pain, because as Cyprus' FinMin Sarris said a short while ago, uninsured depositors in the second largest bank Laiki which is now pending lqiuidation, may lose 80% (read 100%... or more), and wait up to seven years for a payout. Of course, with the majority of the "evil, tax-evading Russians" long gone having used the chaos and assorted loopholes in the past week to get out of Dodge, the only people punished are assorted local hard workers, and domestic businesses, now set to liquidate as soon as they can afford the bankruptcy filing fee.

Finally, speaking of getting out of Dodge, it is surprising that while professing its love for all man-made bubbles and going all in stocks no matter the fundemantls, the firm that is the shadow overlord of Wall Street, BlackRock, is doing just that. From the WSJ:

BlackRock Inc. the world's largest money manager, has cut holdings of Italy and Spain government bonds over the past three months. The firm may shed more if the euro-zone's growth outlook deteriorates.

 

"We have been less enthusiastic about euro-zone sovereign debt compared to three to six months ago," said Rick Rieder, chief investment officer of fundamental fixed income and co-head of Americas fixed income at BlackRock. "If growth continues to deteriorate in the euro zone, due in large measure to weak private-sector lending from a deleveraging banking sector, we would further reduce our positions in the euro zone, such as in Italy and Spain."

 

Speaking in a phone interview with The Wall Street Journal on Tuesday, Mr. Rieder said for the moment, BlackRock still holds an overweight position on Italy and Spain, though the position is now more moderate after the recent reduction in the Spanish and Italian holdings.

 

The company, with more than $3.7 trillion in assets under management, was among global investors scooping up sovereign bonds, especially in Italy, after European Central Bank President Mario Draghi last summer pledged to do "whatever it takes" to preserve the euro.

Wait... did Blackrock just comprehend that contrary to prior lies bank creditors, all bank creditors and not just depositors, are suddenly expendable?

Funny how one's "investment risk tolerance" changes when the local money printer's promises that nobody will ever suffer losses are openly refuted when reality intrudes.

 

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Tue, 03/26/2013 - 22:48 | 3380075 blindman
blindman's picture

she said
"you do what you know."
that is the problem
I said.
"yea"
she said
.

Tue, 03/26/2013 - 23:08 | 3380109 TNTARG
TNTARG's picture

Sad when you believe your entire future lies into a bank account.

There isn't anything else out there?

"Is anybody out there?"

Tue, 03/26/2013 - 23:17 | 3380125 howenlink
howenlink's picture

TNTARG, I am here and there is a lot out there.  And to experience it we should not need to concern ourselves with how to store wealth.  Humans have come out of the days of barter to the days of money.  However, we overshot sound money and are now relying solely on fiat currency.  Let's return to sound money together so that we can stop stealing from one another and enjoy what lies out there, our future.

Wed, 03/27/2013 - 01:36 | 3380279 TNTARG
TNTARG's picture

i do agree, my friend.

Wed, 03/27/2013 - 00:17 | 3380199 chump666
chump666's picture

Krugman and Europe are boring.

Chinese false flag coming re: free trade talks with Japan.  If they collapse the talks (which looks likely as Abe is Keynesian inspired lunatic ).  War will be imminent.

http://www.scmp.com/news/china/article/1200590/beijing-push-free-trade-d...

Wed, 03/27/2013 - 00:14 | 3380200 fijisailor
fijisailor's picture

Tylers and ZHers,

When I am on ZH an invasive process called stij.exe gets installed on my computer.  It runs in "processes" in the Task Manager.  This appears to be some sort of Spyware.

Wed, 03/27/2013 - 01:16 | 3380264 cherry picker
cherry picker's picture

Don't worry, probably nothing more than the CIA, NHA, TSA or some other agency checking you out to make sure you qualify for ZH comments  :)

Wed, 03/27/2013 - 00:23 | 3380207 sbenard
sbenard's picture

No, no! They're called BAIL-INS now!

And it's not called STEALING any more. They're now to be called "deposiit to equity conversions"!

