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Same $#!%, Different PIIGS
Submitted by Shane Obata of Triggers
Desperate governments call for desperate measures.
Unfortunately for us, citizens often end up paying for the mistakes of their governments. That’s not how it should be but, sometimes, that’s how it is. If and a when a government is no longer able to meet its obligations, capital controls, broad wealth confiscation measures, and other extreme burdens are often considered.
Spanish bond yields just fell to their lowest levels in history but does that mean that your money is safe there? Absolutely not. It means that investors are complacent, not that Spain’s political risk has diminished.
Portugal is in the same boat. While its borrowing costs continue to fall, its prospects for economic growth and its financial position continue to worsen. If you’ve got assets in Portugal then now would be a good time to contemplate how safe they really are. Unless you like bail-ins, that is.
Bail-ins
“A bail-in “forces the borrower’s creditors to bear some of the burden by having part of the debt they are owed written off. In the case of Cyprus, the creditors in question were bondholders, and depositors with more than €100,000 in their accounts.”
Some say “bear the burden”, others, like Jeff Thomas, say “wealth confiscation” :
“On 16th of March 2013, the banks of Cyprus – with the approval of the Cyprus government, the European Commission, the European Central Bank, and the International Monetary Fund, confiscated private savings of accounts exceeding €100,000.”
Why were the savers punished? Because of excessive risk taking by Cyprus’s banks. Two of its largest banks, Laiki Bank and the Bank of Cyprus, decided to Greek government bonds in an attempt to profit from their higher yields. Unfortunately for the banks, the bet turned sour when yields spiked past 40% during Greece’s sovereign debt crisis. As a result, the Greek bonds lost most of their value – costing the Cypriot banks close to €4.5 billion and wiping out their capital.
Were there any indications that a bail-in might occur? Sure.
According to Trading Economics, In Cyprus…
- GDP started contracting in late 2011.
- The number of employed persons fell from 388.7 thousand in 2011 to 376 thousand in 2012.
- The number of unemployed persons more than tripled from 2009 to 2013.
- The Government debt to GDP ratio increased from 58.5% in 2010 to 86.6% in 2013.
- The residential property price index has been in decline since the financial crisis.
In sum, depositors in Cyprus were punished for the mistakes of their banks. Yes, Cyprus’s economy was showing weakness before the confiscation occurred. That said, it was not clear to depositors that their savings were at risk; what happened to them was unjust to say the least. Savers should NEVER be held accountable for the mistakes of their governments; regrettably, they often are.
Another form of wealth confiscation to think about is deposit taxes.
Deposit taxes
Like bail-ins, deposit taxes are bad for savers. What’s more is that they’ve been used before – recently in Spain:
“On 4th July, Spain announced that it would impose a blanket taxation on all bank accounts at the rate of 0.03% for the purpose of “Harmonizing tax regimes and generating revenues.” – Jeff Thomas
This situation is a great example of moral hazard because the deposit taxes will negatively impact Spain’s citizens more so than its government officials.
If the tax is supposed to help Spain’s economy then isn’t it a good thing? No. Spain’s people should not be forced to make up for the errors of their government.
Not unlike Cyprus, Spain’s economy has been in trouble for some time. According to Focus Economics, in Spain, GDP, Investment, and retail sales contracted in every year from 2009 to 2013. Furthermore, public debt as a % of GDP grew from 54% to 93.9% over that same time frame.
In both Cyprus and Spain, poor decisions and economic and fiscal problems led to some form of wealth confiscation.
If it happened there then could it happen to Portugal? It’s not out of the question.
Portugal
Same problems, different country. Portugal is an ideal candidate for wealth confiscation because, like Cyprus, its banks are in trouble. On July 19th, 2014, the holding company of Banco Espirito Santo (BES) – Portugal’s 2nd largest bank - filed for bankruptcy protection. Since that time, two more of its holding companies did the same. If and when BES goes under then who’s going to have to pay for it? Hopefully not its depositors.
What’s more is that the economic backdrop is Portugal is getting worse.
In Portugal,
- Debt as a % of GDP is rising
- Credit is contracting
- Economic activity is in decline
- The employed population and the working-age population (15-64) are shrinking
- Consumer sentiment is mostly negative
If the banking system problems in Portugal turn out to be systematic then it’s likely that its people might have to foot the bill. In order words, wealth confiscation might be right around the corner.
If you’ve got assets in Portugal then watch out. You don’t want to be left holding the bag if and when shit hits the fan.
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But interest rates will stay low ferever... or even go negative so it is ok.
It's important to understand that 18% inflation with 1% interest rates are any heavily indebted government's dream.
