Cyprus: less is more
The latest on the Cyprus banking crisis:
Depositors in Cyprus with savings of more than 100,000 euros ($128,000) could face losses of up to 60 percent, under tough conditions attached to an international bailout, Finance Minister Michalis Sarris said Saturday…
A mandatory one-off tax on deposits of more than 100,000 euros in return for shares in Bank of Cyprus would bring a 37.5 percent decrease in value.
Depositors could also lose an additional 22.5 percent, Sarris told RIK state television, if it is determined that more funds are needed to save the bank.
The small eurozone member avoided a financial meltdown this past week by sealing a 10 billion-euro bailout from the European Union and the International Monetary Fund.
President Nicos Anastasiades on Friday said Cyprus would not leave the eurozone after banks returned to normal opening hours under strict capital controls to prevent a run on deposits.
So they get shares in the banks, for what that’s worth.
And the EU remains intact. Pity.
There’s no way of avoiding some sort of hardship in the Cyprus situation. The question is who should bear the biggest burden, and what are the longer-term consequences of each approach in dealing with it.
What do I think should have happened? This (by Daniel Hannan):
Cyprus could copy Iceland, let its banks collapse, and leave their shareholders and bondholders to sustain the loss.
There is often a perception lag when it comes to foreign countries. Most people in the EU still have the idea that Iceland is in economic meltdown. In fact, as I have blogged many times before, it has bounced back impressively from the 2008 crash, and public opinion is solidly against EU membership. Icelanders are a canny people. They know that, though they have been through a dip, their standard of living is still higher than 24 of the EU’s 27 members, and is improving more rapidly than anywhere in the euro zone. All this despite the best efforts of their Green-Socialist coalition to penalise business through bizarre eco-regulations.
Why don’t Brussels leaders want Cyprus to follow the Icelandic model? Well, you can’t fault their honesty. The expropriations are necessary, admits the European Central Bank, to prevent ”˜worries over the reversibility of the euro resurfacing’. Cypriots, in other words, are being sacrificed to the greater goal of monetary union. They will become a second Greece, vassals to their EU creditors.
Coffee cans in the backyard, or holes in the mattress are really looking better all the time, eh?
davisbr: unless there’s hyper-inflation.
There is still utter density in the MSM WRT Iceland.
Though reported in the Financial Times of London, it has never sunk in that the Iceland debacle entirely turns on the IceSave long con.
Iceland did not engage in the manic real estate lending program seen in Ireland.
Iceland did not, of itself, try to become an ‘Internet banker to the world.’ That marketing gambit was part and parcel of the IceSave long con.
Britain and Holland went after Iceland to cover the IceSave losses of their retail depositors. Iceland said no.
Icelanders, themselves, lost almost no money, certainly nothing like the sums seen elsewhere. They didn’t have that much to start with.
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You don’t lose the fantastic sums discussed WRT Cyprus without control fraud.
And, quicker than I’d ever expect, the news is out. The Cypriot banks were renting a ‘roof’ — by giving ‘loans’ to all of the key politicians — Moscow style.
http://www.zerohedge.com/news/2013-03-30/political-fallout-begins-former-cyprus-president-named-loan-write-offs-leading-banki
Such payoffs are only consistent with control fraud.
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I posted previously, THE all time favorite control fraud is the purchase of overpriced/ illiquid interest bearing securities — headed towards the bankruptcy courts.
They lend themselves to the end game defense:” Whocould’veknowed?”
Trust me, it works every time with civilian juries.
Further proof that such was happening in Cyprus is the fact that the entire planet was trying to unload Greek sovereign debt — with only these few banks buying it in size.
Ordinary bankers ( as against hedge funds ) NEVER trade against the crowd. It’s a career terminator. Instead, they trade like schools of fish. They’ve already got so much leverage that it’s completely unnecessary to amplify risk.
It takes full blown control fraud for losses to reach the astounding heights now being published. Haircuts of 50%+ on uninsured deposits imply that the thieves lost ten times the bank’s capital — while stealing five.
See Goodfellas to see how that math works out — in a Bust Out.
$ 200 booze charged remits $ 100 in hard cash for the mob.
Iceland is doing well because Icelanders didn’t actually lose any serious money. The British and Dutch retail depositors lost, instead.
Duh.
neo – I was actually including hyper-inflation, lol: a 60% haircut in a single day has to be in the “as bad as” category, neh?
