Cyprus Could Be Taking 40 Percent
Did we say 30 percent? Well, that was then and this is now:
In the €10 billion, or $13 billion, bailout agreement announced Monday, only insured accounts up to €100,000 were protected from taxation to help fund the bailout, with estimates that uninsured depositors with larger accounts could face losses of up to 40 percent.
D’oh!
At least it’s only Cyprus:
Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe’s single currency by propping up failing banks, a senior eurozone official has announced.
D’oh!
The guy has since retracted his statements, so rest easy, Spanish and Italian bank depositors. Your money is safe.
Just remember: the next time they talk about a “haircut,” that thing they’re holding behind their back? Yeah, that’s a set of number one clippers. You’ll get your “haircut” all right. Now hold still.
Thanks to gary gulrud for the second link.
Ding.
Patterico (9c670f) — 3/26/2013 @ 7:29 amAt least one media outlet suggests that the official — who it described as “Merkel’s pawn” — was actually preparing the EU for similar bailouts in Spain and Italy. The key is that this appears to be what Germany wants.
DRJ (a83b8b) — 3/26/2013 @ 7:37 amForgot the link.
DRJ (a83b8b) — 3/26/2013 @ 7:38 amI still think you’re looking at this from a too-critical angle.
While depositors like to think of their deposits as being ‘their’ money which they can always get in full anytime they like, in reality they’re a trading partner of that bank. Their claim is only as good as the underlying finances of the bank. If they make the mistake of loaning money to a bank that blows it chasing high yields, they should suffer (as opposed to having taxpayers have to cover the losses).
Absent this ‘rescue’, depositors could have lost more than 40%. It isn’t that Cyprus is ‘taking’ 40%, it is that depositors are getting as much as 60 cents back on the dollar.
To describe it as you are doing implies that depositors have some god given right to 100 cents on the dollar… and if the bank isn’t able to come up with the money then taxpayers/society/someone else is supposed to. Shouldn’t creditors (which is what depositors are) suffer if they’ve loaned money to someone who for one reason or another can’t pay it back?
steve (369bc6) — 3/26/2013 @ 7:40 amWhat’s 10% or so among friends?
dfbaskwill (ca54bb) — 3/26/2013 @ 7:42 amSteve: I think the point remains that depositors don’t generally believe themselves to be at risk for this kind of loss, and that the sane and rational response for most depositors facing this kind of loss is to withdraw their money.
But: widespread withdrawal of money will cause the system to collapse. Which is bad for *everyone*.
aphrael (c41e1e) — 3/26/2013 @ 7:43 amSteve, Isn’t the problem of money being taken from banks to prop up a bankrupt government? Is the one bank that is being shut down really in that much trouble or are they closing the bank to pillage depositor’s accounts to pay for a bankrupt government?
Tanny O'Haley (4c5a96) — 3/26/2013 @ 7:49 amAphrael: I agree depositors don’t think they’re at risk, but they should. And the system won’t collapse (although some portions will) as when depositors take what remains of their money from bad banks, and realizing that nobody is going to make them whole, they will put it someplace safer.. for example, banks that don’t chase Greek bonds.
steve (369bc6) — 3/26/2013 @ 7:51 amI know about as much about banking and economics as Winnie the Pooh, who is a bear of very little brain.
But I agree that people put money in a bank expecting it to be safe rather than having a big return. Certainly this is true when people have CD’s and savings accounts and such in the US in amounts that are insured.
I don’t know what Cyprus or the Eurozone have that may be like the FDIC (or whatever the organization is now), and whether this new move overrules that, or if there is no such thing.
Whatever the case, I find it hard to imagine people leaving money in places perceived to be at risk, which obviously risks becoming a self-fulfilling prophecy and a crash.
Is there an international equivalent of “Cloward-Piven”?
MD in Philly (3d3f72) — 3/26/2013 @ 7:54 amTanny: The government may be corrupt, but (I believe) it is the bank that is failing. I don’t think the bailout money or deposits are going to the Cypriot government.
steve (369bc6) — 3/26/2013 @ 7:54 amIn most of the western world, the “average” person has been trained for three generations to view bank deposits as essentially safe.
My expectation is that if that belief is shown to be nonsense, the average person isn’t going to distinguish between good banks and bad banks; they’re going to simply not trust banks *at all*. Not forever, but for a good decade at least.
