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Monday, March 25, 2013

Cyprus: bank heist round 2

This time, sans the Cypriot parliament as EU plays its usual card of asserting "if you jokers can't vote the way we tell you, we'll just declare that voting is unnecessary":
So having learned that Parliament would not approve a deposit levy in the name of a "tax", and that the government was deeply opposed to forcing citizens and other depositors in its banks to bear losses without the bondholders being wiped out first as one would expect in the capital structure, Germany, the ECB and rest of the EuroThieves did something innovative.

They simply ignored Parliament and came up with a scheme that didn't require a vote. We'll see how this works out for them.

This, incidentally, is exactly what happened here with GM.  It was blatantly unlawful to protect the UAW's pension fund, which had no senior standing while trashing senior bondholders.  The government did not care and did it anyway -- and the courts permitted it.

This has been the repeated means by which you are stolen from.  When you enter into an investment, whether you make a deposit in a bank or buy a bond or something else, you are buying into a capital structure in a given place with a given and declared level of both risk and potential reward.  You price that risk and your willingness to enter into the transaction with the full understanding of where you are in that capital structure.

When that is unilaterally changed retroactively you are being stolen from. 

Period.
One can't help but notice this is an even worse deal for the Russians than the one that had them announcing their new permanent Mediterranean fleet, and it doesn't have the support of either the Cypriot people or their parliament. I wouldn't get too excited and start going long the euro; contra the financial spin this situation is far from resolved.

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63 Comments:

Anonymous Anonymous March 25, 2013 5:36 AM  

Of course we all knew this was going to be the end result. How could it not be? They push for democracy when that can be a shield for them and grant them legitimacy, and push responsibility when democracy won't give them what they want. The U.S. does the same thing.

Anonymous cannibal_animal March 25, 2013 5:36 AM  

Sorry, cannibal_animal above as first comment.

Anonymous TheExpat March 25, 2013 5:47 AM  

One thing I have watched as the Cyprus situation continues to evolve is that there are sure a lot of calls for tax evad- *ahem* avoid- *ahem* patriotic citizens to bring their overseas money back home, or at least move it to a more, ah... respectable location.

Anonymous zen0 March 25, 2013 5:47 AM  

It has been interesting to watch people scramble to find money that works, consider the Great 'Flation Debate.

On Cyprus, supplies of energy (gas) and food increasingly needed to be paid for in cash because the supplier's don't trust anyone's credit, and cash became harder to find because of the limitations on withdrawals.

People have been saying for years to keep 3 months worth of cash on hand, and now we see why.

A bird in the hand is worth 2 in the bush, or in this case, money in one's possession is worth something, and money in the bank is useless.

An interesting test case on how things will play out.

Anonymous zen0 March 25, 2013 5:50 AM  

....."considerING" the Great 'Flation Debate....

Anonymous jack March 25, 2013 5:54 AM  

It may be time to go long the Russian armaments industry. Especially the part that builds those large and nasty ship cannon shells.

I'm really getting a bit tired of eating popcorn. But, what the hey, you cannot keep watching 'The Bible' on History channel all the time waiting for the devil to make another appearance to get your laughter button pressed as you observe what the cg folk have done this time to alter the facial appearance of said devil. Will the devil look like Obama again or be morphed into something like Representative Cruz?

Anonymous Outlaw X March 25, 2013 6:21 AM  

Personaly I am waiting for the hangings. Peoplr have figurrd out it is the bankers Ask Musolini about this. His gost will tell the story.

Android reply.

Anonymous daddynichol March 25, 2013 7:08 AM  

Maybe the folks in Mexico are setting the example on how to deal with those pesky punishment issues.

Blogger JCclimber March 25, 2013 7:25 AM  

Who says it's worse for the Russians? I expect that Putin is not-so-secretly rubbing his hands in glee as he moves his chess pieces around to get primary options on that huge bounty of gas sitting in Cyprus territorial waters.

It is also interesting how the capital is still flowing out of Cyprus at double the rate it was last week. The bansters are getting their own money out ahead of time, despite the capital controls.