I wonder if I can "convert" my neighbor's property to my pocket the same way!

Wed, 03/27/2013 - 00:29 | 3380213 JR
JR's picture

Wall Street will be back to doing everything it used to do before, but this time with the Frank-Dodd stamp of approval. Until the next inevitable crash.

That’s how Zero Hedge said it would happen back in 2010, and so it has. Perhaps it’s because restoration with government support has been kept within the country’s financial oligarchy family by those who run Wall Street—mostly those who have estates in the affluent enclave of North Salem north of New York City--courtesy of Larry Fink.

Just for old time’s sake, but first noting that the “more than $3.7 trillion in assets under management” by BlackRock has risen from $1.3 trillion since then perhaps by “doing everything it used to do” and more, here is how thesmartasset.com described “the Rescue Racket” in 2009:

How do we repair the flattened hen house that used to be our economy? By hiring a fox — not just to guard it but to tell us how to rebuild it, carry out the actual repairs and then receive a welcome inside to feed off the newly fattened hens…

“BlackRock's role blares conflict of interest all over the place — it advises the government on how to fix the economy, gets huge federal contracts (some of them no-bid contracts) to fix the economy, and produces big profits for its investors on the changes in the economy. (BlackRock manages $1.3 trillion of assets.)”

Thus began Ward Harkavy’s article, ‘Crony capitalism’: BlackRock’s profitable conflict of interests in Obama’s rescue plans—sorry it’s called ‘symbiotic.’

 I also liked this take on Fink and BlackRock’s rescue of the economy by Dwight Baker posted  on Ambrose Evans-Pritchard’s website that summer regarding the man Vanity Fair’s Suzanna Andrews said “may be the most powerful man in the post-bailout economy” in her April (2010)  magnum opus, Larry Fink’s $12 Trillion Shadow.  Wrote Baker:

 BlackRock

”Larry Fink, BlackRock’s founder and CEO, had joined Blackstone in 1988 as a partner, along with Ralph Schlosstein, former White House aide under the Carter administration, and Robert Kapito and Sue Wagner. Before joining Blackstone, Fink was a managing director at First Boston, where he pioneered the mortgage-backed securities market in the United States. In 1992 Fink, Schlosstein and Co separated from the Blackstone Group under the name BlackRock and aggressively re-invented it as an independent asset-management company. In 1995, PNC Financial Services Group purchased BlackRock and in 1999, assets under management had grown to $165 billion and the firm decided to go public.

“Much of BlackRock's recent growth has been through its acquisitions. On January 28, 2005, BlackRock purchased State Street Research Management, a mutual-fund business that had previously been owned by MetLife. This acquisition added a sizable equity business to BlackRock's funds, which had previously comprised mostly fixed-income securities. On September 29, 2006, BlackRock completed its merger with Merrill Lynch Investment Managers (MLIM), halving PNC's ownership and giving Merrill Lynch a 49.5-percent stake in the company. On October 1, 2007, BlackRock acquired the fund-of-funds business of Quellos Capital Management.[6] On April 30, 2009, BlackRock hired 43 employees from R3 Capital Management, LLC and took control of the $1.5 billion fund.

“MY TAKE ---- What is the shadow about those facts? Larry Fink, created mortgage backed securities; then the USA hired his firm to get to the bottom of all the corruption in Fannie Mae and Freddie Mac. The wolf is in charge of our hen house. Try to figure that one out!!!”

There also are many BlackRock gems in Suzanna’s highly laudatory and informative article on the enormous power given by the government to Larry Fink, “the Wall Street Wise Man.”  Here are a few:

“If Larry Fink is currently ‘at the hub of the wheel of American capitalism,’ as his friend Ken Langone, the co-founder of Home Depot and a former director of the New York Stock Exchange, puts it, he has achieved this position largely in the shadows.”  (I liked that bit about capitalism.)

Or this take on Fink from former investment banker and author of House of Cards, William D. Cohan, as quoted by Suzanna: “He’s like the Wizard of Oz. The man behind the curtain.”

