Tag: banks

The Euro has failed

So much for the idea that the EU and its euro would lead to more economic freedom rather than less.  Time finally ran out on what was always a vast con. Cyprus passes a law installing capital controls, thus prohibiting money transfers out of the country:

While it is unknown if the Cypriot parliament will agree to, and enact into law, the Troika-demanded deposit haircuts, after the shocking vote of mutiny against Merkel earlier this week that saw not one politician vote for the Europe suggested deposit tax levy (and even the ruling party abstained), a vote which will once more take place tomorrow, moments ago Cyprus became the first Eurozone country to officially implement governmental capital controls into legislation. At this point it had no choice: whatever happens with the deposit haircut, or with everything else, it is now inevitable that the local Cypriots will do all they can to pull as much money from domestic banking system as possible following the complete loss of faith and trust in banks, which is why the government had no choice but to intervene with its own “controls.” Sadly, this marks a milestone in the development of the Eurozone – it’s all downhill, and accelerating, from here.

Nor is the banking debacle limited to Cyprus any longer, as Spain has announced its intention to steal from Spanish depositors:  “the Spanish Minister of Finance & Public Administration announced this week a tax or bank levy (probably 0.2%) to be imposed on bank deposits, without details on which deposits will be affected or timing.”

It is time for the disastrous Euro experiment to end.  Now.  Bring back the Deutsche Mark.  Bring back the Franc.  Bring back the Lira.  The Euro has failed.

UPDATE: The news out of Cyprus just keeps getting better.

“According to the rapidly shifting plan, depositors with
the biggest local bank, Bank of Cyprus, may see losses up to 25%…. Cyprus’ second largest bank, Cyprus Popular Bank, aka Laiki bank, where it appears the bulk of Russian cash is stored, will fare far, far worse with
deposit haircuts up to a stunning 70% on the table, and that is after
capital controls ease enough to allow for the deposit withdrawals!”

The EU pulls out the gun

Steal or die are the current orders from Brussels:

Our foreign correspondent Richard Spencer is in Nicosia. He, along with Bruno Waterfield, Tom Parfitt and Alex Spillius, explain the implications of the ECB’s liquidity cut off. They write: The European Central Bank will switch off the cash life support taps for banks in Cyprus wiping out £1.7 billion in British savings after next Monday unless the island signs off on a radical debt-cutting programme with the eurozone and International Monetary Fund.

Unless a deal is in place the euro’s central bank will withdraw “emergency liquidity assistance” leading to the immediate collapse of the two largest Cypriot banks and a financial crash in Cyprus. Cypriot banks are totally reliant on the ECB for funding and have taken over €9.1 billion in an emergency programme to ensure cash does not run out.

However, the Cypriot Parliament, courtesy of their Russian-instilled spines, is insisting that it will not approve any “deposit haircut”.  Next week could be interesting.

On a tangentially related note, those of you waiting for the next entry in the Inflation/Deflation debate need to relax and be patient.  In addition to all the excitement of the Cypriot affair, I’ve been finishing up the new Selenoth ebook that will be published soon, (next week if all goes smoothly), as well as addressing an amount of game-related business.  While the debate is important, it has not been a priority this week.

It’s not your money

One of the many unintended consequences of the Cyprus situation is that many people are finally beginning to understand that money they deposit into a bank is no longer their money.  It’s one thing to have some vague notion of what a fractional reserve system is, it’s another to realize that with every deposit, you are making what amounts to an interest-free loan to some of the shadiest and shakiest entities on the planet:

“The district court determined that under Utah law the relationship
between a bank and a depositor is generally that of a debtor to a
creditor, citing Walker Bank & Trust Co. v. First Security Corp., 9
Utah 2d 215, 341 P.2d 944, 946 (1959). United States v. Intermountain
Region Concrete Co., 636 F.Supp. at 284.”

So, when you’re considering the question of whether you should “leave your money in the bank or not”, you are committing a category error.  What you are actually deciding is “do I want to lend my money to this particular corporation or not”?

These days, loaning one’s money to banks strikes me as about as wise as loaning it to the homeless guy living under the bridge.  Sure, there is a chance he’s not going to spend it all on alcohol and default, but you have to assume that is the most probable outcome.

Not even close

The Cyprus parliament must have gotten some very clear messages from someone over the last two days:

CYPRUS BANK LEVY BILL DEFEATED WITH 36 VOTES AGAINST. CYPRUS BANK LEVY BILL DEFEATED WITH 19 ABSTENTIONS

Given that there are only 56 members of the parliament, this would appear to indicate that only one member voted for it.

Cyprus: the test case

An insider’s explanation of how the insane Cypriot situation came to pass and who was chiefly to blame for it:

As well as the full EU summit on Thursday and Friday, Anastasiades, a
London-educated 66-year-old, was to attend the first full eurozone
summit for 14 months late on Thursday. A senior EU policymaker said: “There will be a little discussion of Cyprus, but no decisions.”

A senior EU diplomat predicted: “Nothing much will happen. It’s the new president’s first summit.”