What I don't understand is why non-christians who have no real moral prohibition against killing aren't taking bankster family members out into the countryside to have a little "chat".

Anonymous trk March 25, 2013 7:40 AM  

damn it feels good to be banksta

Anonymous zen0 March 25, 2013 7:41 AM  

ZH reports :

The operation will involve losses being inflicted on the (few) junior and senior bank bondholders of the two institutions and, more crucially, on deposits above the EUR 100K threshold (a communiqué by the Eurogroup talks about a deposit-to-equity conversion, but no details are provided) .

Step 1 was splitting the banks into "good" and "bad" banks. Deposit to equity conversion of the uninsured deposits would be step 2 in imitating the Irish Solution. If they recapitalize the "bad" bank with Government guaranteed bonds based on bulltwaddle projections of future oil and gas revenues we got step 3.

If this is what they do it could be the standard procedure for these types of resolutions going forward.

Blogger Nate March 25, 2013 7:51 AM  

Well... At least questions 1 and 2 have been answered for me.

Full disclosure.. in my initial draft I did make a prediction to how this would work out... and this is not it.

I predicted "Sometime Monday the euro-central bankers will work out some scheme that obfuscates the fact that they just printed the money."

Now... so far only one famously anti-putin individual has been found dead in a bathtub. After a few more perhaps the printing will begin.

Anonymous anon123 March 25, 2013 8:00 AM  

That sure is a pretty little Mediterranean Fleet you have there Mr. Putin. It'd be a shame if something were to happen to it.

Anonymous Cinco March 25, 2013 8:03 AM  

For the record, if you go to the original thread on this I said, 'this will turn into vote until you get it right.'

I was wrong. Clearly voting doesn't matter anymore in the EU.

Anonymous zen0 March 25, 2013 8:05 AM  

I predicted "Sometime Monday the euro-central bankers will work out some scheme that obfuscates the fact that they just printed the money."

If they do it like the Irish solution, they are, but not until step 3, at least according to the article I read.

Blogger Tank March 25, 2013 8:47 AM  

Woke up this morning to the "business" girl on the radio saying "no worries" the Cypres problem was solved and market futures were up.

I thought, Uh Oh.

Anonymous Outlaw X March 25, 2013 8:51 AM  

Vox. This is getting scary too me. Maybe I am dumb, but these people seem to have gone full retard (Uh, I mean mentally challenged).

Anonymous E. PERLINE March 25, 2013 8:53 AM  

Why does Germany need these losers? Their industry is the only one that is viable in Europe. If I were the chancellor I would deal in marks only and drop the international bankers dream of one currency for all.

Then again, can you name good decision a German government has made since the early 1900s?

Anonymous dh March 25, 2013 9:04 AM  

Why does Germany need these losers? Their industry is the only one that is viable in Europe. If I were the chancellor I would deal in marks only and drop the international bankers dream of one currency for all.

Who do you think is buying all those German products? Germany is not hands clean in this problem. They have a lot riding on client states using a currency that puts Germany industriousness on a pedestal.

Anonymous Outlaw X March 25, 2013 9:16 AM  

Then again, can you name good decision a German government has made since the early 1900s?

The American an English bankers funded Hitler even while we were at war. J Edgar Hoover had to stop certian American bankers (Not going to name names that gets you in trouble).

The history of the world has been decided by bankers for the most part and I don't see it changing anytime soon. Know the enemy, and it is not the German government or the German people. Look up The McCormack-Dickstein Committee.

Blogger Nate March 25, 2013 9:45 AM  

"Why does Germany need these losers? "

Germany wants to control europe... and it pretty much does now. Unfortunately it needs Russia right now for the ruskie natural gas. Cyprus is sitting on something like 60 trillion tons of natural gas... meaning the dependence on Russia disappears.

so NOW do you see why they need these losers?

Anonymous Clay March 25, 2013 10:01 AM  

I understand that Russia has many more trillions of untapped cubic feet of gas. (mostly in Siberia)


BUT, having access to trillions in the middle of the Med will be a big plus for them. Logistics, Logistics, Logistics.

