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25 March 2013

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harry

So one would imagine that sensible Portuguese, Spanish, Italian, Slovenian, Belgian, and Irish people would be interested in opening a German or Swiss Bank account.

However I think the real message is to the owners of Spanish, Portuguese or Italian bank bonds. Think carefully before you own these bonds because you are directly in line to have the value of these bonds destroyed.

Interesting. How much capital raising do you think German banks have already done?

That doesnt mean that I dont welcome the move. I think the "Bail Outs" have been a disgrace. I long to watch Jamie Dimons perp walk. I might be waiting a long time.

William R. Cumming

As I understand it the deal between Cyprus, its banks and others involved the ECB [European Central Bank]!That ECB gave interest free loans for three years on all bonds owned by EU banks and most accepted this largesse. What was largely unknown is that the US Treasury and Federal Reserve are deeply involved with all negotiations of the ECB and even funding of its solutions.

And most Russians understand fully and correctly that Russian banks are largely controlled either by the Germans or the Russian Criminal oligarchy. So flight capital and safe havens are a huge problem for all.

A simple litmus test! Ask Congress to find out exactly how US interests affected by the Cyprus deal and were US recommendations followed and how much was invested Cyrp

bth

First off the oligarchs will have used the last few days to wire their money out through some back door arrangement. It will be the smaller businesses and normal Russians and ME folks that get hammered having not special relationships.

Second, if you were an account holder of any kind in Cyprus and you just took a 40% haircut, what prevents you from now withdrawing the remaining 60% and shipping it to some other tax haven or to Switzerland or to US treasuries? I would think this is only the first shoe dropping in Cyprus.

Third, if you are banking in Italy, Spain or Portugal, why would you keep your money there waiting for a similar haircut? Wouldn't you be stuffing it under a mattress if nothing else?

The beaver

I wonder how many arms dealers are in a conundrum today!!! Quite a few of them have accounts or secondary residences on the island, including some Syrians cum Saudis who are opposed to Assad

JohnH

I expect that privatization of Cyprus' underwater natural gas fields are part of the deal. As I understand it, Greece had to privatize theirs.

Hillary was working Greece a couple years ago to do the deal. Meanwhile, Bill was lobbying for Noble Oil, which has a major stake in the same fields, but from the Israeli side.

Hell hath no fury like an "international community" protecting "its" energy resources...

Apparently Israel gets to keep ownership of its Tamara and Leviathan fields and is licensing development and production to Bubba's Noble Energy and others.

Fred

Well I can see why Obama, Bloomberg and company want as much gun regulation in the US as possible. Imagine if (when) the US government to bail out banks does the same thing to people who spent a lifetime saving for retirement and just lost 40% of their total assets. Or small businesses that just lost 40% of their working capital. Surely neither the oligarchs or entities like the Bill & Melinda Gates Foundation are going to be treated the same. We can't even get a tax increase on hedge funds and they helped contribute to these financial circumstances.

Meanwhile how many bankers went to jail? How about those bond rating companies, any accountability there? No - of course not. Iceland let their banks fail and the shareholders - not the depositors - were held accountable for their investment choices. But of course the MSM isn't about to let us hear about that one.

Rocketrepreneur

To your first point, it looks like the Russians might have (wisely) already pulled most of their money out...

http://www.zerohedge.com/news/2013-03-25/have-russians-already-quietly-withdrawn-all-their-cash-cyprus

Tyler

I was listening on the local FM talk radio about economics, and someone asked if a Cyprus situation could happen in the US. Before the question could finish being asked, the host cut him off with "No no no. That could never happen here. Don't be one of those."

What is 'one of those', I wondered. One of those who don't trust the government and think that perhaps everything that comes out of the Imperial City isn't magic and rainbow dust?

