Cyprus Targets Its Savers in Bailout Agreement

[FBD]

It begins, the rape of the little people's accounts....directly. And some people think its out of the realm of possibility that they'll declare a nationalization of 401Ks here... [-(

http://www.zerohedge.com/contributed/2013-03-18/cyprus-targets-its-savers-bailout-agreement

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.

[FBD]

For further reading,

http://www.zerohedge.com/news/2013-03-18/all-conditions-total-disaster-are-place


I mean what the hell..."hey, we think it'd be a great idea to create the conditions for bank runs to begin..."

[FBD]

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/Solyndra%20Shares_0.png

Submitted by Mark J. Grant, author of Out of the Box,

Lest We Forget

The main issue is not Cyprus. Cyprus just happens to be the nation where the confiscation is to be enacted. Cyprus is the scapegoat. The European Union, the ECB and the IMF are the villains. Cyprus is the mostly unwilling recipient. What has taken place in Cyprus is far less important than the larger issue which is a forfeiture of private property being demanded by the nations on the Continent and by an international organization headquartered in Washington D.C. That would be in America.


"The leading banker in Amsterdam is now the pastry chef in our kitchen."

-Casablanca

In the case of the Greek default the country was told by the same organizations to retroactively change the covenants of their bond indenture. They did this. In the case of Cyprus, Europe has told this small nation to seize a portion of all of the bank accounts in the country so as to partially fund its debt. In both cases neither Greece nor Cyprus made the decisions; they were made by the European Union and forced upon the host countries by the threat of capital to be provided or not.


(AP) "Jean-Claude Juncker, head of the Eurogroup meeting of Eurozone finance ministers, has vowed that a Greek default was not an option and would be avoided even after Athens' admission that it would miss its deficit-reduction targets raised questions about whether it would receive its next bailout loan."

-October 3, 2011

Right up until the day it happened the President of Cyprus claimed it would never happen. Then, faced with bankruptcy, the fellow folded. I do not take a position here upon his actions, he has been in office for three weeks, but I do take a position upon the tyranny of the governmental bodies in question; they have demanded and forced the forfeiture of private property for their own betterment. I state with authority; if they can do it in Greece and then again in Cyprus they can do it anywhere and under any guise they like. They can wield the army of their pen, of their money, as an effective armament on the battlefield, to change what they like, when they like, all for the good of the State.


"Every collectivist revolution rides in on a Trojan horse of ‘emergency’. It was the tactic of Lenin, Hitler, and Mussolini. In the collectivist sweep over a dozen minor countries of Europe, it was the cry of men striving to get on horseback. And ‘emergency’ became the justification of the subsequent steps. This technique of creating emergency is the greatest achievement that demagoguery attains."

-Herbert Hoover

Deposit Insurance at a bank, any bank in Europe, is now meaningless. A bond indenture, any clause, any paragraph, any promise or assurance; now meaningless. The notion of private property, land, cash, house; now meaningless. The European Union will take what they want as they deem it necessary and the IMF will follow along. The question has been asked, during the last few days, why the bond holders of Cyprus were not tagged along with the bank deposits. I can answer the question. Virtually all of the Cyprus sovereign debt is governed under British law and so the EU did not pursue this course.

I recall the movie, Casablanca, where the Germans stood up to sing their National Anthem and the French responded with the "Marseilles." It is too bad that the French have forgotten how to sing this song but then, apparently, all of the nations in the EU have forgotten how to sing their own songs.

Greece came first. Lesson one and "shame on you." Cyprus comes second and now "shame on me." What will come next? What will you tell your partners or your shareholders when they say, "You should have known." You will have no excuse! The Europeans will take what they want and when they want it and to have money invested there now only has one excuse; masochism. Neither you nor I have any idea of what they might do next. When a government changes an indenture retroactively as a condition of funding and then demands that private property be seized as a condition of funding then this government, the European Union, will stop at nothing, find no boundary or fence, to halt its ambitions.

When Lesson three comes, and it will, I will not be kind. I will say; "I told you so!"

[FBD]

I always said the EU is, was, and always will be, a toxic resurgence of socialism.




Submitted by Mark J. Grant, author of Out of the Box,

I have been watching articles pour forth about Cyprus all weekend. I am almost as aggravated with the majority of them as I am with what took place. People are dancing around the edges while the propaganda machines of Europe are churning out the usual bunk.