If i’m right, that *will* cause the system to collapse.
aphrael (c41e1e) — 3/26/2013 @ 7:57 am#11, Yes, but, first it will cause the price of gold and silver to skyrocket.
ropelight (75d434) — 3/26/2013 @ 8:04 amsteve,
I thought Cyprus has some form of federally insured deposits up to the approximate equivalent of $100,000. If so, then the issue for smaller depositors is the solvency of the government, not the bank. In this case, the government is insolvent so I agree that one could reasonably argue the depositors should have known this might happen. But I also agree with aphrael that it’s not the banks’ solvency that is the real issue for small depositors. It’s the government’s solvency that is the issue.
DRJ (a83b8b) — 3/26/2013 @ 8:06 amThe Russians (the real target of the exercise) have already pulled a lot of their money from the banks via various back doors. Ya gave ’em too much time.
So, now you’ve seriously pissed off some very unpleasant and powerful folks, and have squat to show for it.
Congratulations.
mojo (8096f2) — 3/26/2013 @ 8:18 amPerhaps a sufficient quantity of funds were removed between the proposal and the freezing of transfers that to get the required amount, 40% (rather than 30%) of the funds then available will be required.
htom (412a17) — 3/26/2013 @ 8:45 amPointing out the obvious here: if you put your money in a bank, you’re not an equity partner in that bank – i.e. you do not get any part of the billion-dollar profits that a bank may make. There is often no “reward” for keeping your money in a bank (except preventing theft, or a measly sub-inflation interest rate), so it’s kind of hard to say that depositors are knowingly taking risks, or are taking risk.
bridget (55e4a2) — 3/26/2013 @ 9:01 amNo, you’re not an equity partner, but anytime you give your money to someone else (a bank, a friend, your spouse) you’re taking a risk that they may not pay you back… and I don’t want you looking at me to come up with money to make you whole.
steve (369bc6) — 3/26/2013 @ 9:05 amThe government of Cyprus is a majority owner in at least one of the 2 banks. So when that bank is bankrupt, the money comes from the government.
The 100,000 euro (129k US) deposit insurance is an EU requirement and comes from the government of the country in question. Cyprus is already bankrupt and has to borrow money to come up with that.
So will ye or nill ye, the money is coming from the government of Cyprus to bolster this failed bank.
I too have read that the big russian mobster types have already gotten their money out through the satellite banks that stayed open, but that confuses me. If the bank has no liquidity, it has no money, how are they getting money out?
Doesn’t the guy at the computer at the branch bank try to transfer the funds and get an ‘insufficient funds’ error? Normally, banks auto-lend one another micro-amounts to cover this kind of thing but isn’t that turned off right now?
luagha (5cbe06) — 3/26/2013 @ 10:33 amDidn’t a rich expat russian just end up dead? (by “Suicide”)
MD in Philly (3d3f72) — 3/26/2013 @ 10:45 amIn scanning many articles yesterday, I came upon one that said that the Cyprus banks had London and Russian branches that were not closed for business during the recent hiatus, which agrees with #14 and #18. It will be interesting to see if the banks still have $30B in Russian deposits. My guess is that much of this money now resides in non-Euro banks. Which leaves the non-mobile big depositors to take the fall. If the Russian accounts have been swept, then 40% may be too little to cover the Cyprus losses. I do think it would be best if this liquidation went thru the courts as this would perhaps provide a little more visibility. It would also provide some acknowledgement of the rule of law. Granting more and more power to Brussels will prove to be a big mistake, even if it promises to expedite the transition and thus reduce the amount of negative publicity. Which, of course, is all that the political class is concerned with. This will all be forgotten in a few weeks, right?
bobathome (c0c2b5) — 3/26/2013 @ 11:51 amUnrelated?
SPQR (768505) — 3/26/2013 @ 12:39 pmIt’s now impossible to distinguish between good and bad banks.
Moral hazard has been baked into the cake for quite a while. The housing bubble was caused because banks were beaten with the stick of “red lining lawsuits” if they didn’t make loans to unqualified borrowers, enticed with the carrot of injections of cash from Fannie Mae and Freddie Mac who’d buy those loans and repackage them in a form that no one could accurately gauge the risk.
Bit always it was implicit that the feds would guarantee the gamble.
Now Dodd-Frank expands that guarantee:
NYT: One Safety Net That Needs to Shrink
In the past, banks that engaged in risky behavior failed. No more. Really, financial institutions that don’t engage in risky government-backed behavior aren’t maximizing the return for their investors, and conservative bankers are getting squeezed out in favor of the John Corzine’s and the London Whales.
The Harvard Law School Forum on Corporate Governance and Financial Regulation: London Whale is the Cost of Too Big to Fail
The Cypriot bailout means we are guaranteed more Cypruses.
Steve57 (be3310) — 3/26/2013 @ 1:02 pmR.I.P. Mildred Manning, last of the Angels of Bataan and Corregidor.