It wouldn't surprise me if something like this came to the US. They could nail your 401k/TSPs by demanding that half of it be invested in Treasury bonds for "your safety", or simply call it the 'wealthy paying their fair share'. Anything to keep the food stamps and welfare flowing so that the proles are fed. There are people alive who remember FDR confiscating all private gold bullion in the US. In our electronic age, there's very little stopping the government from reaching in and ripping out what they think is their fair share.

Remember, if you invest in gold & silver, invest in lead as well.

CK

Sensible Americans should realize that it will happen here too. Can you enjoy a 40% haircut of whatever savings or investments you might think you own should your benevolent superiors deicide that another needy domestic or foreign "friend" needs financed?

Tyler

Also from Zero Hedge:

"Cyprus a 'template' for the rest of the EU":

http://www.zerohedge.com/news/2013-03-25/word-out-place-sends-europe-tumbling


Followed by a massive back pedal:

http://www.zerohedge.com/news/2013-03-25/eurogroup-head-says-he-did-not-say-what-he-said-confirms-it-serious-again

Its allllll coming apart.

Tyler

Of course not. They can't prosecute bankers but damned if Tommy Perez can't go after cities for 'dispartate impact' and other civil rights nonsense.

Also amazing is the total blackout on anything Cyprus related, as well as the occasional hiccups here with SNAP cards (food stamps) not working as this massive welfare organ we have starts to bleed out.

Oh, and California wants to give illegal aliens healthcare. We're in the belly of the beast and the beast is bleeding to death.

William R. Cumming

Fred! Hedge funds are not really taxed at all in the US now much less subject to any increase!

Laura Wilson

And what would we do with our guns? Shoot people with more money? Kill all bankers and their employees? Shoot ourselves because we have less money? Take over the military bases?

What? How would having guns solve or even mitigate such a banking crisis?

Babak Makkinejad

All:

So EU is essentially doing teh smae thing in Cyprus as Argentinian government did to the pensioners in that country.

How the mighty have fallen.

Twit

Hysteria aside, the issue at hand is a simple one - how to deal with a failed bank. The US has a lot of experience in this, while Europe has very little. The proper way to deal with a failed bank is to wipe out the assets of the bank owners (private or shareholders), fire all the bank managers, and then restructure bank in a way to either provide for an orderly wind-down of the bank's business or, less commonly, develop an orderly way for the bank to become functional again. Two key components of this are (1) receivership (i.e. temporary government or other external takeover of the dead bank for the period necessary to complete the restrurcting/wind-down), and (2) deposit insurance (i.e. government guarantees of deposits under a certain amount) in order to prevent bank runs and their contagious effects. The Federal Reserve and the FDIC have the primarily roles for these things in the US.

The problem we are facing is twofold:
1. In the US, smaller banks fail literally every week and have done so for 50+ years. We are very experienced in dealing with bank failures, and dealing with them in a way that focuses losses on those who deserve to lose their shirts. The problem is that the US Government has been cowed / bought off by Wall Street so that Government is unwilling (although very much still able) to let large failed banks die. This is the too-big-to-fail issue and indeed BoA, Citi, and most other large banks are actually bankrupt. There is a way to deal with them, even at this scale, but it's simply not being done.

2. In Europe, the problem is different. They are not experienced in bank failures. They do not have an FDIC. And critically for small countries like Cyprus and mismanged countries like Greece and Italy, Europe has created a noose for itself in the Euro, which prevents the typical response to a country-wide financial crisis - currency devaluation. For the last 50+ years, there was only a bank failure once every few years in Europe, and in most cases the government simply pumped in cash and ad hoc saved the bank. This is why you had bank runs in the UK a few years ago with the Northern Rock situation. In Cyprus, you are seeing the fruits of this chaos, with the added fun of banks whose holdings are a mix of funds from average Cypriots, RAF retirees, and the laundered proceeds of Russian criminals.