But best of all: “During the next decade (the 80s), Fink would become something of a legend on Wall Street.  Along with Lew Ranieri, of Salomon Brothers, he would be credited with developing the multi-trillion-dollar debt-securitization market that transformed the face of finance.  By 2008 this market—of mortgages, and car and credit-card loans, purchased from banks, sliced into pieces, repackaged, and sold to thousands of investors—would help bring the economy to its knees.  But long before it spiraled out of control, it was considered an incredible innovation.”

And, now, amidst a whirlwind of potential conflicts of interests and through an array of government contracts, “BlackRock has effectively become the leading manager of Washington’s bailout of Wall Street”-- in charge of cleaning up all its created messes, including some of its own, for the Fed, the Treasury, the government, and the TBTFs such as Goldman--with government taxpayer guarantees. BlackRock was selected specifically and noncompetitively, as Geithner put it, because  “the interest of the American taxpayer would be best served.”

Andrews ends her probe of Fink‘s “role in the crisis” and his “unique risk-assessment system” with these words: “[If}there is indeed an American oligarchy today, it does seem as if Larry Fink wants to be the good oligarch.”

The quadrillion dollar question was and is:  Good for whom?

Read More http://www.vanityfair.com/business/features/2010/04/fink-201004?printable=true&currentPage=2#ixzz0sUd11xDU

http://www.thesmartasset.com/2009/05/in_handling_the_crisis_for_obama_blackrocks_profitable_conflict_of_interests_--_sorry_its_called_symbiotic.php
Wed, 03/27/2013 - 06:38 | 3380432 css1971
css1971's picture

Oil isn't going to allow a full recovery. There are trillions of dollars sunk into infrastructure which only works with cheap oil. What you're gonna get is a couple of decades of limping stagflation until this infrastructure is replaced by something which does work in an expensive energy world.

What I find amusing is that so many think it's the rich and powerful (the Blackrock's) who control economies... It isn't. The more wealthy they are the more insulated from the pain, they will continue doing what they've been doing anyway.

No, the person controlling the economy is Mr Marginal; the guy who's only just making it. The guy who has to think, "gosh should I fill up my tank today and drive to that job" or "Can I afford that pork steak or do I make do with pasta", "are we making enough to hire a helper?", "can I afford the lawyers, tax accountants to do XXXXX?". These are the people who's choices decide the course of the economy. Governments which pursue policies which make Mr Marginal say "I can't", are doing damage.

I guess the simpler way to put this is "Economies are bottom up structures, not top down". Destroying Mr. Marginal's purchasing power is (amoung others) a great way to make him say "I can't". As are; ridiculous levels of legislation, insanely complex taxation, fraudlent banking, "old boy" networks & cronyism.............

Wed, 03/27/2013 - 01:25 | 3380272 valkir
valkir's picture

Guys.Our life in ZH community is not much different as in real life.We are here for good,but some assholes,for bad.Just check how many post and energy we spent,to argue "is D-r Shill Krugman"is the real one,or someone else.I have simple test to this guy.D-r Krugman,to prove you are the person who write here,post one picture here/Tyler Durden can let you do it/.To recognize you,stick your left middle finger in your ass,byte one gold american eagle,and with your right hand make victory sign.Ty in advance,moron.

Wed, 03/27/2013 - 01:26 | 3380273 ECE
ECE's picture

good god Krugman is truely a full blown idiot.

why do you think global and EU soverign debt holders were not hit like the peasants?    the leverage used to propogate the farse going on around the globe could not handle even a default like Cyprus due to the leverage used by all the global money centers....   nothing can pull back or the party is over.   A tight rope held by old women is the strength of the EU banking diplomats 

A sad sad time we are living in and its about to cave

Wed, 03/27/2013 - 02:08 | 3380303 putaipan
putaipan's picture

treat him like beeelion dollar bonus' mom . he'll go away. and then - it' ll work out in the end times. 

 your economic eschatologist- THE 'REAL' PUTAIPAN!

