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.)
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