Thread: Economic Depression Is The New Success - Ready! Set! Bank Run! Cyprus - Iceland

EU Goes All Soviet on Rich Russians
John Ransom

Oh, my gosh; what a great idea: Does Obama even KNOW that he can tax Russian millionaires and billionaires?

Just wait until he finds this new method of taxing and spending. Think of all the bad ideas we can fund with these new “revenues.”

The European Union and Cyprus teamed up over the weekend to come up with a revolutionary way to destroy confidence in the banking system.

Confiscate the biggest depositors’ money in the country’s largest bank, kill the second largest bank- and just make sure that you only give Cyprus enough money to ensure a second- and third- crisis is in the offing.

“If anything,” writes the Irish Independent, “the situation is more troubling than a week ago; with the bizarre idea that depositors in one bank should be levied more heavily than in others; that at least one bank would be wound up; and that there would be restrictions on the movement of money in what is supposed to be a monetary union.”

The EU plan makes the USA’s bank bailout- known as TARP, but pronounced C-R–A-P- look like the American plan was run on the good intentions of a local chapter of the 4H Club.

Last week an unlikely group of people- liberals and conservatives- banded together to denounce the idea of “saving” the Cypriot banking system by one-time confiscations- confiscations disguised as a tax- of depositors’ money.

The European Union proposed to lend Cyprus 10 billion euros that, in part, would be paid back by a one-time levy on bank deposits regardless of size of account and regardless of nationality of account holder. The plan was just another stunning example of how the European Union and the global banking “Group-Think” got us into the mess to begin with.

The cure in saving the banking system here, in other words, was to be much worse than the disease of letting the system fail.

“It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying ‘time to stage a run on your banks!’” wrote Paul Krugman, the self-appointed Conscience for Liberals, about the EU bailout plan.

A week later the European Union and Cyprus politicos came up with a much better idea: Make only the rich Russian millionaires and billionaires with deposits in Cyprus pay. As I said last week, they are, after all, only just Commies.

OK. It didn’t exactly take a week for them to come up with the plan, just a week to implement it. And perfect it for later use in Italy, Spain or anywhere else.

“A rescue programme agreed for Cyprus on Monday represents a new template for resolving euro zone banking problems,” reports Reuters, “and other countries may have to restructure their banking sectors, the head of the region's finance ministers said.”

Last week euro zone officials were calling the Cyprus “bail-in” a “one-off.” Now they are calling it a good idea for everyone.

Everything, it appears, will be satisfactory: Cyprus will get its bailout money and the EU will get a bank levy up to 100 percent of deposits from the country’s largest banks. Accounts in excess of 100,000 euros in the Bank of Cyprus and Cyprus Popular Bank, will fund the bailout, a levy that will avoid taxing Cypriots, but will fall mostly on rich, Russian depositors.

Hurray! Tax the rich Russians!

From the UK’s Telegraph:

Meeting deputies at his residence outside the city, Russia’s Prime Minister said there was a need to “understand what this story turns into in the long run, what the consequences for the international financial and monetary system will be - and thus, for our own interests as well.”

Mr Medvedev prefaced his comments by addressing Deputy Prime Minister, Igor Shuvalov, with the words: “Let us, Igor Ivanovich, talk about what’s happening with Cyprus. The stealing of the stolen is continuing there, I think.”

The seemingly clumsy phrase was in fact a sharp reference to a quote attributable to Vladimir Lenin, who used it to justify the confiscation of capitalists’ property.
And:
It is not the first time Mr Medvedev has made such a reference. Last week, he compared the proposed bank deposit levy on Cyprus to “expropriation and confiscation… only comparable to decisions made at a certain period of time by Soviet authorities, who did not stand on ceremony when it came to people’s savings.”

An unintended consequence of the levy- ha, ha, ha! Are there any other kind of consequences for liberals?- will be in closing down another offshore tax haven in Cyprus, a place where foreigners are free from the snooping governments of the EU.

Because, amidst the madness, one central problem faces the Western governments: How to prevent rich citizens from fleeing one tax jurisdiction to another tax jurisdiction when governments decide that once again they need to make the rich pay the freight for everyone else.

Well that problem is now solved.

Depositors now know that EU tax havens won’t enjoy the benefits of the EU monetary union.

It’s almost as if the crisis was…I don’t know…CREATED by the EU to send a message?

