Cyprus banks to steal DEPOSITOR'S money

Cyprus Told: After Monday you are bankrupt unless you obey.

The stark ultimatum came in a terse statement from the European Central Bank’s governing board that on Monday it would cut off the flow of euros to Cyprus’s financial system unless the country’s leaders reach terms with the International Monetary Fund and other European nations on an international bailout.
http://www.washingtonpost.com/busin...4f3252-924e-11e2-9cfd-36d6c9b5d7ad_story.html

 

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Good. Time to wean them from the free money and let them decide their own financial future.

 

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You have no song in your heart, you cold blue eyed Viking.

 

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It looks now like only the Russian Mafia are going to be robbed.
And mightily.
They ain't gonna like that.

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Three tickets for Nicosia please. Keep the change.

 

It is the >57% weighting of the Euro in the dollar index, combined with the troubles in EU being worse than in the US, that is making for last 4 or 5 years of dollar´s long term decline take a pause. (the oscillations around 80 shown in first graph of post 36 and now reproduced below.):

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Last 2 "up ticks" are Japan´s currency war effects.

The effects of Cyprus, indirectly on the Euro, may give a few more (take dollar above 85 before decline resumes). Bernanke will make sure the decline is not over.

 

I don’t think people understand what happened to Cyprus. Cypriot banks were tax havens which attracted a lot of money from places like Russia which resulted in an oversize banking system. Cypriot banks, like all banks, needed to invest that money. So where did the Cypriot banks invest all that money? They invested it in Greek government debt. And we all know what happened to Greek debt. That left the Cypriot government on the hook for Cypriot banking liabilities.

Cyprus’s current fiscal problem is the result of an oversized banking system which has deposits (i.e. liabilities) that are 7.5 times larger than the entire GDP of the island nation. Cypriot banks invested that money in Greek public debt in order to capture high yields and they lost a signficant portion of that investment. That banking loss created an enormous liability for the Cypriot government which was still battling the effects of the 2007-2009 global recession. The current Cypriot fiscal crisis is not the result of extravagant government spending on government programs or benefits. It is the result of a a failure to adequately regulate its banking system.

http://news.yahoo.com/does-size-matter-cypriot-bank-sector-problem-went-175913854--business.html

 

Joe is quite right in post 46. Much the same happened to Iceland, but in that case it was not mainly a tax haven, but more the highest interest from "safe banks" that Europeans could get. Huge sums, especially from England and the Netherlands, were deposited in Icelandic banks and they too had to be invested. They were, and to get the returns required to pay those high interest rates, with consideable risk. All went well until the economy began to fail. Too many of their risky investments went belly up. I forget how much greater the deposits were than the GDP of Iceland - but it was something like the 7.5 times of Cyprus´s banks too.

People never seem to learn, when something good (like much higher interest) is promissed, that if it is "too good to be true," it probably isn´t. In the US case the "too good to be true," idea is that Americans can consume for couple of decades much more than they produce without serious bill from the piper to pay when the Fed takes the punch bowl away. If you think that will never happen, that the Fed can forever keep filling the bowl with 85 billion of juice each month, then I have a bridge in Brooklyn I´ll sell you for only 85 thousand dollars.

 

Ireland had a similar problem too. Risk-Reward is the first principal of finance. Higher returns = higher risk. There is no free lunch. There is nothing wrong with risk as long as it is managed appropriately, as long as the investor can afford to lose. These banks and these countries could not afford to lose. That brings us to the principal of diversification which is used to mitigate risk. These banks and these countries ignored these very basic financial principals.

