Thread: Socialists ready to make power grab of world citizens’ money

This is coming from all deposits, including their life savings. Do you think it can't happen here?????

Cyprus' savers bear brunt of unprecedented bailout

By Annika Breidthardt and Robin Emmott and Michele Kambas
BRUSSELS/NICOSIA | Sat Mar 16, 2013 7:52pm EDT

(Reuters) - The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risk of a wider run on savings.

The eastern Mediterranean island becomes the fifth country after Greece,Ireland, Portugal and Spain to turn to the euro zone for financial help during the region's debt crisis.

In a radical departure from previous aid packages - and one that gave rise to incredulity and anger across the country - euro zone finance ministers forced Cyprus' savers to pay up to 10 percent of their deposits to raise almost 6 billion euros.
Parliament was due to meet on Sunday to vote on the measure, and approval was far from assured.

The decision prompted a run on cashpoints, most of which were depleted by mid afternoon, and co-operative credit societies closed to prevent angry savers withdrawing deposits.

Almost half Cyprus's bank depositors are believed to be non-resident Russians, but most queuing on Saturday at automatic teller machines appeared to be Cypriots.

President Nicos Anastasiades, elected three weeks ago with a pledge to negotiate a swift bailout, said refusal to agree to terms would have led to the collapse of the two largest banks.

"On Tuesday ... We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis," Anastasiades said in written statement.

In several statements since his election, he had previously categorically ruled out a deposit haircut.

"My initial reaction is one of shock," said Nicholas Papadopoulos, head of parliament's financial affairs committee. "This decision is much worse than what we expected and contrary to what the government was assuring us, right up until last night," he told Reuters, without saying whether he would back the measure or whether he thought it would pass.

Papadopoulos is vice-chairman of the Democratic Party, a partner in Cyprus's centre-right ruling coalition and whose support in parliament will be crucial to pass any haircut.

Parliament was expected to convene from 1600 local (1400 GMT) on Sunday to discuss the emergency legislation. Without parliamentary approval, a haircut cannot take place.

'THEFT, PURE AND SIMPLE'

The bailout was smaller than initially expected and is mainly needed to recapitalize Cypriot banks that were hit by a sovereign debt restructuring in Greece.

The deposit levy - set at 9.9 percent on bank deposits exceeding 100,000 euros and 6.7 percent on anything below that - will take place on Tuesday after a bank holiday on Monday.

To guard against capital flight, Cyprus took immediate steps to prevent electronic money transfers over the weekend.

At one cashpoint in the capital Nicosia, a pensioner couple said they had visited several automatic teller machines without success. "We are trying to pull as much as we can," one told Reuters, reaching for a wallet containing four debit cards.

"I'm extremely angry. I worked years and years to get it together and now I am losing it on the say-so of the Dutch and the Germans," said British-Cypriot Andy Georgiou, 54, who returned to Cyprus in mid-2012 with his savings.

"They call Sicily the island of the mafia. It's not Sicily, it's Cyprus. This is theft, pure and simple," said a pensioner.
The levy breaks a euro zone taboo by hitting depositors.

It prompted Spain, considered the next most likely state to seek a sovereign rescue though supported recently by a European Central Bank promise to buy government debt if necessary, to deny savers in other countries risked being similarly penalized.
The bailout was specific to Cyprus and its bloated banking sector and "could not be extrapolated to any other country," an economy ministry source in Madrid said.

In Brussels, Dutch Finance Minister Jeroen Dijsselbloem said it would not otherwise have been possible to save Cyprus's financial sector which, compared with national economic output, is more than twice as big as the EU average.
"As it is a contribution to the financial stability of Cyprus, it seems just to ask for a contribution of all deposit holders," Dijsselbloem, who chaired the ministerial meeting, told reporters.

The island's bailout had repeatedly been delayed amid concerns from other EU states that its close business relations with Russia, and a banking system flush with Russian cash, made it a conduit for money-laundering.

In return for emergency loans, Cyprus agreed to increase its corporate tax rate by 2.5 percentage points to 12.5 percent. This should boost revenues, limiting the size of the loan needed from the euro zone and keep down public debt.

RUSSIAN AID

International Monetary Fund Managing Director Christine Lagarde, who attended the Brussels meeting, said she backed the deal and would ask the IMF board in Washington to contribute.

"We believe the proposal is sustainable for the Cyprus economy," she said. "The IMF is considering proposing a contribution to the financing of the package ... The exact amount is not yet specified."