As
it turned out, the centre-right Cypriot leader was given a 12-hour stay
of execution until the early hours of Saturday on what, highly
conveniently, was a Cyprus bank holiday weekend. He went home with a
€10bn euro bailout and a eurozone taboo-busting obligation to
expropriate every saver in every bank in Cyprus….

The IMF has long insisted on keeping the cost of the bailout well below the €17bn needed because of its fixation on ensuring medium-term debt sustainability. Lending Cyprus what it needed would have tipped the scales of sustainability.  The German government, months away from a crucial general election, was also very reluctant to see its taxpayers’ money lent to secure the savings of wealthy Russians whose deposits are estimated to represent almost a third of Cypriot accounts.

The panic about banks closing down on Tuesday came from Asmussen, who warned the Cypriots that no deal meant no emergency liquidity help from the ECB, meaning the two biggest banks on the island could collapse.

“I was present,” said Sklavos. Asked who pushed the hardest for the levy to be slapped on depositors, he said: “Wolfgang Schaeuble.”

“It was a fait accompli. They had made their decision before the meeting had even begun. They don’t care. They want Cyprus to be the guinea pig. They want to see if this thing works. If it does, then perhaps Spain or Italy will be next. If it doesn’t, then who cares about Cyprus?”

And who is Wolfgang Schaeuble? He is the German Minister of Finance, Helmut Kohl’s heir presumptive, and the most ardent EUnik in the CDU.  He was pushing the bank heist because he knows that Germans are going to be increasingly supporting anti-EU parties in the upcoming elections and feared the bad press of forcing the German taxpayer to bail out Russian savings accounts.

Standoff in Cyprus

The IMF/EU bank heist is being put on hold because the president can’t get the votes to approve the theft.  Zerohedge reports:

Moments ago the state-run CYBC media reported perhaps the most material news ahead of tomorrow’s Cyprus parliamentary vote, which at this point will likely be rescheduled once more, for the simple reason that yet another key Cypriot party, DIKO, has come out and decided to vote against the depositor-loss law on the Parliament’s docket tomorrow. This is notable because while yesterday JPM, in its “bazooka” assessment speculated that DIKO would vote for the law which made sense previously as DIKO had supported president Anastasiades in his election bid, which gave a pro-bailout vote a one vote margin. As a result of today’s flip, the party’s 9 votes will now be aligned with the “anti” votes of AKEL  and EDEK, whose combined 33 votes mean the proposed bailout law has no chance of passing as they have the needed 29 votes to block any bail-in out proposal!

That’s 33 against and 20 for.  It should be interesting to learn to what extent the EU and the Cypriot president were bluffing when they claimed a financial armageddon would result from a failure of the bailout plan.  I suspect it’s going to look at lot more like the consequences of the US sequester, which absolutely no one in the USA appears to have even noticed.

Jim Sinclair notes: “The government leaders in Cyprus are trying to back-pedal right now in
order to save their lives. Let me say it again, they are trying to save
their own lives. Remember, ‘revenge is best served cold.’ This means
the revenge never comes at the moment of the miscreant act. But it will
come in time.  To take money from the leading economic
entities in Russia, is to take money from the former KGB officers, and
taking money from them is extremely dangerous. I think the reality has
quickly set in for the leaders of Cyprus that they have aided in the
confiscation of the most serious and dangerous money you could possibly
touch. It has these leaders more afraid for their lives than their bank
accounts.”

UPDATE: “the Eurogroup will give Cyprus more flexibility on bank levy, and that Cyprus should safeguard depositors under €100,000, even as the full €5.8 billion deposit goal must still be hit.”

Perhaps my math skills are insufficient to grok the sense, but I don’t see how increasing the hit Russian depositors are going to take from 10% to 15.6% is going to make frightened parliamentarians any more sanguine about voting for the $75 billion bank heist.

“enormous possibilities for the Administration”

Granted, he is often a little excitable with regards to the imminence of the sky falling, but in this case, Karl provides mathematical support for his prediction concerning when something similar to the Cypriot action will take place in the USA:

In two years federal medical spending along with Social Security and interest will, on current paths, reach the total of all tax receipts. At the outside the market will realize that Congress will never address the underlying issue with medical care because they have steadfastly refused to do so.  At that point we will have become Greece and Cyprus.

For those who say that our banking system is “strong” and “not corrupt unlike Cyprus” may I ask what the record is on money laundering and intentional obfuscation of the truth with regard to firms such as HSBC and Wachovia (both of which were caught laundering enormous amounts of money) and JP Morgan (which was just grilled, along with the regulators, regarding the “London Whale”) and not one person or institution has been indicted and prosecuted?

There is about $20 trillion in US Retirement “assets.”  A “small” 10% “one time” tax levy on those assets would fund the US Deficit a couple of years from now, and I will go out on a limb now and predict that exactly that will be done.