If someone offers you a high return, there is significant risk attached to it no matter what is said or promised.

http://campus.murraystate.edu/academic/faculty/lguin/FIN330/Eightprn.htm

The Federal Reserve and it’s expansionary monetary policy is not bound by the principals of risk-return or portfolio diversification. The Fed can afford to lose everything. The Fed is immune to investment risk. The Fed can print money to pay its bills. That is something the individual and the banks and EU member states cannot do. The Fed is purchasing low risk fixed income investments in order to provide liquidity to markets during a period of moderate growth and elevated unemployment. If we had a more responsible fiscal policy, something we have not had since Republicans gained control of the House, the Fed would not need to continue its expansionary monetary policy. Two, the Fed is not promising or expecting to continue monetary expansion ad infinitum. It is a temporary measure intended to remedy a temporary problem. At some point employment will return to more normal levels, eliminating the need for expansionary Fed policies. As we have discussed before, the Fed can contract the money supply just as easily as it can expand the money supply. Instead of buying assets, it can sell them. And at some point, we can hope Democrats take back control of the House and we can have responsible fiscal policies (e.g. 2008 - 2010) coming out of Washington.

 

That is what Mugabe of Zimbabwe believed too.

No. the Fed is purchasing pieces of paper with promises written on them. Not farm land, oil in the ground etc. - things with intrinsic value.

Perhaps Republicans are more to blame, but mainly because they think 30% of the budget needs to be spent to make US military spending more than the total spent by the 16 next largest spenders and five times more than China, which has world´s largest army for defense of the motherland mainly but they also serve as labor force to clean up after villages are burried by mud slides, washed away by floods or collapsed by earth quakes, etc. (More replies after this large chart.)

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No. As the US has >20 times lower interest rates than normal (long term average) it winning the currency war. (low interest also causes: "borrow in US and invest elsewhere" where returns and markets are greater*.) This means rich people, taxed less after GWB changed tax laws, are building more modern factories in lands with well educated people (better than in US in math and sciences) that will work long and hard for less than half the pay scale of US. Some jobs may remain in US as difficult to out source. I.e. serving dinners or fliping Big Macs, cutting lawns and hair, etc. and a few with big bulky items, like solar panels that are expense to ship, will even return to US while it has money of value to buy them, but job creation (~200,000 / month) is below the growth of the youth wanting / needing to enter the job market. For them US needs to be making approximately 300,000 jobs per month.

Not so for two reasons: (1) the Fed has a tiger by the tail. If it stops propping up the economy - hiding the fact that other nations have well educated workers, with half or less of US salaries and now more modern factories than in the US, the US collapses economically. - That can be prevented with dollar printing presses for the period that the dollar is dominate in global trade and for purchase of oil (PetroDollar). Currently China has 35 nations for which it is their main trading partner and at least half no longer use the dollar in their mutual trade - all the big ones trading with China: S. Korea, India, Russia, Japan, Brazil, Indonesia, Vietnam, S. Africa and more than a dozen others have signed "currency swap" agreements with China to NOT use the dollar any more. Some oil exporters don´t either. Obviously, Iran but Kuwait, UAE, and Venezuela and some that don´t publicly admit they will sell for any well traded currency. This is in part because the dollar has intentionally been made less valuable over the years.
(2) Buyers may only be available if the Fed´s assets are offered at deep discount prices, probably less than half face value. For example now the 10 year Treasury bond pays slightly less than 2% interest but historically more than twice that. As interest doubles, the bond price is cut in half. This loss of the Fed will be passed back to the Treasury - making US go broke even faster. The Fed buys new issue directly from the Treasury at face value. (Nearly 3 trillion now. Treasury will take loss of more than a trillion dollars.) Fed seems to be acknowledging now that it can not sell off its ever growing pile of "assets" as it is thinking of just holding them until they mature. That will not extract even a dollar from the public, but interest paid monthly by people whose mortgage the Fed now owns does; however, that is a very tiny fraction of the 85 billion that is pumped out each month. Doing that (A net taking of money from the owners of it.) is not easy like you suggest it is. In the long run if done by selling new interest-paying Fed notes, as Fed got Congress to OK, that money will go back to the public PLUS the interest Fed pays to make public holding even more funds!