Wed, 03/27/2013 - 02:22 | 3380310 Olympia
Olympia's picture

GERMANY, the DISGRACE of Europe

...the barbarians, who forced beautiful Europe to get down Zeus’“back” and made her a prostitute ...the unworthy Europeans, who in 1945 “took Europe down” from “Mount Olympus” and in 2012 relinquished “enslaved” Europe to the Phoenician loan sharks.

Germans are proved to be the easy solution to breach Europe’s door. Whoever wishes to “set foot” on Europe and demolish it, the only thing he has to do is to “fool” the Germans. For a second time in less than fifty years, Europe’s idiots become the victims of foreigners and they serve their interests at the expense of Europe...

 

http://eamb-ydrohoos.blogspot.com/2012/02/germany-disgrace-of-europe.html

_____________________

 

The German traitors of Europe along with the Phoenicians from Asia may have forced Europe to get down from the "back” of the Greek “bull”, but it remains to be seen how they shall pull it through with the “bull”.

 

Authored by PANAGIOTIS TRAIANOU

Wed, 03/27/2013 - 02:47 | 3380321 GoldIsMoney
GoldIsMoney's picture

Why is it Germany alone? Just tell me, I was thinking the ECB and other eurpoean "finance" (sorry debt) ministers have voted for that. 

You seem to have no idea about the laws about bailouts here in EC (in principle) No country was supposed to get any financial support of any other country. The idiots in the south have used the cheaper money to build their memorials. 

The EC never was allowed to bail-out anyon. But they did and not the debtors are unhappy with the outcome? 

Are you really that blind to see that the debts are the problem? Can't you see that the whole system of fiat-money has lead to it. Gosh I was thinking to find some really understanding the fundamental problem. But no....

Wed, 03/27/2013 - 02:27 | 3380313 GoldIsMoney
GoldIsMoney's picture

I proposed another solution. It would have meant "honest" default. But they preferred to stick to the EC. So they get what they deserve. 

Wed, 03/27/2013 - 02:43 | 3380320 GoldIsMoney
GoldIsMoney's picture

You know this letters?  TARP

So when will we see the end of the US?

 

 

Wed, 03/27/2013 - 03:04 | 3380325 ShakaZulu
ShakaZulu's picture

Cyprus is just one in a long line of nation states which will fail in the time to come.

Wed, 03/27/2013 - 04:08 | 3380353 pparalegal
pparalegal's picture

I am vindicated! Proof that anyone who listens to central bankers or economists beyond one trading day is a fool. We are all only cows to be milked by the monied elite via their annointed sock puppets in government and media. 

Wed, 03/27/2013 - 04:49 | 3380382 AnAnonymous
AnAnonymous's picture

Welcome to the reality of an 'american' world.

You are no longer a Cypriot now. You are a European.

Social engineering trade marked by 'americans'

Been doing that since 1776, July, 4th. 'Americans' have a lot of experience in it. As they do in other departments like theft, bullying etc

Wed, 03/27/2013 - 07:39 | 3380392 falak pema
falak pema's picture

Countries used to end by war and occupation in the past. 

From that perspective the Cypriots can count themselves lucky, in this day of global financial oligarchy age.

Having sold their country down the river to the banks and to Russian floozy money, having gone totally bankrupt in the process, they now have a choice between EU medicine and freedom in destitution via OPT OUT of EU.

They, or whats left of their corrupt, servile banksta shanghaied government oligarchy, chose the former route.

Now they are tied to the wheel of an austerity purge and find themselves swinging on the rotating pillory turnstile of public disdain the world over via the Internet, as here on ZH and elsewhere in MSM.

Freedom is not something that comes easy.

THAT IS ONE LESSON THE CYPRIOTS KNOW VERY WELL...

DO WE....FOR WHOM DOES THIS BELL TOLL?

Its tolls for our nation states now totally redundant structures relative to the power of Oligarchy capitalism that changes the rules of democracia as we go along, running rings round the "we the people" meme, making us all part of the pillory roundabout crowd...

Play on world in dystopian dream. And its not libertarian ideology screams that will change the course of things. 