They really think they can get there, too. By the time they realize it's not going to happen, they'll be much more desperate than they are now. Then all bets are off.
but Capitalism needs Investment
Maybe people who want to invest need capitalism.
I love watching fucktards who do not produce anything tangible......squirm. They will remain in power as long as suckers agree to repay their faux debt.
Mwah-hah! Ha! Ha! The me sneaks into their houses and poops on the floor!
Speaking of desperate, these bitchez are "all in" capping PMs at present. Unfortinately for them, the bull does not like to be told what to do.
Appears (sure as all hell, by God's own hands) that way. Seems to be blatant, organized, ruthless and overt, almost to a point of...."Why would they be doing this if things were not so bad?" Like the old Shakespeare line of protesting too much.
Been thinking the very same thing. It's not that there should necessarily be anything else happening what with a strong dollar, commodities and precious should be under pressure, but this seems just a bit too much to me, also.
Maybe talkin' my position but does seem somewhat heavy handed... overly so.
Moreover, if we truly have high end real estate, stawks and bonds responding in the manner they are to overly expansive monetary policy, then commodities and precious should likewise be participating. Now, I can easily throw the bonds out of that analysis into their very own Liquidity Trap world, but it is odd, to me.... odd....
But then again, what do I know? Not much.
Interest rates tend to fall as the economy approaches Zero degrees Kelvin -273.15 C and all activity ceases
Politicians now boast of Permanent Depression by hailing the low interest rates
Why were the savers punished? Because of excessive risk taking by Cyprus’s banks.
Oh, only them? I call bullshit.
I'm waiting for it to get to France because there's nothing the French love more than a good riot with maybe a few beheadings on the side.
It's just a bunch of euphemisms.
Burglars steal, muggers mug, and bankers "confiscate wealth".
Yes, something wrong with coutries bailing out the banks, but banks forcing countries to fail.
Shouldn't it be the other way around?
To me deposit confiscations are a good thing. Maybe people will actually look into how financially secure of their bank and reposition if needed. Banks doing stupid things should fail.
Oh cut the BS. You know central banksters are counterfeiting those rates.
The problem in Cyprus, IMO, was not that the depositors were "bailed-in," but that the bondholders were bailed out in advance at 100%.
the lesson for all here is that if you keep your savings in the bank, you're retarded. interest is shit to begin with, and there's the risk of the bank flat out stealing it to save wall street.
“On 16th of March 2013, the banks of Cyprus – with the approval of the Cyprus government, the European Commission, the European Central Bank, and the International Monetary Fund, confiscated private savings of accounts exceeding €100,000.”
that's not the whole story. in fact, telling the story this way is very distorting
- the bail-in/confiscation was not about the whole amount exceeding, only part of it. Initial discussions were about 30%, then went up to 50% and came then way down
- the bail-in was initiated by the elected Cypriot Parliament, and the elected Cypriot president signed the three laws about it... way before the whole thing started to appear in the news. So the confiscator was Cyprus, and all the others had very little to "approve of"
- in fact, several unsavory parts of the bail-in were not in line with the wishes of the EU, nor even of the IMF. In fact, even the governor of the Cypriot national bank was sidelined in parts of it, including the currency control part, which was done with the President's direct decree
yet kudos to the author for this part: "Why were the savers punished? Because of excessive risk taking by Cyprus’s banks. Two of its largest banks, Laiki Bank and the Bank of Cyprus, decided to ((buy vast amounts of)?) Greek government bonds in an attempt to profit from their higher yields. Unfortunately for the banks, the bet turned sour when yields spiked past 40% during Greece’s sovereign debt crisis. As a result, the Greek bonds lost most of their value – costing the Cypriot banks close to €4.5 billion and wiping out their capital."
- Cyprus faced the option between bankrupting those two banks or... reminding the world that when you put money in the bank, you become a "junior" (aka less important) creditor of that bank. Hence the bail-in, which highlighted this one little open secret about banking which is so often neglected...
I don't understand this constant whining about bail-ins. In the absence of an external party bailing it out, an insolvent bank will become bankrupt if not bailed in by the creditors' and depositors' money and then the creditors and depositors stand to lose even more than during a bail-in. If you don't want to be exposed to the risks that a bank takes, don't leave any money in that bank.
Whew! Good thing the USA has the FDIC!
If a person isn't aware of the risks by NOW, there's just no hope for them...
No one should keep more than a month's worth of money (for bills, etc.) in a bank. Period. If you have more, keep it elsewhere. Anywhere elsewhere. And not in the form of fiat currency. Buy the fiat as needed.
There ARE no safe banking alternatives anymore. We just have to get to understanding that.