Steve57 (be3310) — 3/26/2013 @ 1:05 pmDRJ wrote:
Actually €100,000, or $128,550. The euro hit a four month low against the dollar today.
My guess is that, in the stronger countries, you’ll see more diversification of accounts, with cash depositors staying below the insurance threshold, and more depositors spreading their accounts among multiple banks. Right now, anything else would be foolish.
Switzerland and the Grand Cayman Islands look good, but don’t be surprised if the Chinese take real advantage of this through banks in Hong Kong.
The financier Dana (3e4784) — 3/26/2013 @ 1:10 pm“so it’s kind of hard to say that depositors are knowingly taking risks, or are taking risk”
bridget – Not necessarily so for a business which has multiple points of exposure to an individual bank. Bank balances, even if only temporary, can approach a significant percentage of a depositary institution’s equity and many corporations establish limits by individual bank of maximum deposit or total risk exposure.
daleyrocks (bf33e9) — 3/26/2013 @ 2:14 pmThis is what terrifies me about our skyrocketing national debt. Obama can “level the field” by seizing assets ostensibly to cover our debts but in reality to make sure on one has more than their fair share…. As often as I hav e heard Dems propose confiscating 401k assets for a “guaranteed government annuity” I wouldn’t at all be surprised if that is not the goal. Plus it wouldn’t affect his voters. They haven’t been working 60 hour work weeks for 30 years to build some sort of comfortable retirement. His voters Are the young, the government workers, union members and dthe extremely wealthy trust fund types, none of whom would be affected by Obama seizing 401K assets. Scary!
TexasMom2012 (cee89f) — 3/26/2013 @ 2:28 pmOMG, the skyrocketing debt will allow Obama to implement his plan for WORLD DOMINATION and DESTRUCTION!!!
Y’all can go back to hiding under your bed and sucking your thumb now, just like your Elders want.
High caliber (b4c0e5) — 3/26/2013 @ 3:33 pmTexasMom2012, Democrat congressmen have not explicitly called for nationalizing 401K/IRA accounts yet. But the idea seems to simmer along underneath the currents in D.C., pop up and get denied in a desultory fashion, and go back to simmering under the surface.
SPQR (768505) — 3/26/2013 @ 4:01 pmPeople need a short course on banking. Buying a CD is a loan to the bank, it has a defined period and interest rate. A demand deposit is NOT a loan, it is money entrusted to the bank to hold in stewardship, the depositor can withdraw any part, or all of it, at any time.
Treating part of demand-deposits as loans is called “fractional reserve banking”, but the accurate term is embezzlement. Governments encourage this practice so that they can profit from it.
See the chapters on fractional reserve banking in Jeses de Soto’s Money, Bank Credit, and Business Cycles
LarryD (3df552) — 3/26/2013 @ 5:17 pmWere the high-caliber clown college tryouts scheduled for today?
Icy (f2b455) — 3/26/2013 @ 6:32 pmSupposedly it’s only 40% of the amount above €100,000; so if you have €110,000 you will only lose €4,000. Could be worse.
Icy (f2b455) — 3/26/2013 @ 6:36 pmhttp://www.politifake.org/the-russi-banks-russia-meltdown-european-union-politics-34770.html
The Sanity Inspector (97014d) — 3/26/2013 @ 6:52 pmAre they really saving Cyprus? Are they saving the Euro? Why not let it fall?
Anyone?
AZ Bob (c11d35) — 3/26/2013 @ 7:17 pmThe ruling class is very reluctant to warn ahead of time when it develops designs on the wealth of those they rule. What happened in Cyprus is typical of how these thefts go down.
They make the announcement after the banks are closed. (Anyone care to bet that Cypriot officials negotiating with the EU wired their money into German banks before giving everyone else the bad news?)
The theft can occur in a variety of ways. As many have pointed out the government steals our savings by printing $85 billion every month. FDR stole everyone’s gold by first calling them “hoarders” and then demanding everyone turn it all in at an artificially low price so he could sell at a profit. Italy levied every account .6% in 1992. Which demonstrates that these levies are not one off occurrences. The governments that engage in them are the kind of governments that must repeat them later.
The Boston Consulting Group produced a study (you’ve got to register to read it) that shows western governments will have to seize 29% of the wealth in private hands. Some countries, such as Ireland, don’t have enough wealth to seize. The Irish government could seize 100% of the wealth in private hands and it would still be in debt.
But they will seize the wealth anyway. Just as all the “rich” will be “asked to contribute” their “fair share” in this country. And by rich I mean anyone with money in the bank. It’s only a matter of time. Which is why I believe people are withdrawing funds from their retirement accounts. I believe more and more people are becoming aware there’s no way our spend, spend, spend government can resist going after such juicy targets.