Having money in a can, mattress or other readily accessible location isn’t a bad idea during hyperinflation.
See, you can get your money and buy necessities while you can still afford them, and before your money loses a great deal of value.
Under such circumstances, I would see a mandated maximum amount of money you could withdraw from your bank per day. To prevent a run on the banks, you see. Assuming they just don’t declare a bank holiday, and shut down the ATM machines.
And while shut down, that hyperinflation will be eating at the value of the bank notes you still have in the bank.
So Cypriots and other peripheral members exist to take the beating for the rest of the member states, who favor socialism. Except when it means sharing in the losses themselves. I wonder what will happen when Italy gets thrown under the bus – I could be mistaken, but don’t see them sitting down for a lecture about the common good when they half their savings are confiscated.
It seems the phrase “like money in the bank” is losing its original meaning of “a sure thing.”
I am reading “The Rotten Heart of Europe”, by Brenard Connelly in its 20 th anniversary edition, and it is a tough slog, much tougher than “When Money Dies”, an economic history of the German Hyperinflation of 1922-23.
I do not understand the allegiance to the Euro.
Cyprus banks failed, it seems to me, because they owned serious amounts of Greek bonds (Laiki, aka Popular Cyprus Bank, was 84% owned by the Cyprus gov’t long before it tanked, there’s nationalizing for you!), and we know what happened to them. Poof! went the banks’ capital, and the depositors paid dearly. But neither quit the Euro. God forbid.
I don’t get it.
And Angela Merckel is no Vaclav Havel, though both grew up in communism.
Ducks want things like security and food. So when they hear a duck calling that everything is okay over here, they come in numbers.
Stupid ducks.
“Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on.”
― Frédéric Bastiat, The Law
Same as it ever was.
Don Carlos…
They didn’t buy/ acquire their astounding positions by purchasing at the original auctions.
They were buying Greek bonds in mega-quantity only after it was obvious that Athens was in serious trouble — and the original bond investors were unloading their bonds at horrific discounts.
The control fraud crew bought those securities at such low prices — and then marked them up at least double — selling them into their controlled banks.
That you still believe the implicit innocence of that long con — shows why it’s the oldest control fraud on the books….
Because it keeps working. Juries actually buy — like you — the idea that the problem was an ‘unlucky’ investment.
Pray tell why the banks were cutting payoffs to every politician in sight?
Why did the banks leak to their best buddies the impending haircuts?
And, lastly, you do realize that in every jurisdiction, a bank is absolutely prohibited from over lending/ over investing in any particular asset. The only exemption ever allowed is for the debt securities of their very own sovereign nation.
Greek bonds — troubled as they were — would never have been permitted to be accumulated by any bank at any price at levels that wildly exceeded the bank’s risk capital — unless the regulators had been bought off.
In the Cypriot case, the evidence is already in: they bought everybody in sight.
The failure/ washout of Greek bonds is entirely incidental to the loses Cypriot bankers took.
Russian Mafia banking cons wiped out Iceland’s IceSave, Nauru’s trust fund, and weigh heavy in the Ireland debacle.
For a domestic case of control fraud — see Country Wide. It’s an ocean of losses. Nitwits still buy the idea that Angelo just got unlucky.
He’s no more innocent than Charles Keating.
The essence of the super-boom and super-slump is control fraud.
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As for the Euro, it’s not a unified currency — it’s just faking it.
If it were unified — like the US Dollar — then there’d be no crisis — and Greece’s banknotes would trade like Germany’s.
As Cyprus now reveals — they absolutely do not trade equal. Attempts to make such swaps are now resulting in massive banknote seizures — at the airport.
Just one more proof that the Euro Zone is a rigid exchange rate regime.
BTW, they always break up — and break up this way — resulting in severe economic slumps/ depressions. That’s why the powers that be keep kicking the can down the road.
They know all of the above is true. But, because it’s really, really, important — they must lie.
By the time the NY Times writes this up — it will have already appeared in textbooks.
blert,
I wish you would post supporting references to your many allegations, instead of just your assertions.
Obviously, for there to be a profit (or a loss= haircut) there must be both a seller and a buyer. Same goes for the buyer after the 1st transaction. Prices do not move in straight lines.
That the Euro in its billions cannot just up and move through sirports to Germany from Cyprus speaks to Cyprian blockades, not fungibility.