I think the Democrates too tend to give the voters what they want, perhas even more than the Republicans do, but both send the bill to later generations. I like Clinton very much, but just like Brazil´s most beloved president, Lula, he was lucky. In Lula’s case it was the huge expansion of global demand for the commodities Brazil exports. In Clinton’s case it was the huge surge up in productivity that the wide spread use of computers made. If you only want to find some one not the democrats to blame, go a head, but with the basic problem misunderstood your chance of fixing it is small. I would say, and have 5 years ago, a depression is coming and no one can stop it now. Obama and Bernanke are doing a good job of delaying it - perhaps even some months or half a year past Halloween 2014.

* China has four times the US population and they are getting double digit annual increases in their salary´s purchasing power. Further more the Chinese market is mainly a "first time buyer" market not a "replacement market." That means on a per capita basis it is also several times larger. You keep your refrigerator more than 10 years - they are buying their first! No wonder capialists are doing whatever China requires to build their factory there. Usually that means bring in more modern technology. For example, all the international oil companies (except Norway´s which China won´t let in as Norway gave the Nobel Peace prize to guy China had in jail) are teaching Chinese oil companies how to frack the shale oil deposts, which China has even more of than the US has.

 

So true

Cyprus "solution" is to take only from bank account with more than 100,000 euros - i.e. the Russian mafia, with rare exceptions of some independent crooks.

 

Say the government of Cyprus failed to regulate the banks who made bad investments. Why penalize the innocent depositors? It would appear to me, the real culprits are the banks and the government, who worked together (campaign contributions) who are trying to get off without penalty. The propaganda machine pitches we need to screw the Russian mafia, which gets the low information voter going. This cause blame to be diverted away from those who caused the screw up in the first place.

Both are too big to fail. They have designed themselves not to be accountable. They are criminal if they think the answer is to penalize the innocent bystanders in their place. I would penalize the government and banks first. Purge all the elected officials since they are not competent.

Say in America all this debt comes due and cause hardship. What is the accountability of those who are creating the debt, even if they use this as a means to help themselves , they friends and party. The answer is none; oops! Cyprus has the same set-up, at least until someone points out those directly responsible are about to maintain no responsibility. The innocent have to pay the price.

In Cyrus I would first take all the assets of the bankers and government officials. This is closer to real blame then stealing from the depositers. The depositers will loan the balance of the money. The payment due will either be money back or be power sharing, were the loaned money is as good as a campaign contribution to call in a favor or two. This is fair and accountable. Maybe US can adobt the non-criminal standard.

 

Who else would you have pay for this debacle if not the investors? There is not enough money in the country to pay for the losses. That is why they need 10 billion Euros just to keep the lights on. If you took all the assets of the individual bankers their employees and all the wealth of government officials, and even if you threw in all the money in the country, there still would not be enough money to pay for the losses. So who should pay for the losses . . . the Germans . . . French . . . Spanish? Who, if not the depositors?

When something similar happened in the US, the US had enough money to bail out the banks. And the government bailed out the banks and made a profit in doing so, but it was not without a political cost. American right wingers were advocating let the banks go under, let them fail, let the banks fail and consequently let the depositors take the hit. Now American right wingers want to bailout a foreign bank to save Russian depositors? They would let US depositors take the hit for banking malfeasance in the US, but not Russian depositors in a foreign bank when they suffer a similar set back? Please! But this does unfortunately demonstrate the intellectual wasteland that is the American right wing.

I love that “low information voter” phrase the Republican entertainment industry is promulgating these days. Unfortunately, their subscribers don’t understand the low information voter is them. Subscribers, listeners and devotees of the Republican entertainment industry might have a lot of information, but unfortunately most all of it is untrue. Independent study after study has repeatedly found subscribers to Republican entertainment/news to be less well informed that those who do not subscribe to any news service. That is pretty bad.