Steve57 (be3310) — 3/26/2013 @ 7:24 pmNo. The predictable is already occurring.
http://www.zerohedge.com/news/2013-03-24/meanwhile-cash-exodus-cyprus-surges-despite-bank-closures
Steve57 (be3310) — 3/26/2013 @ 7:27 pmOT: http://hosted.ap.org/dynamic/stories/U/US_HEALTH_OVERHAUL_COSTS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2013-03-26-19-30-16
Rodney King's Spirit (951136) — 3/26/2013 @ 8:24 pmI remember (in the ’50s) of hearing about those who lived through the bank failures of the Great Depression having multiple savings accounts, none of which were over the FDIC insured limit. They are starting to look prescient.
roy in nipomo (160066) — 3/26/2013 @ 9:27 pmThis is an opportunity for Turkey, in financial extremis, to start a nationalist distraction.
The Turkish minority in Cyprus will be hollering anyway, and contra Greeks is a favorite complaint.
Look for invasion in weeks.
gary gulrud (dd7d4e) — 3/27/2013 @ 12:21 amI thin it was the Col. who said on a related thread the Bernank has already relieved us of our 40%:
http://directorblue.blogspot.com/2013/03/the-inflation-genie-every-nation-is.html
gary gulrud (dd7d4e) — 3/27/2013 @ 6:52 amSomeone once said to me that there are three piles of money that the government would love to get its hands on:
1. 401(k)s;
2. College endowments; and
3. The assets of insurance companies.
(Many insurance companies invest premiums in addition to managing risk. So basically, they take your premiums now, invest them, pay out a certain amount later, and make a pile of money.)
Does modern government policy all make more sense now, TexasMom2012?
bridget (55e4a2) — 3/27/2013 @ 9:56 amTo answer my own question at 18:
The banks haven’t been called ‘bankrupt.’ They are still being provided emergency liquidity by various EU banks.
Under the emergency liquidity rules, humanitarian aid payments and ‘certain special payments’ can still go out of the bank even though there’s a halt.
So anyone with pull can still sneak their money out of the Cypress banks. Which means any favored clients at those Russian bank branches that are still open just ask the clerk to click the special box that says, “This is a special payment!” and say ‘Yes’ when it asks ‘Are you sure?’
So while they issued a ‘hold’ on the bank their ‘hold’ is full of holds. Only a bankruptcy could have saved them but that means the avalanche has begun and it is too late for the pebbles to vote.
luagha (5cbe06) — 3/27/2013 @ 9:56 am‘hold’ is full of holes, sorry
luagha (5cbe06) — 3/27/2013 @ 9:58 amgary, Turkey still occupies a part of Cyprus. “Illegally” but no one ever mentions this, just Israel.
SPQR (768505) — 3/27/2013 @ 10:30 am43. Oh, the tangled web
gary gulrud (dd7d4e) — 3/28/2013 @ 7:04 amForgot the link, surprise!
http://legalinsurrection.com/2013/03/cypriot-banks-see-first-ripples-of-bailout-tsunami/
Global Meltageddon on pace for lucky ’13.
gary gulrud (dd7d4e) — 3/28/2013 @ 7:06 amNothing but bad economic news today.
U3 up, PMI down, EU suck.
gary gulrud (dd7d4e) — 3/28/2013 @ 9:54 amForgot the link, surprise!
The many links you’ve posted through the months that pertain to reports on economic matters are often quite interesting to me and much appreciated.
Mark (c480bd) — 3/28/2013 @ 10:05 am47. Thanks, oh, and Q4 GDP revised upward from 0.1% to 0.4. Unadjusted for real inflation, no doubt.
gary gulrud (dd7d4e) — 3/28/2013 @ 10:24 amThere is an Eddie Murphy movie where they tell the bride she gets 50 percent in a divorce. I love the way she said “50 percent.” Can’t find the youtube.
I’m glad that my secret money is in British Pounds.
carlitos (49ef9f) — 3/28/2013 @ 12:01 pmFifty, Eddie. Fifty!
JD (3cbfc7) — 3/28/2013 @ 12:09 pmEddie Murphy “Raw” is on Netflix instant. What a throwback that was; we pissed ourselves laughing. But now Netflix wants me to watch DL Hughley or something.
carlitos (49ef9f) — 3/28/2013 @ 12:18 pmdidnt trump also back when he was thinking about running against BUSH didnt he also muse about seizing this very same amount?though From Americans
EPWJ (6140f6) — 3/28/2013 @ 12:18 pmThe clown that is the Donald.
carlitos (49ef9f) — 3/28/2013 @ 12:24 pmSo yeah, EPJW, for definitions of “very same amount” that mean 14 = 40.
carlitos (49ef9f) — 3/28/2013 @ 12:25 pmNot that I am a particular fan or critic of the Donald, but at least he proposed it ahead of time and presumably would have it passed as a law through Congress.