Let's get some things straight and look what has happened directly in the face. There was no tax on the bank accounts in Cyprus. There still is no tax; the Cyprus Parliament has not passed it and will not vote on it until tomorrow so whatever action takes place it is retroactive. Next, this was not enacted by Cyprus. The people from Nicosia did not go to the Summit and ask to have the bank accounts in their country minimized to help pay the bills. Far from it; the nations of Europe, Germany, France, the Netherlands and the rest, demanded that this take place, a "fait accompli," the President of Cyprus said and Europe annexes Cyprus. Let's be quite clear; the European Union has confiscated the private property of the citizens in Cyprus without debate, legislation or Parliamentary agreement.

A bank account is not a bond or a stock or any sort of investment. This seems to be lost on many people. A bank account is the private property of a citizen or a corporation and does not belong to the government or at least that was the supposition up until now in Europe.

Next there is deposit insurance in Europe. Every country has its own version but it is there. It guaranteed the bank accounts of citizens up to one hundred thousand Euros. So much for the meaning of any guarantee in Cyprus or any other country in Europe. Null and Void! If the European Union can dismantle deposit insurance in Cyprus they can damn well do it in whatever country they please and at any time.

Here’s the description of the Cypriot government deposit insurance plan:

"Participation in the DPS is compulsory for all banks authorized by the Central Bank of Cyprus, i.e. banks incorporated in the Republic of Cyprus, including their branches in other countries, and the Cyprus branches of foreign banks, incorporated outside the Republic of Cyprus or the Member-States of the European Union. The DPS does not cover deposits of branches of banks established in European Union Member States. These deposits are covered by the corresponding deposit protection scheme established in the country of incorporation.



The DPS is activated in the event a decision is reached that a member bank is unable to repay its deposits, or as a result of a Court’s order for the winding-up of a member bank. Where a bank is unable to pay its deposits, the relevant decision is adopted by the Central Bank of Cyprus or, where a member bank is incorporated in a country outside the Republic of Cyprus, by the competent supervisory authority of the country of incorporation.



The maximum level of compensation, per depositor, per bank, is €100.000."

Please note that until yesterday all depositors in Cypriot banks were insured up to the value of €100,000 with any one bank. Today that solemn governmental promise has been shown for what it is; a lie. Worse and actually far worse and quite scary in fact is that the European Union and the European Central Bank and the IMF has not just allowed violation of the deposit insurance but demanded it. One thing is certain here; if they can void deposit insurance in Cyprus then they can void it in any country in Europe. Further; if they can void deposit insurance then they can void bond covenants with the scratch of a pen on paper. Nothing now; Nothing is safe!

Pay attention please. The European Union and the European Central Bank and the IMF have just advocated the confiscation of private property for their own indulgence. Bank accounts are not bonds or stocks or some other form of investments. It is private property like your house or your car. Germany, France et al came in and said, "We want it and we are taking it and it is necessary for our government." These countries did not demand it, yet, from their own citizens though they might soon but they demanded it from the citizens of Cyprus in exchange for funds. This is not a European Union this is a European Fourth Reich!





"The moment the idea is admitted into society that property is not as sacred as the law of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence."

-John Adams

[PorkChopSandwiches]

Tony Baloney :lol:

[FBD]

I put this up here because this is going to happen again. It might just be your 401k money it happens to.

then again, in some sense, this is already happening, and has been happening...think jp morgan's london whale....who paid for that....you and me...

some good notes from coyoteblog:


Dan Mitchell describes three possible government responses to an impending bank failure:

1-In a free market, it’s easy to understand what happens when a financial institution becomes insolvent. It goes into bankruptcy, wiping out shareholders. The institution is then liquidated and the recovered money is used to partially pay of depositors, bondholders, and other creditors based on the underlying contracts and laws.
2-In a system with government-imposed deposit insurance, taxpayers are on the hook to compensate depositors when the liquidation occurs. This is what is called the “FDIC resolution” approach in the United States.
3-And in a system of cronyism, the government gives taxpayer money directly to the banks, which protects depositors but also bails out the shareholders and bondholders and allows the institutions to continue operating.

I would argue that in fact Cyprus has gone off the board and chosen a fourth option: In addition to bailing out shareholder and bondholders with taxpayer money, it will protect them by giving depositors a haircut as well.