Message received loud and clear: Don’t worry; all is well. The rich will pay.

EU Goes All Soviet on Rich Russians - John Ransom - Townhall Finance Conservative Columnists and Financial Commentary

Cyprus is Just the Tip of the Confiscation Iceberg - Audio

Ransom Notes Radio - Cyprus is Just the Tip of the Confiscation Iceberg - Ransom Notes Radio - [page]

Merkel's Vision: "United States of Germany"

Mike Shedlock

Following brutal negotiations with EU finance ministers, the IMF and various European government officials, Cyprus finally agreed to measures that her highness, Angela Merkel would accept.

This time she held her ground. Previously, Merkel compromised every key position she has ever held in the sake of political expediency.

For example, Merkel went to the well twice on Greece to appease her opponents. She repeatedly caved in to demands from French president Nicolas Sarkozy. She reversed her stand on nuclear energy following German polls.

So why did Merkel draw the line at Cyprus?

To Merkel everything is a play to win the next election and ultimately to preserve her legacy. She is willing to play hardball now for one reason only. Public opinion is decisively against further bailouts, and anything but exceptionally harsh terms on Cyprus would hurt her election chances in September.

She fears the rise of the eurosceptic Alternative for Germany (AfD) Party and the best way to take some wind out of the AfD sails is to show she cares about austerity.

Merkel's Vision

Merkel's vision is not a United States of Europe. Rather, Merkel's vision is for a "United States of Germany".

In this light, every move she has made makes perfect "political" sense, solidarity be damned.

That Cyprus and Greece were ruined in the process is acceptable "collateral damage". If Spain is not careful, it will become the next "collateral damage".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Merkel's Vision: "United States of Germany" - Mike Shedlock - Townhall Finance Conservative Columnists and Financial Commentary

Tuesday, March 26, 2013 1:50 PM

The Axe is in Position, Only the Timing of the Swing is in Question

It has been amusing listening to the hypocrisy from Brussels regarding the leverage in Cyprus.

Jeroen Dijsselbloem, president of the eurogroup led the charge that Cyprus had an unsustainable problem with deposits over 700% of GDP.

Here is a little perspective courtesy of the Financial Times.

European Bank Assets as Multiple of GDP



Somehow we are supposed to believe that 7-1 ratio of deposits to GDP is a problem but the 22-1 ratio in Luxembourg is not. And what about the 4-1 ratios in France and the Netherlands?

What sunk Cyprus now rather than later was Cyprus was dumb enough to be in Greek bonds.

So why did Cyprus stay in Greek bonds so long? The answer is Cypiot banks were foolish enough to believe ECB president Jean Claude Trichet when he insisted there would be no haircuts on Greek bonds.

Trichet Hails Success of Cyprus

Those looking for an amusing flashback should consider this glowing speech by Jean-Claude Trichet on the successful entry of Cyprus into the euro area, in January of 2008.

Today’s euro celebrations are the result of the successful macroeconomic policies that the Cypriot authorities have pursued in recent years. Cyprus has made significant progress in both nominal and real convergence, owing to successful policies – namely, well-managed monetary and exchange rate policies combined with a range of structural reforms. ... The ECB and the Central Bank of Cyprus, together with the National Changeover Board, the European Commission and national and international authorities cooperated closely in many ways to prepare the introduction of the euro. ... It included public opinion polls, advertising and direct marketing. Over 900,000 copies of different publications were distributed by the Central Bank of Cyprus - this is more than one copy per Cypriot! ... As a result of these efforts, today we can celebrate a successful cash changeover. ... intimate cooperation between the members of the team, the national central banks of the Eurosystem, and the ECB is the key for the success of the single monetary policy in the euro area.

Somehow, distributing over one pamphlet per Cypriot on the benefits of the euro was an insufficient formula for success. Shocking.

Four years and two Greek bond restructurings later, Cyprus was ruined but did not realize it yet. The second Greek bond haircut did Cyprus in, but the axe was yet to fall.

The ECB waited until the Cypriot election a month ago when their communist president was ousted by the pro-euro Nicos Anastasiades. The ECB then dropped a bomb on the new president.

For those of you who think Cyprus is "one off" and this will never happen again, please let me point out a few recent things.