Probabally why China is so hot to gain fill control of those little spits of islands, too.

Anonymous George Bailey March 25, 2013 10:02 AM  

Merry Christmas, Mr. Potter!

Blogger Nate March 25, 2013 10:14 AM  

Russia doesn't need the gas. it needs control of the gas so it can force Europe to come to it for its energy needs.

Anonymous RedJack March 25, 2013 10:19 AM  

Dh,
So Germany got what it always wanted, and now is stuck. Kind of link China and the US.

If you owe me $10,000, you have a problem. If you owe me $10 billion, I have a problem.

Anonymous Clay March 25, 2013 11:00 AM  

@ Nate

Russia doesn't need the gas. it needs control of the gas so it can force Europe to come to it for its energy needs.

Sometimes, I tend to ramble a bit. But yes, having control of a huge gas/oilfield smack in the middle of the Med (almost), would be an enormous coup for the Russian Bear.

Anonymous ......zen0...... March 25, 2013 11:02 AM  

"People" are dropping Euro to buy Rubles....Euro getting hammered against USD.....Markets plunging...Wheeeeee!......

Anonymous zen0 March 25, 2013 11:05 AM  

But yes, having control of a huge gas/oilfield smack in the middle of the Med (almost),

This is why Israel and Turkey just had make-up sex. They have to deal with another player now.

Anonymous John Regan March 25, 2013 11:12 AM  

I don't think taking bank deposits, on the one hand, and favoring a pension fund over bondholders in a bankruptcy proceeding on the other are comparable. The former is much more like outright theft, arguably IS outright theft.

The latter, while I agree has problems, is more akin to something bankruptcy courts do every day: determining who gets what out of a pie that isn't beig enough.

Important to note that putting money in a bank is lending it to them. You become the bank's creditor for the amount of the deposit. In other words, the deposit is a contractual right, not a property right.

Blurring the line between contracts and property is not a good thing. At least I don't think so. You can read a few of my thoughts here if you're interested.

http://strikelawyer.wordpress.com/2012/02/27/contracts-and-property/

http://strikelawyer.wordpress.com/2012/04/28/property-contracts/

The comments after the second post are a little deeper, if you're into depth.

Blogger Nate March 25, 2013 11:13 AM  

the euro is seriously crapping itself....

Anonymous Stilicho March 25, 2013 11:36 AM  

I don't think taking bank deposits, on the one hand, and favoring a pension fund over bondholders in a bankruptcy proceeding on the other are comparable. The former is much more like outright theft, arguably IS outright theft.

Bankruptcy law sets clear priorities for creditors: specifically which creditors get first crack at which assets. This provides the legal foundation for the credit structure and how various interests (secured creditors/bondholders, unsecured creditors, and equity owners, etc.) are protected. With this type of structure, secured debt can pay significantly less interest than unsecured and so forth. Ignoring the law and capital structure in order to extra-legally favor a politically connected unsecured creditor (pension fund) over secured creditors fundamentally changes the rules of the game and amounts to an outright theft (gov't literally stole a valuable financial interest and gave it to a favored party). Secured credit costs companies more and creditors are on notice that the law no longer protects their interests against someone with better political connections. Money that would have been available to finance production is now being channeled to lobbyists and politicians. While the mechanism may be different, theft is still theft.

Anonymous John Regan March 25, 2013 11:55 AM  

@Stilicho:

Bankruptcy courts are courts of equity and do not have to follow the law to the letter, though they should have good reasons for any departure. I am not defending the specific decision that was made in the GM matter, it may have been very unjust and unwarranted. I don't know enough about it.

But 'theft' is a loaded term and should be reserved for situations that are more clear. That's my point. If every screw job engineered by the government or favored litigants with the cooperation of the courts were a 'theft', the whole apparatus would literally be nothing more than a criminal enterprise. Which I know a lot of people think it is, but...

In any case while this may be splitting hairs I would not object to the word "cheating". If they flout the law to favor one party over another that is definitely cheating.