The Cyprus solution is so disturbing because, hearkening back to Obama's auto bailout, it completely upends seniority and distribution of risk on a company balance sheet. Whereas depositors should be the most senior creditors and equity holders the least (so that equity holders take the first loss and depositors take the last), Cyprus has completely reversed this.

One reason that should never be discounted for such behavior is cronyism. In the US auto industry, for example, Steven Rattner and President Obama engineered a screwing of secured creditors in favor of the UAW, which directly supported Obama's election. In Cyprus, I have no doubt that the large banks have deep tendrils into the ruling government.

But it is doubtful that the Cyprus banks have strong influence over, say, Germany, and that is where the bailout and its terms originate. So why is Germany bailing out Cyprus bank owners? Well, there are two reasons, at least.

First, they are worried about a chain reaction that might hurt Germany's banks, which most definitely do have influence over German and EU policy. There is cronyism here, but perhaps once removed.

But even if you were to entirely remove cronyism, Germany and the EU have a second problem: They absolutely rely on the banks to consume their new government debt and continue to finance their deficit spending. Far more than in the US, the EU countries rely on their major banks continuing to leverage up their balance sheets to buy more government debt. The implicit deal here is: You banks expand your balance sheets and buy our debt, and we will shelter you and prevent external shocks from toppling you in your increasingly precarious, over-leveraged position.

Update: Apparently, there is very little equity and bondholder debt on the balance sheets -- its depositor money or nothing. My thoughts: First, the equity and bondholders better be wiped out. If not, this is a travesty. Two, the bank management should be gone -- it is as bad or worse to bail out to protect salaried manager jobs as to protect equity holders. And three, if depositor losses have to be taken, its insane to take insured depositor money ahead of or even in parallel with uninsured deposits.

[Acid Trip]

We know it will happen eventually, it's just a matter of time.

If you want proof talk to someone who had their safe deposit box raided for gold/silver back in the day.

[FBD]

beautifully summed up by a london cabbie (albeit harshly across the board)


http://www.youtube.com/watch?v=YDXtHsz2q6Q

[FBD]

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/03/20130318_hanke_0.png


There are three main take-aways from this chart:

1. European depositors' money began to flow out of Cyprus' banks back in 2010.



2. Indeed, most European depositors have already found the exit door.

3. Over that same period, non-Europeans (read: Russians) have increased their Cypriot exposure.

If the proposed haircut goes through, Russian depositors could lose up
to $3 billion. No wonder Vladimir Putin is up in arms about the bail-in. Perhaps a different "red telephone" from Moscow will be ringing in Brussels soon.

[FBD]

damn, the locals just tore down the german flag on the embassy in cyprus

[Acid Trip]

damn, the locals just tore down the german flag on the embassy in cyprus

This could be a domino for the next world wide depression depending on how people react.

We'll know more in a couple days.

[FBD]

I knew I shoulda bought MOAR PMs!

http://www.zerohedge.com/news/2013-03-19/us-bankers-us-depositors-dont-panic-nothing-see-here




While the crisis in Cyprus is a real concern for depositors in Cypriot’s banks, it has no implication for depositors in U.S. institutions. Depositors in U.S. banks are insured up to $250,000 and no insured depositor has ever lost money in a bank failure. The U.S. banking industry has rapidly returned to health with strong earnings, lower losses and significant increases in capital.



The FDIC insurance fund has over $25 billion in reserves and the banking industry – which bears all the financial costs of supporting the FDIC – pays over $12.3 billion each year to assure adequate funding.



Simply put, U.S. insured depositors are safe and their deposits are protected by a strong FDIC fund, a financially secure banking system and the full faith and credit of the U.S.


So, it seems, the basis for not worrying about US deposits is the rule of law and the deposit insurance? Remind us again what Cypriots thought they had?

[Acid Trip]

I knew I shoulda bought MOAR PMs!

http://www.zerohedge.com/news/2013-03-19/us-bankers-us-depositors-dont-panic-nothing-see-here



So, it seems, the basis for not worrying about US deposits is the rule of law and the deposit insurance? Remind us again what Cypriots thought they had?

The FDIC almost ran out of money in 2008-2009. They had to increase the FDIC insurance fee that banks pay as a result.

The author is either ignoring that fact or they are too uneducated to know it happened.

