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Sun Mar 17, 2013, 06:49 PM

 

This Crazy Cyprus Deal Could Screw Up A Lot More Than Cyprus... (Updated)

Occupy Wall Street ‏@OccupyWallStNYC

One way to look at #Cyprus levy: "slam middle-class savers in order to put a smaller levy on Russian oligarchs"
http://www.thedailybeast.com/articles/2013/03/17/after-cyprus-bank-bailout-depositors-race-to-withdraw-their-cash-is-the-rest-of-europe-next.html … #OWS

As you probably already know by now, the banking system of Cyprus has imploded, and Europe has stepped in to provide, not a "bail-out", but a "bail-in": the banks get a capital infusion, but the depositors have to take a haircut, losing between 7-10% of the value of their bank account. That's not exactly what they're calling it, of course; it's a "special bank levy" of 6.75% on accounts up to 100,000 (the limit for deposit insurance) and about 10% on accounts above that limit.

The depositor haircuts seem to have been necessary to get political support for the deal in the EU--and political support in the EU was necessary because Cypriot banks had assets somewhere in the neighborhood of 8 times the Gross Domestic Product of Cyprus. And just to bring it full circle, the banking system had grown to such grotesque, hypertrophied proportions because Cypriot bank accounts seem to be a favorite of tax-dodging Russian oligarchs . . . which is why it was politically necessary to give depositors such a large haircut.

From a technical, economic, perspective, however, this looks to be disastrous. If we are not yet having full-scale runs on Cypriot banks, we've at least worked up to a pretty brisk jog. No banking system can survive a bank run; if everyone tries to get their money out at once, even the soundest, most prudently managed bank in the world will fail, because they can't liquidate their loan assets fast enough to keep the cash moving out the door.

The decision to place a levy on insured accounts, in particular, seems extremely foolish. Note that it may have been necessary to prevent a run on the foreign accounts, which by some reports constitute about a third of total deposits. But if violating the deposit guarantees was necessary to implement your "tax the Russians to pay for the bank bailout plan", that should have been a sign that the plan was a bad idea.

(More at the link.)

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Occupy Wall Street ‏@OccupyWallStNYC

Confused about #Cyprus & why you should care? Read this:
http://www.businessinsider.com/cyprus-bailout-risks-europe-bank-runs-2013-3 … #OWS #euro #Euronews

This Crazy Cyprus Deal Could Screw Up A Lot More Than Cyprus...


Cyprus's banks, like many banks in Europe, are bankrupt.

Cyprus went to the Eurozone to get a bailout, the same way Ireland, Greece, and other European countries have.

The Eurozone powers-that-be gave Cyprus a bailout — but with a startling condition that has never before been imposed on any major banking system since the start of the global financial crisis in 2008.

The Eurozone powers-that-be (mainly, Germany) insisted that the depositors in Cyprus's banks pay part of the tab.

(More at the link.)

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Cyprus: For Everyone Shocked By What Just Happened... And Why This Is Just The Beginning

OccupyPhoenix ‏@occupyphoenix

“@zerohedge: For Everyone Shocked By What Just Happened... And Why This Is Just The Beginning
http://www.zerohedge.com/news/2013-03-16/everyone-shocked-what-just-happened-and-why-just-beginning …”


Today, lots of people woke up in shock and horror to what happened in Cyprus: a forced capital reallocation mandated by political elites under the guise of an "equity investment" in insolvent banks, which is really code for a "coercive, mandatory wealth tax." If less concerned about political correctness, one could say that what just happened was daylight robbery from savers to banks and the status quo. These same people may be even more shocked to learn that today's Cypriot "resolution" is merely the first of many such coercive interventions into personal wealth, first in Europe, and then everywhere else.

For the benefit of those people, we wish to point them to our article from September 2011, "The "Muddle Through" Has Failed: BCG Says "There May Be Only Painful Ways Out Of The Crisis", which predicted and explained all of this and much more. What else did the September BCG study conclude? Simply that such mandatory, coercive wealth tax is merely the beginning for a world in which there was some $21 trillion in excess debt as of 2009, a number which has since ballooned to over $30 trillion. And with inflation woefully late in appearing and "inflating away" said debt overhang, Europe first is finally moving to Plan B, and is using Cyrprus as its Guniea Pig.