First, how do you know they are responsible? Is it not possible that this problem was created by their predecessors? This problem didn’t happen overnight. It took years, many years to get to where it is. And after the purge, who would you replace them with exactly? In all likelihood, you would replace them with less competent individuals. What is needed is a better educational system and a more competent political system. The political system needs to be above corruption . . . above the influence of money. And that certainly and unfortunately is not the case in the US, that is how we got into our mess to begin with.

Let’s look at the US. How are you going to hold those individuals responsible? Congressman Paul Ryan voted for every profligate spending measure Republicans have sponsored in Congress since Ryan was elected to Congress in 1999. He voted for the wars without funding them. He voted for the continued funding of those wars. He supported the president who bungled those wars for 8 years. He voted for the biggest pork riddled entitlement expansion ever. He voted for the biggest tax reduction in history without offsetting it with spending reductions or other taxes to mitigate the revenue losses. Ryan voted for the deregulation of the financial industry, the Repeal of Glass-Stegall and The Commodities Futures Modernization Act. And Ryan voted against the reregulation of the banking industry (e.g. Dodd-Frank). And who did Republicans nominate as their vice president last year? Paul Ryan. Who did the Republican entertainment industry back for POTUS? Paul Ryan. Instead of punishing Ryan, Republicans/conservatives rewarded Ryan. They rewarded not only Ryan. They rewarded every other member of congress they reelected.

How are you going to hold the campaign donors, the Supreme Court, and those who voted for George II and his merry band of Republicans accountable for the damage they did to the nation's fiscal wellbeing and economy? History shows that if you are a Republican, you reelect them to office. That is not punishment for incompetence and corruption.

As previously explained, even if you took all the money of every banker and every government official, it wouldn’t make a dent in the amount of money lost or due to depositors. Even if you took all the money in the country, you wouldn’t have enough money to fully compensate the depositors. Even if you took the entire income of everyone in the nation or the next 8 years you would not have enough money to fully compensate bank depositors.

Depositors have already loaned money to the Cypriot banks. That is how they got in trouble. And you want them to lend more? I am sure Cypriot bank depositors want to loan more money to Cypriot banks . . . not!

 

The Russian Mafia are famed for not wanting to be messed with.

Probably some of the money belongs to the Turkish Mafia.
I haven't heard them mentioned, but Cyprus would seem an obvious place for their loot.
They run the world Heroin trade. With a little human trafficking on the side.
They presumably don't like being messed with either.

Cyprus is also a favourite resort for the British criminal fraternity.
They love their perma-tans, Mercs, and nice big villas, and they don't.......etc.

In Cyprus, if you don't have a criminal for a neighbour, it is because you live in the wrong part of town.

Perhaps all these people will say meekly,
"You win some, you lose some",
or perhaps they won't.

Realizing they will never be a world power, the Cypriots have decided to settle for being a world nuisance.
~ George Mikes, Hungarian writer

 

It looks like the deal has gone through.

http://www.independent.ie/business/...rozone-countries-eurogroup-head-29152809.html

And the Russian government appears to be supporting it.

http://www.independent.ie/business/world/russia-backstops-cyprus-bailout-despite-anger-29152557.html

 

Happy days for insurers.

I haven't got more that $50,000 in the bank, so I am covered by the EU guarantees.
But if I did have more than that, I would split my investments, or use an insurer.
That isn't hindsight, it is common sense.
Banks are not totally safe places to deposit money.
If you have oodles of cash, you should be financially smarter than I am,
or pay someone to advise you.

 

You hit on one of the key principals of finance . . . diversification. While the losses in Cyprus may be large to most individuals, I suspect they are a pittance of foreign investor portfolios. And it appears the foreign investor is going to bear the brunt of the expense.

 

Some of the people will be bona fide::
People depositing money between a house sale and repurchase;
Church and charity funds etc.

I hope these people's money isn't grabbed along with the crook's.