[FBD]

No, simply consider the source: The American Banking Association. That's kinda like listening to the nat'l assoc of realtors on when's the best time to buy a house. (why, right fucking now, of course!!! :roll: )

http://www.zerohedge.com/news/2013-03-19/us-deposits-perspective-25-billion-insurance-9283-billion-deposits-297514-billion-de

Earlier today, the American Banking Association reminded Americans that there is absolutely nothing to worry about when it comes to the sanctity of US deposits: after all there is a whopping $25 billion in the FDIC insurance fund which means "insured depositors are safe and their deposits are protected by a strong FDIC fund....The FDIC insurance fund has over $25 billion in reserves and the banking industry " Obviously supposedly "insured" depositors in Cyprus also though there was nothing to worry about, until they woke up on Saturday with a haircut between 6.75% and 9.9% on their money in the bank. Sadly, it may be the case that the ABA is being just modestly disingenuous in its statement. Why? Instead of explaining it in detail, here is a snapshot that does more than thousands of words ever could.

Chart drawn to scale.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/Deposits%20vs%20Reserves%20vs%20Derivs.jpg

The $25 billion in touted deposit insurance is supposed to preserve and protect (granted not in their entirety) some $9,283 billion in total US deposits. A far bigger problem, however, is when one considers the "asset" side of the US banks' ledger: remember deposits are unsecured liabilities. And for US banks, sadly, over the counter derivatives represent the vast majority of "off the books" assets. According to the latest OCC quarterly report, the total derivative notional outstanding of the Top 25 holding companies is $297,514 billion, or nearly $300 trillion. In other words there are 32 times more notional derivatives than there are total deposits, while the ratio of gross derivatives to deposit insurance is a concerning 11,900-to-1.

And with that, we hand it back to the ABA to comfort all US depositors that Cyprus could never possibly happen in the US.

Source: OCC, H.8


.27% coverage FTW :lol:

[KevinD]

I dissolved my 401k, CDs, and IRAs several years ago. I only maintain 3 months spending level in my bank account. The rest goes in various places. (Not banks or safe deposits) My only regret is that I didn't further listen to my brother in law and turn that cash into precious metals.

[Acid Trip]

I dissolved my 401k, CDs, and IRAs several years ago. I only maintain 3 months spending level in my bank account. The rest goes in various places. (Not banks or safe deposits) My only regret is that I didn't further listen to my brother in law and turn that cash into precious metals.

If paper currency goes down then all the precious metals in the world won't do you any good. It'll be economic Armageddon and the people with bullets and fuel will be in charge.

[FBD]

Sure they will, you just wont have much of a standardized value any longer. The world will return to the barter system when money doesnt work, and PMs WILL hold their value when the shit hits the fan. Sure you cant eat it, but you can trade it for things, and in a barter system that's what its all about. What do you have that I might be able to use that will work for something of mine that you need?

[Acid Trip]

Sure they will, you just wont have much of a standardized value any longer. The world will return to the barter system when money doesnt work, and PMs WILL hold their value when the shit hits the fan. Sure you cant eat it, but you can trade it for things, and in a barter system that's what its all about. What do you have that I might be able to use that will work for something of mine that you need?

We all know the barter system would pick up where fiat left off. The problem is the 3, 6, 9, or 12 months of time when fiat grinds to a half and people are freaking out.

It'll be absolutely chaos. A chaos I hope to never see.

[KevinD]

If paper currency goes down then all the precious metals in the world won't do you any good. It'll be economic Armageddon and the people with bullets and fuel will be in charge.

No, no, I DIDN'T buy any metals....lol

Well, maybe a bit of lead and steel.

[Teh One Who Knocks]

Sure they will, you just wont have much of a standardized value any longer. The world will return to the barter system when money doesnt work, and PMs WILL hold their value when the shit hits the fan. Sure you cant eat it, but you can trade it for things, and in a barter system that's what its all about. What do you have that I might be able to use that will work for something of mine that you need?

Trade it for what? :-s

If...and that's a BIG if, the world descended into some kind of post-apocalyptic chaos, all your precious metal would be worth squat. And better yet, since I stocked up on weapons and fuel and food and ammo instead, we'll just come take your precious metals from you. ;)

Food, fuel, and weapons will be the only thing worth anything in a world like that.

[FBD]

diversify, yo! you think wu tang only has gold? :lol:

[FBD]

the only man speaking sanity


http://www.youtube.com/watch?feature=player_embedded&v=Ui1Ttd4Gx4U

[FBD]

at the ATMs

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/03/20130321_ATM2_0.jpg