1. Dijsselbloem brags Cyprus to be model for future bailouts.
   
2. A German Bank Economist Proposes "One Time" Cyprus-Like 15% Wealth Tax on Italians
   
3. By a 526 to 86 vote, the nannycrats in Brussels passed a regulation in March that will require a country to accept a bailout if offered. It's An Offer You Cannot Refuse.
   
4. Laying it on thick, the Bundesbank claims Spaniards are 33% richer than Germans.
   
5. The "men in black" seek answers in Spain. Troika to Return to Spain in May Asking "What Happened to €42 Billion in ESM Bank Recapitalization Tranches?"

Timing the Axe on Spain and Italy

Cypriot banks may be the first to suffer a forced bail-in but they will not be the last.

Recall the "success" of Mario Draghi's LTRO program? Yes, it brought down yields on Italian and Spanish bonds, I believe temporarily.

The LTRO program was also an open invite for German banks to dump Spanish and Italian bonds and for Spanish and Italian banks to snap them up.

Was LTRO really a "success"? For who? The answer is Germany, not Spain or Italy.

Economists hailed Draghi a genius. Yet, LTRO further concentrated bond risk. Spanish banks are now more leveraged to Spanish bonds and Italian banks more leveraged to Italian bonds. It was concentrated risk that brought down Cyprus.

Groundwork Laid for Additional Forced Bail-Ins

Groundwork for further forced bail-ins has been laid: A model is in place, regulations are in place, and German sentiment is in place. Spaniards are supposedly more wealthy than Germans, and the "men in black" demand an audience in May.

Solidarity, be damned. It's every country for itself. Arguably, that is the way it should be, but that certainly wasn't the promise.

It's too late now for Spain, Portugal, and Italy. The axe is in position. Only the timing of the swing is in question.

Mike "Mish" Shedlock
Mish's Global Economic Trend Analysis


Read more at Mish's Global Economic Trend Analysis: The Axe is in Position, Only the Timing of the Swing is in Question

Tuesday, March 26, 2013 12:01 PM

EU Pushes Bail-In Regulations on All Deposits Above €100,000; Run on Banks Coming Up?

Cyprus was such a "success", EU to push for losses on big savers at failed banks.

The European Parliament will demand that big savers take losses if their banks run into trouble, a senior lawmaker told Reuters, adding momentum to a policy unveiled as part of a Cypriot bailout.

Jeroen Dijsselbloem, head of the Eurogroup of euro zone finance ministers, said on Monday that in future, the currency bloc should first ask banks to recapitalize themselves, then look to shareholders and bondholders and then "if necessary" to uninsured deposit holders.

Now the likelihood is rising that tough treatment of big depositors will be written into a new EU law, making losses for large savers a permanent feature of future banking crises.

"You need to be able to do the bail-in as well with deposits," said Gunnar Hokmark, an influential member of the European Parliament, who is leading negotiations with EU countries to finalize a law for winding up problem banks.

"Deposits below 100,000 euros are protected ... deposits above 100,000 euros are not protected and shall be treated as part of the capital that can be bailed in," Hokmark told Reuters, adding that he was confident a majority of his peers in the parliament backed this line.

The law, which will also introduce means to impose losses on bondholders, is due to take effect at the start of 2015. Germany wants provisions for bailing in bondholders and others in the same year, though that may be delayed.

Hokmark urged savers to check their banks' health before taking the risk of depositing money.

"If you put your money in Royal Bank of Scotland ... or Deutsche Bank, depending on how that bank is working you are taking a risk," he said. "You need to be aware that you are taking a risk.

Step in Right Direction

Such regulation is a step in the right direction actually. There should be no deposit guarantees at all, no bondholder guarantees, and people should have to pay attention to where they put their money.

For a detailed explanation, please see Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand?

Here are the key ideas from the article

Five Key Points

1. In a Fractional Reserve Lending scheme, the notion there are meaningful reserves is ridiculous
   
2. Far more money has been lent out than really exists (the rest is a fictional accounting entry)
   
3. Fractional reserve lending constitutes fraud (just as lending something you do not own is fraud)
   
4. There is no way for all this money to be paid back (so it won't be)
   
5. Of all the central banks, the Reserve Bank of New Zealand has the most sensible policy for the most sensible reasons of all the central banks.

That said, note how bondholders and the ECB have been protected so far.

