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In reply to the discussion: STOCK MARKET WATCH -- Thursday, 8 November 2012 [View all]Demeter
(85,373 posts)7. The Bailout Of Russian “Black Money” In Cyprus
http://www.testosteronepit.com/home/2012/11/4/the-bailout-of-russian-black-money-in-cyprus.html
Timing couldnt have been worse. Or more opportune. A secret report by the German version of the CIA, the Bundesnachrichtendienst (BND), bubbled to the surface, asserting that the pending bailout of Cyprus would use the money of taxpayers in other countries, particularly in Germany, to bail out mostly rich Russians who have over the years deposited their black money in Cypriot banks that are now collapsing. Not that the bailout of this tiny speck of land with 840,000 people isnt in enough trouble. Admitted into the Eurozone in 2008, Cyprus veered towards bankruptcy in 2011 but was temporarily bailed out last November by a 2.5 billion loan from Russia. That money didnt last long. In June, it asked the Troika, the austerity gang from the EU, the ECB, and the IMF, for a full-fledged bailout. So Troika inspectors have been combing through the financial rubble to determine a bailout amount and needed structural reforms.
On Thursday, Finance Minister Vassos Shiarly was still optimistic. He hoped that negotiations with the Troika would conclude before the November 12 meeting of Eurozone finance ministers. On Friday, he admitted that a number of issues were still unresolved, including privatization of state-owned enterprises and elimination of Cost of Living Adjustments for wages, both of which have hit a wall of resistance. But then, a Troika report that Reuters obtained in Berlin considered Cyprus latest proposal for structural reforms insufficient and urged the government to cooperate with the Troika. Shocked and appalled, government spokesman Stefanos Stefanou added to the confusion over the weekend by quibbling with the word insufficient and by denying that the government knew anything about that report. Alas, just then, the revelation that a bailout would mostly benefit rich Russians who had their black money stashed away in Cyprus failed banks slapped Germanys taxpayers, whod have to foot a large part of the bill, in the face. The BND report concluded that this black money amounted to 26 billionabout 150% of the countrys GDP. Money that the banks had plowed into Greek sovereign bonds and the housing bubble that came with a nationwide title-deed scandal of phenomenal proportions. And now the banks need at least 10 billion to stay afloat.
The BND report also lambastes Cyprus for creating a fertile ground for money laundering. While some laws have been passed and some institutions have been created to combat money laundering, theyre apparently just decoration; rules are simply not enforced. Money laundering is further facilitated by the ease with which rich Russians can obtain Cypriot nationalityand thus freedom to establish themselves financially anywhere in the EU, which according to the BND, 80 Russian oligarchs have already done. There are over 40,000 mailbox companies in Cyprus. Many have large subsidiaries in Russia, and profits are siphoned off in Cyprus. To accede to the EU in 2004, Cyprus had to clean up its act a bit. But only on the surface. Finance activities strengthened, particularly when Cyprus became part of the Eurozone: at the peak, according to the BND report, financial services and banks accounted for up to 70% of the countrys economy. So much so that Cyprus, in turn, has become the largest foreign investor in Russia.
Taxpayers in other countries, including those in the USvia the US contribution to the IMFwill be asked to step up to the plate to bail out that system. Even tiny Cyprus cannot be allowed to default and exit the Eurozone, and even black money investors from Russia must be bailed out. Otherwise, Cyprus would be the first domino to topple, as the cliché goes, or the second, if Greece were allowed to go first, with mega-consequences that would ultimately take down the entire universe. That logic has been proffered as rationalization for all bailouts. There is never an alternative! But as these bailouts have shown, including those of Wall Street by the Fed and the Treasury, they not only prop up but propagate deeply corrupt systems. For rich Russians, Cyprus, with its 10% corporate income tax, is not only a tax haven; as an EU member, its a safe haven from their own government, something they have learned to appreciate. Cyprus tried to play Russia, and its double-edged anxiety, against the Troika in order to negotiate better bailout terms. But now Russia is letting Cyprus twist in the wind, as banks are in worse condition than imagined, and as bailout amounts jumped once again.