It first crossed my mind that this could eventually happen back in 1998, although I can’t remember why, but we were discussing it for one reason or another.  I never thought it was necessary, not even in 2008, because I simply didn’t imagine that the financial rulers of the US were crazy enough to continue with their credit expansion even after that clear and present wake-up call.

Two years seems rather on the abrupt side to me, but as I have often observed, these things always take longer to develop than one imagines, and then, when they finally arrive, unfold faster than one can believe.

It never stops being funny



The ominous thing is that we’re rapidly approaching the point where the Mussolinis and Hitlers of the world are starting to look downright attractive in comparison with the bankers and politicians who are presently ruling through deceit and financial predation.  When I was young, I couldn’t understand why people didn’t merely support, but practically worshipped such obviously flawed and terrible men.

Now, I think I’d be downright happy to vote for the first politician to run on a policy of sending killer drones after every single banker who has received a post-2007 bonus from a bank that received bailout money.  And I’m a freaking libertarian; imagine how those who support bombing Iraqi children because they hate us for our freedoms are going to react once they finally begin to grasp how badly they’ve been screwed over by the bankers.  The irony is that a banker-assassination policy would be entirely constitutional according to the current administration; it is very easy to prove that the bankers are much more serious enemies of the state than al Qaeda.  They’ve certainly done considerably more damage.

UPDATE: “Banks in Cyprus will
be shut on Tuesday and Wednesday pending a decision by parliament to
approve a levy on bank depositors, a government source told Reuters.”

UPDATE II: Zerohedge says the worst case scenario is 15.26 percent on deposits over 100k.  Assuming it passes at all now.

It can happen in the USA

That doesn’t mean it will happen, of course.  Due to the different structure wealth is stored in various countries, and the fact that the banks require balance-sheet assets rather than cash to cover their debts, I expect US pension funds and stock markets will be tapped before bank deposits are stolen.

However, MF Global has already demonstrated that legally speaking, in the USA, money on deposit is not your own, but rather, belongs to the custodial corporation to use as it sees fit, including as collateral for loans to the custodian.  “The settled position of the law is that when you deposit, the bank
becomes the owner of the money deposited and you become a creditor to
the bank.”  It’s not your money, you’re just loaning the money to the bank, which may or may not pay you back, just like anyone else to whom you loan money.  It’s also worth noting that the FDIC cannot and will not provide protection against this sort of government seizure.  From one of Karl’s readers:

“One of my prep school classmates is one of the head lawyers of the FDIC. I called him tonight and he was completely briefed and aware of the Cyprus situation. When I mentioned the ticker to him, he laughed because he said the FDIC, FSLIC and SIPC have no jurisdiction nor provide any protection against taxes or fees, which Gen kind of implied. A bank run, of course is a different story, but the government can tax you to death and the FDIC, FSLIC and SIPC will just stand by and watch. They also will not cover you for a seizure that is related to a crime, like fraud, terrorism or narcotics violations.”

In other words, you’ve been warned.  If you’re still leaving more in the financial system than the bare minimum you need in order to keep your personal finances flowing, you should be aware that you are taking a distinctly non-zero risk.

It is becoming increasingly clear that Cyprus is a test case.  If the bank heist passes the Cypriot parliament and does not spark bank runs throughout Europe as a result, we will almost certainly see more heists take place.  Italy is most likely next, although Spain and Ireland would also be reasonable candidates, because the EU is aware it will have to act there before Beppe Grillo and his grillini win a majority in the next election and are in a position to prevent them from doing so.  Keep in mind the poll mentioned below was conducted before the recent events in Cyprus.

“A new poll shows surging support for Grillo. The election only added to his
momentum, and he’s now at 30 percent. Almost as worrisome for Europe:
Berlusconi’s PDL has also gained since the election.”

Nor is there any mistaking how Grillo’s MoVimento 5 Stelle is looking at the Cyprus situation: “Signori brutte notizie da Cipro. Il Fondo Monetario con la complicità dell’UE prenderà coattamente il 10% da ogni conto corrente bancario. Dovrebbe essere una notizia da prima pagina su ogni quotidiano e invece non mi sembra di averla vista, potrei sbagliarmi comunque. Siamo davvero sicuri che questa è l’Europa che vogliamo? Gente che vive a migliaia di chilometri di distanza e che prende decisioni così importanti senza interpellare i cittadini.”

“Gentlemen, terrible news out of Cyprus.  The IMF, with the complicity of the EU, will forcibly take 10 percent from every bank account.  This should be front page news on every newspaper and instead, although I could be mistaken, I haven’t seen it anywhere.  Are we really certain that this is the Europe we want?  People living thousands of kilometers away making decisions this important without consulting the citizens?”

The neocons at the American Spectator and other places are screaming that Grillo is a fascist.  They’re not entirely wrong, but what they conveniently leave out of the equation is that the EU is fascist as well.  The only difference is that the EU is a form of international fascism that runs interference for the global banks, (as seen in Cyprus), whereas MoVimento 5 Stelle is an Italian nationalist movement, and as such, is vastly preferable to the EU and its globalist masters.