For those who missed it the first time, here it is again. Somehow we think many more people will listen this time around:

Restructuring the debt overhang in the euro zone would require financing and would be a daunting task. In order to finance controlled restructuring, politicians could well conclude that it was necessary to tax the existing wealth of the private sector. Many politicians would see taxing financial assets as the fairest way of resolving the problem. Taxing existing financial assets would acknowledge one fact: these investments are not as valuable as their owners think, as the debtors (governments, households, and corporations) will be unable to meet their commitments. Exhibit 3 shows the one-time tax on financial assets required to provide the necessary funds for an orderly restructuring.


(More at the link.)

13 replies, 1633 views

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Arrow 13 replies Author Time Post
Reply This Crazy Cyprus Deal Could Screw Up A Lot More Than Cyprus... (Updated) (Original post)
Fire Walk With Me Mar 2013 OP
dkf Mar 2013 #1
dipsydoodle Mar 2013 #3
dkf Mar 2013 #6
Walk away Mar 2013 #2
dipsydoodle Mar 2013 #4
dixiegrrrrl Mar 2013 #5
Fire Walk With Me Mar 2013 #8
Ghost Dog Mar 2013 #9
dipsydoodle Mar 2013 #10
loudsue Mar 2013 #7
dipsydoodle Mar 2013 #11
sabrina 1 Mar 2013 #12
Mojorabbit Mar 2013 #13

Response to Fire Walk With Me (Original post)

Sun Mar 17, 2013, 07:09 PM

1. Can the Cyprus banking system survive a Russian exit?

 

That is the other consideration.

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Response to dkf (Reply #1)

Sun Mar 17, 2013, 07:28 PM

3. I doubt a Russian exit would occur

To them its pretty much just the downside to the interest rates they've enjoyed there. They might not have anywhere to move it to. It would damage them more if banks folded completely - they've not got the EU guarantee for member states on the first 100,000 euros. That guarantee covers the inability of banks to pay - not the tax which is the subject here.

Northern Cyprus, the Turkish sector, seems to be pretty much unaffected by this other than where the population may be holding euro accounts in the south - Turkish sector doesn't officially use the euro although its probably accepted in shops.

If Cyprus doesn't agree to pass the tax as is or reach a compromise for maybe a higher figure above the 100k, a lower figure band below that and nil for the poor I'd say Cyprus will go bankrupt and leave the Euro. If that were to occur the tax mentioned will be viewed as small change in the future when inflation hits home with a new currency - Cypdrachma whatever.

Russia itself is already in there with loans and are quite capable of bailing them out completely - maybe in exchange for a naval base there.

There are many stories in the naked city : the above is just one of them.

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Response to dipsydoodle (Reply #3)

Sun Mar 17, 2013, 08:36 PM

6. Apparently they've been considering Latvia.

 

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Response to Fire Walk With Me (Original post)

Sun Mar 17, 2013, 07:15 PM

2. Doesn't all of the hinge on some form of reuntfication? I haven't been keeping up but...

I thought Turkey was trying to get the UN to force the Greek side of Cyprus to basically give it's banking up to Turkey. I am no expert but I was on Cyprus for a while after Turkey invaded and split the country. Here is the latest article I could find.
http://www.hurriyetdailynews.com/cyprus-talks-failing-turkish-side-tells-un.aspx?pageID=238&nid=20300&NewsCatID=338

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Response to Walk away (Reply #2)

Sun Mar 17, 2013, 07:36 PM

4. North Cyprus is recognised only by Turkey - no others.

The UN simply observes the situation and listens to Turkey out of politeness.

In the background to Greece's woes, somewhere back down the road apiece , I reckon they were bribed not to veto Turkey's application for membership in the EU which is still going nowhere anyway.

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Response to Fire Walk With Me (Original post)

Sun Mar 17, 2013, 08:07 PM

5. Depositors are being offered stock in the bankrupt Cyprus banks

in exchange for the money the government wants to steal.

Would YOU trade your money for stock in a bankrupt bank in a bankrupt country??

tomorrow is going to be so very interesting in Euro land.