Blogger James Dixon March 25, 2013 12:11 PM  

> ...though they should have good reasons for any departure.

Because the government wants us to is not a good reason.

> ...it may have been very unjust and unwarranted.

It was.

> But 'theft' is a loaded term and should be reserved for situations that are more clear.

There's nothing unclear about this. It was pure political favoritism on the part of the government and courts, overturning long legal standing. Theft is a perfectly appropriate term.

Anonymous Stilicho March 25, 2013 1:09 PM  

Bankruptcy courts are courts of equity and do not have to follow the law to the letter

The distinction between law and equity has become so blurred that it is nearly meaningless in the American court system. Additionally, creditors' statutory priority is not an equitable matter. Bankruptcy courts have no discretion in whether they follow the statutory bankruptcy code. In the GM case, hairsplitting notwithstanding, they simply ignored the law.

Anonymous Full Fledged Fiasco March 25, 2013 1:12 PM  

Cyprus and the Mafia.

Anonymous Porky March 25, 2013 1:18 PM  

Now... so far only one famously anti-putin individual has been found dead in a bathtub.

Ha! They've been trying to 86 that dude since the early 90's.

He was a big fish, though.

Anonymous Outlaw X March 25, 2013 1:33 PM  

I smell death and dead politicians in Cyprus.

Anonymous Sigyn March 25, 2013 1:39 PM  

theft

n. the generic term for all crimes in which a person intentionally and fraudulently takes personal property of another without permission or consent and with the intent to convert it to the taker's use (including potential sale).


From here. Not as authoritative as Black's, but it'll do to be getting on with.

Findlaw has this:

theft n
[Old English thiefth]
: larceny
;broadly
: a criminal taking of the property or services of another without consent (NOTE: Theft commonly encompasses by statute a variety of forms of stealing formerly treated as distinct crimes.)


Either way you slice it, Mr. Regan, this business is large-scale theft.

Anonymous Anonagain March 25, 2013 1:43 PM  

The EU's new motto: We don need no steenkin' votes.

Anonymous Outlaw X March 25, 2013 1:44 PM  

Look folks, I recommened the area between Pampa, TX And Liberal, KS for a reason as the banks take peoples money. You are away from the population if they do a bio attack, you are away from the nuclear plants and you will be away from liberals. They can take your money so go with precious metals and get the hell off the coast.

I wouldn't say this If I had not the dream. Of course I see Spain losing all their money in bank runs. I also see Italy losing theirs as well. I may be FOS, but what difference does it make? It is time to move war is coming.

Anonymous Porky March 25, 2013 1:49 PM  

I wouldn't say this If I had not the dream.

What dream?

Anonymous Outlaw X March 25, 2013 1:53 PM  

My dream Porky, I saw it all. If you don't believe in such things then ignore me. Read Joel.

Anonymous Porky March 25, 2013 2:06 PM  

Was just curious about your dream, though it is none of my business.

Anonymous John Regan March 25, 2013 2:18 PM  

@James & Stilicho:

I'm not disagreeing that these results were wrongful, and even unlawful. But traditionally 'theft' is a term that refers to a crime against property. In that sense, even the levy against bank accounts couldn't really qualify as 'theft' because the bank accounts are not the property of the depositors, but rather contractual rights of depositors against the bank.

There is a lot of talk and some laws about "theft of services" which of course by the very expression implies that the term theft has been broadened or augmented to apply to something that is not property.

I'm only coming back to this because the distinction between property and contract has historically been legally important, and let's just say that confusing the issue has not in general inured to benefit of regular folks.

Even in the case of seizing bank accounts, while it certainly feels like theft, technically it isn't.

Now, the US government taking everyone's gold in 1933, well...

Anonymous sprach von Teufelshunden March 25, 2013 2:55 PM  

Vox, I don't know why you continue to use Denninger. Simon Black and Tim Price are much, much better at the craft:

Like Lehman Brothers before it, Cyprus may well come to be seen not so much as the cause of further crisis but as yet another symptom of the 'long emergency' that continues to suffocate the western economies.