Cyprus, with a gross domestic product of barely 0.2 percent of the bloc's overall output, applied for aid last June. But negotiations became bogged down.

Moscow, with close ties to Nicosia, will also likely extend a 2.5 billion euro loan by five years to 2021 at a lower cost.

"My understanding is that the Russian government is ready to make (such) a contribution," said the EU's top economic official, Olli Rehn.

Cyprus originally estimated it needed 17 billion euros - almost its annual output - to restore its economy to health.
But because a loan of that magnitude would call into question its ability ever to pay it back, policymakers sought more revenue sources in Cyprus itself.

The Greek units of Cypriot banks were excluded from the deposit levy, Greek finance minister Yiannis Stournaras said.
Cyprus' savers bear brunt of unprecedented bailout | Reuters

Cyprus Targets Its Savers in Bailout Agreement


Submitted by Monetary Metals on 03/18/2013 03:01 -0400

• Bank Run
• Bond
• Creditors
• default
• European Central Bank
• General Motors
• Greece
• Gross Domestic Product
• International Monetary Fund
• Unemployment

After markets closed on Friday, it was announced that Cyprus worked out a deal with the European Central Bank, European Commission, and the International Monetary Fund (“the Troika”). Here is a typical article reporting on the story.

Cyrpus has been in desperate need of a bailout, and was in discussions as early as June last year. They asked for an amount of money roughly equal to their annual GDP (for comparison, this would be about $15 trillion in the US!) The question is how did Cyprus arrive at this end of the road?

The root of the problem is the manufacture of counterfeit credit. Examples of counterfeit credit include Greek government bonds, sold by Greece to finance their social welfare state, Cyprus government bonds, sold by Cyprus to finance their social welfare state, and Cyprus bank debt, including deposits, used to finance the purchase of said Greek and Cyprus government bonds. To a bank, a deposit is a liability and it owns loans and bonds as assets.

As the world now knows, Greece is unable to pay. Greece is now mired in so-called “austerity”, a package-deal of falling government spending, rising tax rates, and no relief from crippling regulations. The result has been falling tax revenues, rising unemployment and social unrest. Holders of Greek government bonds (and Greek bank bonds) have taken losses already and will take more.

I define inflation as an expansion of counterfeit credit. Bond prices may rise for a time, making participants feel richer. But eventually, all debt borrowed without means or intent to repay is defaulted, and this is deflation. Default can come in many forms, and the imposed loss on depositors in Cyprus is no less a default than other forms. Deflation is now imploding in Cyprus.
In the initial proposal, depositors in Cyprus banks are to be stripped of 6.7% of deposits under €100,000 and 9.9% of amounts over that. Electronic bank transfers have been blocked and cash machines have run out of cash. A bank run is the inevitable reaction to the threat of loss of deposits in a bank.

Subsequent to the initial story, news is now coming out that the Cyprus parliament has postponed the decision and may in fact not be able to reach agreement. They may tinker with the percentages, to penalize smaller savers less (and larger savers more). However, the damage is already done. They have hit their savers with a grievous blow, and this will do irreparable harm to trust and confidence.

As well it should! In more civilized times, there was a long established precedent regarding the capital structure of a bank. Equity holders incur the first losses as they own the upside profits and capital gains. Next come unsecured creditors who are paid a higher interest rate, followed by secured bondholders who are paid a lower interest rate. Depositors are paid the lowest interest rate of all, but are assured to be made whole, even if it means every other class in the capital structure is utterly wiped out.

As caveat to the following paragraph, I acknowledge that I have not read anything definitive yet regarding bondholders. I present my assumptions (which I think are likely correct).

As with the bankruptcy of General Motors in the US, it looks like the rule of law and common sense has been recklessly set aside. The fruit from planting these bitter seeds will be harvested for many years hence. As with GM, political expediency drives pragmatic and ill-considered actions. In Cyprus, bondholders include politically connected banks and sovereign governments.

Bureaucrats decided it would be acceptable to use depositors like sacrificial lambs. The only debate at the moment seems to be how to apportion the damage amongst “rich” and “non-rich” depositors.

In Part II (free registration required) we discuss the likely impact to the markets outside Cyprus, such as the euro, the dollar, gold and silver, and the US stock market.

Cyprus Targets Its Savers in Bailout Agreement | Zero Hedge