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Response to dixiegrrrrl (Reply #5)

Sun Mar 17, 2013, 08:59 PM

8. Asia stocks drop most in month on Cyprus deposit tax

 

Bloomberg News ‏@BloombergNews

Asia stocks drop most in month on Cyprus deposit tax | http://bloom.bg/ZLCRxV

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Response to dixiegrrrrl (Reply #5)

Sun Mar 17, 2013, 11:52 PM

9. Cyprus Promises Gas Bonds To Depositors

Cypriots who will have up to 9.9 percent of their bank accounts seized to pay for part of the cost of the country’s bailout from international lenders will get in return bonds from natural gas earnings off the island’s coast as collateral, newly-elected President Nicos Anastasiades promised in a televised address, trying to defuse growing anger ahead of a critical vote by the Parliament whether to back the scheme...

... “In recognition of its obligations, the state will offer to those who will keep their deposits in Cyprus bonds equal to half of their contribution now, linked to the future public revenues from natural gas,” he said, adding that all this is meant to relieve future generations from the consequences of this generation’s mistakes...

/... http://greece.greekreporter.com/2013/03/17/cyprus-promises-gas-bonds-to-depositors/

NICOSIA, March 14 (Reuters) - Cyprus, urgently needing revenues from its newly found natural gas reserves, hopes to begin exports by 2018 and will target sales at fellow European Union members, its energy minister said.

George Lakkotrypis also said gas could be sold in advance or used to help the government, which is now negotiating a multibillion-dollar bailout, to issue new debt on international markets in future.

U.S. company Noble Energy and the Cypriot government announced in 2011 that they had discovered gas deposits of around 7-8 trillion cubic feet (200 billion cubic metres), 40 percent of the EU's annual demand.

Aphrodite, as the gas field is known, has more gas than Cyprus could use in over a century, so the government hopes to boost its revenues through exports to the European Union.

"It is important to us not just economically but also geostrategically," Lakkotrypis told Reuters in an interview, referring to potential exploration partners...

/... http://uk.reuters.com/article/2013/03/14/cyprus-natgas-exports-idUKL6N0C6AG520130314

NICOSIA, Cyprus (AP) February 11, 2013 — A US firm has ceded 30 percent of its rights to a gas field off Cyprus’ south coast to Israel’s Delek and its subsidiary Avner Oil Exploration.

Cypriot Commerce Minister Neoklis Sylikiotis said Monday’s agreement came after the government approved it last week.

No sums were disclosed. The field holds an estimated 5-8 trillion cubic feet (140-230 billion cubic meters) of gas.

Noble and Delek together hold a majority stake in an Israeli offshore gas field that’s more than twice the size of the Cypriot one...

/... http://www.timesofisrael.com/israeli-firm-gains-rights-to-cypriot-gas-field/


http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_15/03/2013_488163

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Response to dixiegrrrrl (Reply #5)

Mon Mar 18, 2013, 06:24 AM

10. See reply #9 below from Ghostdog

now looks to be offshore gas bonds instead on bank shares.

Also :


9.09am GMT
Update: Cyprus rethinks raid on savers

Vladimir Putin's attack on the Cypriot savers' tax (see 8.56am) comes hours before the Cyprus parliament was due to vote on the bailout measures.

But the news this morning that the levy could still be renegotiated to limit the impact on smaller savers has brought some calm.

To recap: the latest proposal would (apparently) see savers with less than €100,000 in the bank lose 3% of their deposits (down from 6.75% originally).

Those with between €100,000 and €500,000 would lose 10%, as before.

But if you've got more than €500,000 in the bank, the Cyprus government would take 15%.

The WSJ, which broke the news this morning, says this would still raise almost €6bn, as originally demanded by eurozone.

http://www.guardian.co.uk/business/2013/mar/18/eurozone-crisis-cyprus-bailout-savers-markets

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Response to Fire Walk With Me (Original post)

Sun Mar 17, 2013, 08:57 PM

7. kickin'

& rec'n

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Response to Fire Walk With Me (Original post)

Mon Mar 18, 2013, 07:29 AM

11. Vote may have been moved to Tuesday

Cyprus bailout: vote 'delayed' as politicians scramble to change savings levy - live

Updates here : http://www.guardian.co.uk/business/2013/mar/18/eurozone-crisis-cyprus-bailout-savers-markets

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Response to Fire Walk With Me (Original post)

Mon Mar 18, 2013, 10:23 AM

12. What would happen if every depositor took their money out of the banks?

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Response to Fire Walk With Me (Original post)

Mon Mar 18, 2013, 11:38 PM

13. K and R nt

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