We would describe this emergency as, fundamentally, an inevitable crisis triggered by an unsustainable explosion of credit; western banks and western governments are now like Macbeth's "...two spent swimmers, that do cling together / And choke their art."

The prime minister of Luxembourg, Jean-Claude Juncker, has provided two clear insights into this world of deceit:

"We all know what to do, we just don't know how to get re-elected after we have done it."

And,

"When it becomes serious, you have to lie."

This is what we now have by way of government: a self-serving elite who cannot be trusted, operating to a timetable defined by, and limited to, the electoral cycle.

This liberty deficit is possibly more severely damaging than the supposedly intractable fiscal one that lies beneath it. Yet whatever emerges from the disaster, Cyprus has reminded us of a couple of awkward truths:

1) A deposit in a bank is not a riskless form of saving.

We may not see eye to eye with the FT's Martin Wolf on many aspects of modern economics and central banking in particular, but he described banks well last week:

"Banks are not vaults. They are thinly capitalised asset managers that make a promise-- to return depositors' money on demand and at par-- that cannot always be kept without the assistance of a solvent state."

2) When states become insolvent, the piper must ultimately be paid. Fatal, embarrassing insolvency is not a problem that can be perpetually or painlessly deferred.

Cyprus matters not because of the size of its economy or because it is (for the time being) a member of the euro zone.

It matters because the inept handling of its crisis last week threw one facet of modern banking into sharp relief: if a deposit guarantee is seen to be fraudulent or sufficiently fragile to be easily smashed by politicians, then confidence in banks, and in unbacked paper currency itself, will be vulnerable to an unpredictable run.

CLSA strategist and financial market historian Russell Napier writes as follows:

"The key impact will be long term as the citizens of the Euro, like the citizens of the Soviet Union or the American colonies before them, eventually reject the sacrifice of political rights necessary to support the system."

"When the history books are written, the Brussels-imposed sequestration in Cyprus will be seen as the tipping point when the citizens of the Euro system realised that the socio-political sacrifice needed to sustain a single currency was just too great."

Actions have consequences. Cyprus may end up being a storm in a teacup. Like Russell Napier, we fear it may well be the start of something altogether more sinister.

If you have yet to consider the sanctity, stability, 'store of value-ness' and true safety of the paper currency you hold within the banking system, now might be a good time to start.

Tim Price


Plus, in referring to these, one has something far more cogent to blog about. Denninger is like the "Rush Limbaugh" or "Alex Jones" of banking and finance. He speaks enough truth about a topic, but does not follow through, to give evidence that he understands the source of that truth.

In other words, he is a bad and/or insufficient parrot. Not to be confused with Timmy Maxwell Keiser. A definite close second. Both of which, know not a single thing about the Austrian School... (even though, they claim to)

Blogger Nate March 25, 2013 3:01 PM  

He's not just a bad and insufficient parrot... he's a bad and insufficient chicken little of a parrot.

Anonymous sprach von Teufelshunden March 25, 2013 3:10 PM  

Need I remind everyone, that we would not be talking about this entire Cypriot fiasco, without discussing JPMorgan Chase, and their runaway hybrid derivatives.

This is most telling of all:

Sources out of the Singapore Exchange are now reporting that the electronic computer algorithms that are used to trade worldwide currency, commodities and securities markets have mutated (gone hybrid) and are unable to convert back from base to base reference the prime numbers 1 and 10.

What this means, folks, is that worldwide banks in Europe and the United States have now become counter parties to each other, which means effectively all of them are broke!


and...

Citibank's margin call due the CME Group has escalated to $6 TRILLION.

Citibank is currently holding undermargined written naked call options tied to energy futures (mainly unleaded gas), along with silver and gold futures contracts traded on the New York Commodity Exchanges (reference COMEX and NYMEX exchanges).


It just keeps getting better, and better...

Anonymous E. PERLINE March 25, 2013 3:26 PM  

I've been trying to find the export numbers for German products. I guess I don't have the patience to keep trying. There are some things I can only picture in my mind.