Its retaking the power from them via the state and the rule of law.

We need people to face the globalist neo feudalista status quo by taking the corruption and continual goal post changing by the horns.

Wed, 03/27/2013 - 08:06 | 3380545 Lebensphilosoph
Lebensphilosoph's picture

They run the state and own the law.

Wed, 03/27/2013 - 05:34 | 3380400 chindit13
chindit13's picture

Cypriot politicians and Cypriot bankers killed Cyprus.  Their old politicians had them join the EU, and the only way they found they could be competitive (David Ricardo is right in theory, not so much in fact) was to become the EU's Iceland.  Offering above market (read:  impossible) rates on deposits became Cyprus' "competitive advantage".  The Cypriot bankers then went about trying to earn the yield to pay well above market rates, and they thought they found the secret to huge returns in a ZIRP world in Greek Bonds and local property.  Retroactive CACs disabused them of that notion on the Greek paper.  The asset side of the BS deteriorated, so in an attempt to fund it, the banks Ponzi'd up by offering even higher rates to pull in yet more deposits.  They still couldn't make the vig.

To hold them over, the Govt of Cyprus took a loan from Russia.  It bought time, but the assets never recovered.  A gaping hole formed between assets and liabilities.  Cash flow dried up.

When the cupboard was finally bare, they went to the EU for help.  The EU reminded them that a bare cupboard is a bare cupboard.  The EU told Cyprus it could get some cash if it recognized reality, a reality that would have been there, and more harsh, even if the EU wasn't there to provide some walking around money.

So far Cypriot politicians have been able to misdirect attention away from the previous politicians who got them into a union they should never have joined, and away from the Cypriot bankers who, like junior traders, doubled and tripled down when their trades went bad.  To see protesters in Cyprus carrying placards that say, "Troika Go Home" says that Cypriot officials have been successful in their misdirection.  They are blaming the coroner, rather than the murderer, for the death.  Even if the Troika goes home, the deposits are not going to suddenly reappear.  Gone is gone, and they were gone long before Cyprus called the ECB.

It is clear that the EU couldn't care less if Cyprus leaves the union, as capital controls effectively recreate the Cypriot pound in fact if not in name.  The over under to departure is two months.  They will leave, the EU imposed capital controls will be dropped, and the Cypriot government will be able to set the New Pound-EUR rate, for those poor souls who didn't get physical euro cash or transfer their deposits outside in time. The black market rate will be much higher.

The EU and Troika did not kill Cyprus.  They merely acted as the coroner who pronounced Cyprus dead at the scene from self-inflicted wounds, a death resulting from bad banking practices and extreme loss of asset value.  They sent flowers to the deceased in the form of the bailout, but it won't be enough.

Wed, 03/27/2013 - 06:59 | 3380446 smacker
smacker's picture

 

You describe Cypriot bankers like they were (are?) a bunch of casino addicts who lose money and try to win it back by ever more & bigger bets.

There's nothing sophisticated about that strategy, it's been tried and failed a million times in history. Their failure makes it 1 million and 1.

Wed, 03/27/2013 - 05:52 | 3380410 resurger
resurger's picture

All bank creditors they usually keep the money overnight or on weekly basis, unless they have a fucking agreement with the Government of Cyprus to lend that money long term. If they liquidate the bank of course the money will be repaid for the goverment with no haircuts + interest.

The depositors are the only victims

Wed, 03/27/2013 - 06:34 | 3380429 22winmag
22winmag's picture

Ammunition shortages really only affect recreational shooting. Successful insurgencies depend on well-placed shots from old rusty bolt action rifles to snipe at and grind down the oppressor. Large volumes of ammunitional are not needed and are not practical for for asymmetric warfare. Seriously folks, there is now (and always will be) 1,000 times more ammo in existence than patriotic Americans would ever need to put down a foreign (or domestic) occupation.

Wed, 03/27/2013 - 08:01 | 3380534 Lebensphilosoph
Lebensphilosoph's picture

... not if the occupiers have no qualms about massacres and genocide, there isn't.

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