And it would be totally inadequate today.
MD in Philly (3d3f72) — 3/28/2013 @ 12:32 pmyes the bravery of more tax rates is breathtaking
EPWJ (6140f6) — 3/28/2013 @ 12:40 pmcarlitos,
propose 14% to tax fattened hyenas -get 40% right?
so my 15 year old memory isnt all that good – but he did propose it didnt he and we worship the guy as some kind of conservative icon
EPWJ (6140f6) — 3/28/2013 @ 12:43 pmYour instincts are correct. The European Union can’t save Cyprus by destroying it. Which is what the EU is doing.
But the EU isn’t so much trying to save the Euro for it’s own sake but to force a superstate upon the member countries. Now that the countries have been locked into a single currency, they need a single government to go with.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9957999/Cyprus-has-finally-killed-myth-that-EMU-is-benign.html
Steve57 (be3310) — 3/28/2013 @ 1:13 pmWe? Donald Trump is a f***ing moron. That this a$$hole can speak at CPAC after his birth certificate nonsense is a cluebat that the conservative train is off of the rails.
carlitos (49ef9f) — 3/28/2013 @ 1:13 pmSteve57 interuppted my ritmo y suave:
We? Donald Trump is a f***ing moron. That this a$$hole can speak at CPAC after his birth certificate nonsense is a cluebat that the conservative train is off of the rails.
carlitos (49ef9f) — 3/28/2013 @ 1:14 pmand we worship the guy as some kind of conservative icon
Speak for yourself. Maybe you praised him in conjunction with Scozzafava.
JD (b63a52) — 3/28/2013 @ 1:23 pmJD
Oh he’s the tea darling flavor of the month
EPWJ (6140f6) — 3/28/2013 @ 1:33 pmJD
Oh he’s the tea darling flavor of the month
No. You said “we”, and you most assuredly do not support the teatards. Everyone with 2 brain cells knows Trump supports Trump, and has no history as a conservative, much to the contrary.
JD (b63a52) — 3/28/2013 @ 1:35 pmJD
didnt every single republican presidential candidate try to seek attention from the donald?
and you are right – that was my point he isnt a conservative – never was
EPWJ (6140f6) — 3/28/2013 @ 1:39 pmYou said “we”. Not he, or they, or them. We. Which includes you, and the community of people you did not identify, but from the markers, referred to the community here.
JD (b63a52) — 3/28/2013 @ 1:50 pmEPJW – what time zone is it on your planet, where “we” support Donald Trump?
carlitos (49ef9f) — 3/28/2013 @ 2:25 pmJD
nope, thats not what I meant. When I say we – I mean the community in general –
Markers?
Now we have markers?
Look fire away I’m heading to Florida have a good easter, enjoy the fam
I apopreciate the loyalty you show your friends
EPWJ (6140f6) — 3/28/2013 @ 2:30 pmNow there’s a big question of when Cyprus might remove their capital controls (restrictions on moving money out of the country, and even between different banks).
So far they are saying this is only for an emergency
Sammy Finkelman (d22d64) — 3/28/2013 @ 3:35 pmJD
nope, thats not what I meant. When I say we – I mean the community in general –
And there is no evidence that this community in general supported Trump
JD (b63a52) — 3/28/2013 @ 3:37 pmCypriot students studying abroad can get more money than others.
Sammy Finkelman (d22d64) — 3/28/2013 @ 3:51 pmComment by LarryD (3df552) — 3/26/2013 @ 5:17 pm
A demand deposit is NOT a loan, it is money entrusted to the bank to hold in stewardship, the depositor can withdraw any part, or all of it, at any time.
It is a loan, but just a loan that can be recalled at any time.
Sammy Finkelman (d22d64) — 3/28/2013 @ 3:53 pmThere is nothing so permanent as a temporary emergency measure.
Steve57 (be3310) — 3/28/2013 @ 4:13 pmWhen you buy wine or liquor in Pennsylvania, you still pay the Johnstown Flood Tax. The last Johnstown flood was in 1936.
carlitos (49ef9f) — 3/28/2013 @ 4:27 pmMake that 60%.
http://usat.ly/10mv1eH
meh (db5dcf) — 3/30/2013 @ 1:50 pm