The bottom line is that we in the US have laws, regulations, processes, and institutions quite capable of dealing with failed banks, big and small. We are just not using them, because our government is corrupted and bought off by moneyed interests. As for Europe, they could do the same, but they are similarly corrupted, and any solution in any case will require Germany becoming the undisputed power in Europe, which no one, including the Germans, want.

Finally, I would like to note that we did not have a single financial crisis in the US from 1945 to 2008. Even the S&L debacle, while incredibly painful and costly, did not produce a true financial crisis, because it was dealt with properly, unlike today. All this was possible because of "leftist" New Deal laws and regulations like deposit insurance, separation of commercial and investment banking, and receivership.

Twit

Tyler, as you can see, no plan or even discussion of orderly wind-downs or restructuring (see my comment below). Recapitalizing a failed bank (aka a bailout) only kicks the can down the road and intensifies the problem in the long term. Wiping out depositors (e.g. the Cyprus haircuts and what was done in 1929-1932) only transfers the bank's problems to businesses (especially small ones) and regular people (especially those relying on savings or jobs with small businesses, i.e. most people). System-wide bank failures are best dealt with by government-controlled bank restructuring aimed at minimizing social harm accompanied by currency devaluation. The single currency prevents the latter, and nobody is even discussing how to do the former in tiny island Cyprus, let alone Italy, Greece, Portugal, and Spain.

I agree. It is all coming apart. The only viable ways forward for Europe I see are either a Fourth Reich in which southern europe restructures its economy according to German desires in exchange for financial injections to cover running costs, or Germany and the northern EU countries leave the Euro (which easier than kicking the southern countries out). However, I don't think Germany has the cojones to do either.

For the US, we could fix our bank problems tomorrow if there was political will to do so.

steve

It's my understanding that depositors, not bondholders, are taking the haircut.

Alba Etie

Yes Twit - Pappy Bush 's sent many banksters to jail for the Savings & Loans Scandal during his time .And the Resolution Trust Fund got most of our money back . I would like to see many perp walks Dimon , Blankfein , and many other banksters should be in jail . But sending your major contributors to jail does take political will .

Alba Etie

Which is why all of us must support Sen.Elizabeth Warren's efforts to see criminal action taken against the banksters who have ripped us off...

The beaver

All of this when you have the IMF with a knife at your throat !!!

confusedponderer

"Finally, I would like to note that we did not have a single financial crisis in the US from 1945 to 2008. Even the S&L debacle, while incredibly painful and costly, did not produce a true financial crisis, because it was dealt with properly, unlike today. All this was possible because of "leftist" New Deal laws and regulations like deposit insurance, separation of commercial and investment banking, and receivership. "

And I would add to that that legislation of that kind, more stringent than what was dismantled by the free-marketeers in the US, is responsible for Europe's comparable lack of experience with bank failures. We still do enforce such regulation.

" In Cyprus, you are seeing the fruits of this chaos, with the added fun of banks whose holdings are a mix of funds from average Cypriots, RAF retirees, and the laundered proceeds of Russian criminals."

I gather that the cap of 100,000 Euros has to do with the latter. In sum, for the average guy, this isn't that bad. And before anyone starts about with this 410k - that is not how retirement works in Europe.

Grimgrin

I'm pretty sure the reason it can't happen in the US is the same as the reason it didn't happen in the UK; both nations still control their own currency and in the event of a banking crisis have a central bank to act as a lender of last resort, where the eurozone nations have to come up with financing.

I know the critique of this is that printing money is just another form of confiscation, since it tends to lower the purchasing power of the currency. However, it's far less of a shock to the system than either confiscation or transferring bank losses directly onto the public balance sheet or both.

Babak Makkinejad

Yes, Adolf Hitler stated before WWII that Europe could only be unified under German Leadership.

turcopolier

Baak

and before him were Bonaparte, Suleiman, etc. pl

Tyler

I don't know Laura, you tell me? If the government isn't worried about the threat of force from the citizenry, why is it purchasing armored vehicles and billions of rounds of ammunition?

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