Bondholders did not suffer losses on Irish bonds, and the ECB did not even take a hit on its Greek bonds. Cyprus bondholders were not protected, primarily because the big European banks were not involved so they had nothing to lose.

Run on Banks Coming Up?

Looking ahead, the implication is that no one should place more than €100,000 in any bank. So no one will, especially in questionable Southern European banks. Instead, expect capital flight to presumed "too big to fail" Northern European banks, and also expect people to park more money directly at the ECB, where it will be safe.

Might such legislation then, spur a run on banks? Seems that way to me. My advice for European depositors is simple "Please don't wait until 2015 to find out."

Mike "Mish" Shedlock
Mish's Global Economic Trend Analysis


Read more at Mish's Global Economic Trend Analysis: EU Pushes Bail-In Regulations on All Deposits Above €100,000; Run on Banks Coming Up?

Monday, March 25, 2013 3:17 PM

Regulators Prepare for Run on Cypriot Banks; Two Largest Banks Remain Shut, Others Open Tomorrow

Most Cypriot banks will open tomorrow but capital controls remain and the two largest banks will remain shut while the ECB "monitors the situation" and regulators determine precise haircuts.

CNN Money reports Big Cyprus banks to stay shut after bailout

Most banks in Cyprus will open again Tuesday for the first time over a week. But the two biggest lenders at the heart of a €10 billion European Union rescue will stay shut for two more days to give regulators time to prepare for a run on deposits.

Deposits of over €100,000 at Bank of Cyprus and Popular Bank will be frozen until they have been restructured. Popular Bank will be split up, its viable assets and insured deposits transferred to Bank of Cyprus, and its non-performing loans moved into a bad bank that will be wound down.

Big depositors at Popular Bank face complete wipe out, along with shareholders and bondholders.

The losses facing big depositors as part of a deposit-equity conversion at Bank of Cyprus have yet to be determined but could be around 30%, a Cypriot government minister said Monday. Again, shareholders and bondholders will be tapped first.

The big unknown is how small depositors will react, or what restrictions they'll face when they try to access their money from Tuesday. The Cypriot parliament last week gave the government powers to implement temporary capital controls.

Cyprus will be ruined for a decade. Expect GDP to plunge by as much as 30%.

Since Big depositors at Popular Bank face complete wipe out, Cyprus may as well have done this on its own and left the Euro.

Mike "Mish" Shedlock
Mish's Global Economic Trend Analysis


Read more at Mish's Global Economic Trend Analysis: Regulators Prepare for Run on Cypriot Banks; Two Largest Banks Remain Shut, Others Open Tomorrow

Monday, March 25, 2013 11:25 AM

Another "Euro Is Saved" Moment in Pictures

Euro 20 Minute Chart



click on any chart for sharper image

US Dollar 20 Minute Chart



Gold 20 Minute Chart



Rescue Me



Fontella Bass - Rescue Me (1965) - YouTube

I was looking for a video by Aretha Franklin but the above by Fontilla Bass will have to suffice.

The idea that Cyprus was in any way shape or form "rescued" by the Troika is preposterous. The good news appears to have worn off already.

Next up Spain.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Read more at Mish's Global Economic Trend Analysis: Another "Euro Is Saved" Moment in Pictures

Monday, March 25, 2013 3:17 PM

Regulators Prepare for Run on Cypriot Banks; Two Largest Banks Remain Shut, Others Open Tomorrow

Most Cypriot banks will open tomorrow but capital controls remain and the two largest banks will remain shut while the ECB "monitors the situation" and regulators determine precise haircuts.

CNN Money reports Big Cyprus banks to stay shut after bailout

Most banks in Cyprus will open again Tuesday for the first time over a week. But the two biggest lenders at the heart of a €10 billion European Union rescue will stay shut for two more days to give regulators time to prepare for a run on deposits.

Deposits of over €100,000 at Bank of Cyprus and Popular Bank will be frozen until they have been restructured. Popular Bank will be split up, its viable assets and insured deposits transferred to Bank of Cyprus, and its non-performing loans moved into a bad bank that will be wound down.

Big depositors at Popular Bank face complete wipe out, along with shareholders and bondholders.

The losses facing big depositors as part of a deposit-equity conversion at Bank of Cyprus have yet to be determined but could be around 30%, a Cypriot government minister said Monday. Again, shareholders and bondholders will be tapped first.