Timing couldnt have been worse. Or more opportune. A secret report by the German version of the CIA, the Bundesnachrichtendienst (BND), bubbled to the surface, asserting that the pending bailout of Cyprus would use the money of taxpayers in other countries, particularly in Germany, to bail out mostly rich Russians who have over the years deposited their black money in Cypriot banks that are now collapsing. Not that the bailout of this tiny speck of land with 840,000 people isnt in enough trouble. Admitted into the Eurozone in 2008, Cyprus veered towards bankruptcy in 2011 but was temporarily bailed out last November by a 2.5 billion loan from Russia. That money didnt last long. In June, it asked the Troika, the austerity gang from the EU, the ECB, and the IMF, for a full-fledged bailout. So Troika inspectors have been combing through the financial rubble to determine a bailout amount and needed structural reforms.
On Thursday, Finance Minister Vassos Shiarly was still optimistic. He hoped that negotiations with the Troika would conclude before the November 12 meeting of Eurozone finance ministers. On Friday, he admitted that a number of issues were still unresolved, including privatization of state-owned enterprises and elimination of Cost of Living Adjustments for wages, both of which have hit a wall of resistance. But then, a Troika report that Reuters obtained in Berlin considered Cyprus latest proposal for structural reforms insufficient and urged the government to cooperate with the Troika. Shocked and appalled, government spokesman Stefanos Stefanou added to the confusion over the weekend by quibbling with the word insufficient and by denying that the government knew anything about that report. Alas, just then, the revelation that a bailout would mostly benefit rich Russians who had their black money stashed away in Cyprus failed banks slapped Germanys taxpayers, whod have to foot a large part of the bill, in the face. The BND report concluded that this black money amounted to 26 billionabout 150% of the countrys GDP. Money that the banks had plowed into Greek sovereign bonds and the housing bubble that came with a nationwide title-deed scandal of phenomenal proportions. And now the banks need at least 10 billion to stay afloat.
The BND report also lambastes Cyprus for creating a fertile ground for money laundering. While some laws have been passed and some institutions have been created to combat money laundering, theyre apparently just decoration; rules are simply not enforced. Money laundering is further facilitated by the ease with which rich Russians can obtain Cypriot nationalityand thus freedom to establish themselves financially anywhere in the EU, which according to the BND, 80 Russian oligarchs have already done. There are over 40,000 mailbox companies in Cyprus. Many have large subsidiaries in Russia, and profits are siphoned off in Cyprus. To accede to the EU in 2004, Cyprus had to clean up its act a bit. But only on the surface. Finance activities strengthened, particularly when Cyprus became part of the Eurozone: at the peak, according to the BND report, financial services and banks accounted for up to 70% of the countrys economy. So much so that Cyprus, in turn, has become the largest foreign investor in Russia.
Taxpayers in other countries, including those in the USvia the US contribution to the IMFwill be asked to step up to the plate to bail out that system. Even tiny Cyprus cannot be allowed to default and exit the Eurozone, and even black money investors from Russia must be bailed out. Otherwise, Cyprus would be the first domino to topple, as the cliché goes, or the second, if Greece were allowed to go first, with mega-consequences that would ultimately take down the entire universe. That logic has been proffered as rationalization for all bailouts. There is never an alternative! But as these bailouts have shown, including those of Wall Street by the Fed and the Treasury, they not only prop up but propagate deeply corrupt systems. For rich Russians, Cyprus, with its 10% corporate income tax, is not only a tax haven; as an EU member, its a safe haven from their own government, something they have learned to appreciate. Cyprus tried to play Russia, and its double-edged anxiety, against the Troika in order to negotiate better bailout terms. But now Russia is letting Cyprus twist in the wind, as banks are in worse condition than imagined, and as bailout amounts jumped once again.
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