For instance I don't see any young habitues of French cafes buying a new Volkswagen to traverse the streets with. I don't see the farmers of Eastern Europe buying a German tractor to grow more cabbages with.

Even if they were willing to buy these exotic machines their credit would be bad, no matter what language they use.

Blogger James Dixon March 25, 2013 4:54 PM  

> But traditionally 'theft' is a term that refers to a crime against property.

And while legally the money in the bank isn't yours, we all now that morally it is. Theft is the correct term.

Anonymous Outlaw X March 25, 2013 4:59 PM  

Was just curious about your dream, though it is none of my business.

It has nothing to do with buisness it was a dream Joel 2:28. I saw many things but the most horrifying was the nukes and watching people pull folks out of their palaces and what they did to them. I saw the coasts swallowed by the sea as well.

Anonymous Concerned Rabbit Hunter March 25, 2013 5:10 PM  

It's amazing what you can do to an unarmed population.

Blogger darrin March 25, 2013 5:14 PM  

Good for Russia, Europe drives Cypress into Russia's arms, ensuring Europe's continued dependency on Russia influenced energy.

Merkel and Lagarde could not have done more to disrupt strategic balance in the region if they put a Wal Mart supercenter on the Dome of the Rock and a Corky's BBQ in Mecca...

http://images.energy365dino.co.uk/standard/134123_674a80cde66e44028ca8.jpg and http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Energy_production_and_imports

Anonymous bw March 25, 2013 5:18 PM  

The Russian money is long gone. Too Perfect.

Anonymous Porky March 25, 2013 5:33 PM  

it was a dream...

Wow. Thank God for 2:32.

Anonymous JartStar March 25, 2013 5:45 PM  

The Russian money is long gone. Too Perfect.

That's the rumor I suppose we will find out in a couple of days or weeks if it is true. Then again will the EU bureaucrats want to call out the Russians publicly?

Anonymous Stilicho March 25, 2013 6:12 PM  

And while legally the money in the bank isn't yours, we all now that morally it is. Theft is the correct term.

Splitting this particular hair just means that the theft occurred at the moment of deposit. It really isn't complicated.

Blogger James Dixon March 25, 2013 8:24 PM  

> Splitting this particular hair just means that the theft occurred at the moment of deposit.

And your point is? That doesn't change the nature of what happened.

Anonymous zen0 March 25, 2013 9:00 PM  

It has nothing to do with buisness it was a dream Joel 2:28. I saw many things but the most horrifying was the nukes and watching people pull folks out of their palaces and what they did to them. I saw the coasts swallowed by the sea as well.


I like this version:

Now notice the expression, "Your old men shall dream dreams and your young men shall see visions." We prefer a different translation, which, we believe, gives the intended thought, namely, "Your young men will see the glorious visions (of Restitution, blessings, etc., in process of fulfillment) of which your ancient men dreamed (the things respecting which they vaguely hoped and dimly understood and greatly longed for)."

Anonymous Sigyn March 25, 2013 9:18 PM  

I saw many things but the most horrifying was the nukes and watching people pull folks out of their palaces and what they did to them.

Um, Dread, your dream didn't involve Christian Bale, did it?

Blogger Markku March 25, 2013 9:48 PM  

And I looked, and behold a Bale horse: and his name that sat on him was Christian, and camera followed with him. And power was given to him to rip your fucking lights down, to kick your fucking ass, and to tell you to stay off the fucking set, and to be through with you professionally, even though you are a nice guy.

Anonymous Sigyn March 25, 2013 9:50 PM  

Either I'm tired or that's brilliant.

Anonymous Stilicho March 25, 2013 10:10 PM  

> Splitting this particular hair just means that the theft occurred at the moment of deposit.

And your point is? That doesn't change the nature of what happened.


That is the point. The hairsplitting, even if unknowingly, is being done by John, not you. I should have specified.

Blogger James Dixon March 26, 2013 10:21 AM  

> I should have specified.

Not really. I'm just slow sometimes. :(

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