The big unknown is how small depositors will react, or what restrictions they'll face when they try to access their money from Tuesday. The Cypriot parliament last week gave the government powers to implement temporary capital controls.

Cyprus will be ruined for a decade. Expect GDP to plunge by as much as 30%.

Since Big depositors at Popular Bank face complete wipe out, Cyprus may as well have done this on its own and left the Euro.

Mike "Mish" Shedlock
Mish's Global Economic Trend Analysis


Read more at Mish's Global Economic Trend Analysis: Regulators Prepare for Run on Cypriot Banks; Two Largest Banks Remain Shut, Others Open Tomorrow

Sunday, March 24, 2013 7:03 PM

Bad Bank Losses 30-90%; Food Supplies Down to Two Days; Plenty of Fuel, Not enough Cash

Capital controls and a good-bank, bad-bank structure is what is now on the table. In spite of what may be agreed upon, I stated earlier today the losses will be bigger than currently perceived.

I am not the only one to come to that conclusion, Faz has some estimates in its report striking high cash outflows from Cyprus

Despite the closed banks and capital controls in the past week, more money flowed out from Cyprus than in previous weeks, according to payment transfers. Prior to the escalation of the crisis in Cyprus accruing on the payment system "Target liabilities of Cypriot central bank to the European Central Bank (ECB) had increased to a rate of approximately 100 to 200 million euros per day. In the past week, billions of dollars flew in spite of controls.

Withdrawals at ATMs have been limited to €260 per day but on Sunday the value was further reduced to €100 per day.

Cyprus lists accounts amounting to €30 billion in foreign currency, mainly dollars (86 percent) and pounds (6 percent). The investment bank Goldman Sachs estimated that this money belongs to foreigners, mainly Russians, Britons and Russians living in Latvia.

These holders of often very ample bank accounts now have a particular interest in getting money out of the country.

All accounts with less than 100,000 euros will land in the "good bank". Other accounts will land in the "bad bank". In the "bad bank" loss estimates range from 30 to 90 percent, depending on how quickly depositors try to withdraw money.

Supermarket Food Supplies Down to Two Days

In Cyprus, merchants demand cash, but suppliers demand cash only as well. With a shortage of cash, results are as expected: Cash Demands Impact Supermarket Shelves

SUPERMARKET shelves are in danger of emptying according to head of the supermarket union Andreas Hadjiadamou.

Supplies will only last two or three more days according to Hadjiadamou and there will be severe problems if a solution is not found and if banks remain closed.

According to deputy of the supermarket union, Nicos Athanasiou, problems had already started being noticed at certain supermarkets in Larnaca. “Most people are making purchases with a certain amount of care and caution, buying the basics,” he said. “Most consumers have been purchasing dry and canned food the last couple of days in case things get worse,” he added.

Athanasiou said there had not been a large fall in sales although in almost all of the supermarkets there were shortages of goods from suppliers who only accept cash payments.

Plenty of Fuel, Just Not Enough Cash

Cyprus Mail reports Plenty of Fuel, Just Not Enough Cash

SOME petrol stations may have to close down as they do not have enough cash to pay for fuel shipments, the head of the stations’ owners said yesterday.

“We may have to temporarily close some petrol stations because they have run out of cash. This creates great concerns to those in this profession,” said the head of the petrol station owners' association, Stefanos Stefanou.

“Petrol stations pay for their fuel shipment only with cash and cash is running out,” Stefanou added.

“There are some petrol stations that are still accepting credit cards today, but tomorrow no petrol station will do so,” he said, asking consumers to take cash with them to carry out transactions.

Welcome to Insanity

Welcome to the insane world of fiat currencies and fractional reserve lending. If you are looking to assign blame, that's where the blame belongs.

Regardless of where the blame is, the safe thing to do in Southern Europe is to get your money out of banks immediately. Nigel Farage says the same thing. For details, please see UKIP Leader Nigel Farage Says "Get Your Money Out of Spain While You’ve Still Got a Chance"

Mike "Mish" Shedlock
Mish's Global Economic Trend Analysis


Read more at Mish's Global Economic Trend Analysis: Bad Bank Losses 30-90%; Food Supplies Down to Two Days; Plenty of Fuel, Not enough Cash

http://www.alipac.us/f19/german-econ...anking-274892/