Tag: banks

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.

“A major, MAJOR game changer”

The CEO of Saxo Bank comments on the Cypriot bank raids:

This is full-blown socialism. It is difficult to describe the weekend bailout package to Cyprus in any other way. The confiscation of 6.75 percent of small depositors’ money and 9.9 percent of big depositors’ funds is without precedence that I can think of in a supposedly civilised and democratic society. But maybe the European Union (EU) is no longer a civilised democracy?

I heard rumours about this when I visited Limassol last week, but dismissed them as completely outlandish. And yet, here we are. The consequences are unpredictable, but we are clearly looking at a significant paradigm shift.

This is a breach of fundamental property rights, dictated to a small country by foreign powers and it must make every bank depositor in Europe shiver. Although the representatives at the bailout press conference tried to present this as a one-off, they were not willing to rule out similar measures elsewhere – not that it would have mattered much as the trust is gone anyway. It is now difficult to expect any kind of limitation to what measures the Troika and EU might take when the crisis really starts to bite.

If you can do this once, you can do it again. if you can confiscate 10 percent of a bank customer’s money, you can confiscate 25, 50 or even 100 percent. I now believe we will see worse as the panic increases, with politicians desperately trying to keep the EUR alive.

Depositors in other prospective bailout countries must be running scared – is it safe to keep money in an Italian, Spanish or Greek bank any more? I dont know, must be the answer. Is it prudent to take the risk? You decide. I fear this will lead to massive capital outflows from weak Eurozone countries, just about the last thing they need right now. Even from the EU as a whole, I suspect, as the banking union is in place in most countries already.

Another open question is what will happen to the huge number of brokerages based in Cyprus? There is about 100 or more FX and other brokers currently operating under the relatively light Cypriot regulation. How will this impact the trustworthiness of these many small institutions? What IS the exact impact on the client deposits they might be holding in Cyprus? Will anyone dare to do business with them going forward?

This is a major, MAJOR game changer and the fallout will be with us for a long time to come. I believe it could be the beginning of the end for the Eurozone as this is an unbelievable blow to the already challenged trust that might be left among investors. Talk about a possible own goal.

Market reaction? it must be very good for gold – and for safe-haven countries like Switzerland, Singapore and economically more healthy non-Euro countries in, for example, Scandinavia. I would think the EUR and associated markets will be undermined by increasing lack of confidence when the full implications become clear for investors.

This is full-blown socialism and I still cannot believe this really happened.

I think it is safe to say that it is very bad news when the actions of the international bankers appalls even their lesser brethren, and when the initial test-action exceeds the worst expectations of about only people to correctly anticipate it coming.

And note that they expect similar actions to take place in the USA as well.  Meanwhile, none of the smugly verbose defenders of the people on the Left appear to have even noticed anything has happened… most likely because this sort of thing is completely beyond their capacity to even comprehend, let alone analyze or anticipate.

You will recall that I have been warning readers to stay out of the stock market and the banking system to the greatest extent possible for some time now.  This is only one of the many reasons why.  Those who were confident in the security of their 401ks should probably reconsider their opinions in light of these mandatory depository “contributions” to the cause of debt restructuring.  As Karl Denninger puts it: “$100 bills in your hand have just been declared to be worth
somewhere between 7-10% more than those “deposited” and “stored” in a
bank.”

I have to admit, once more I’m shown to be somewhat of an optimist.  I expected them to begin with pension and 401k seizures, I never imagined they would go right for the deposits.  But then, as a gangster of an earlier era said, the banks are where the money is.  And in case you were wondering what was going to bring the heavily overbought stock market’s 10-day winning streak to a customarily nasty end, you would appear to have gotten your answer.

UPDATE: Germany and the IMF were originally demanding 40 PERCENT of all bank deposits.

UPDATE II: The Monday bank holiday in Cyprus has already been extended to Tuesday, and will likely be extended to Wednesday as well.  Pay attention, this is how it will happen elsewhere.  If you wait until the announcements hit, you will not be able to do anything until it is too late.

UPDATE III: Now the Cypriot Parliament is belatedly wondering if robbing the entire savings class is a health-conscious decision and dragging its heels. “Cyprus’ parliament on Sunday postponed a debate
and vote on a controversial levy on all bank deposits that the
cash-strapped country’s creditors had demanded in exchange for (EURO)10
billion ($13 billion) in rescue money.  The vote, which had been
expected later Sunday, has been pushed back to Monday afternoon,
parliamentary official Antonis Koutalianos said.  The
announcement set off an immediate scramble among top European officials,
with reports that the European Central Bank was pressuring Cypriot
authorities to hold the vote without delay.”

I expect the confiscations will go through, such things almost always do, but notice how it is always the executive branch that is the first to surrender.  And what a surprise, that the anti-democratic fascists of the EU failed to take into account that they’d have to get the support of the parliament in order to complete their little bank heist.  Also, look for the “Russian money laundering” angle to be talked up on the financial news in an attempt to justify the theft and reduce fears outside of Cyprus, which is, of course, the only place that any thing of the sort could possibly happen just this one time due to impossible-to-foresee emergency circumstances.

UPDATE IV: In what surely is completely unrelated news, the Russian Navy had an announcement today as well: “Russia will dispatch a permanent group of five to six combat ships to
the Mediterranean Sea, Russian Navy chief Admiral Viktor Chirkov said.
Frigates and cruisers will make up the core of the fleet.”

The bank raids begin

It would be reasonable to assume that the bank runs will be next:

£8.7billion EU bailout imposes tax on ALL bank accounts in Cyprus.  Under the deal, all bank deposits over €100,000 will be hit with a levy of 9.9 per cent. Those with smaller savings will pay 6.75 per cent.

The raid will raise €5.8 billion, which will be added to a €10billion bailout from Brussels. But financial experts said the raid – designed to stop Cyprus crashing out of the euro, potentially destroying the currency – would send shock waves through the eurozone.

If savers in other troubled nations fear their accounts might be next, they could withdraw their money and spark a catastrophic run on the banks.

Tell these people, who are losing between 7 percent and 10 percent of their savings, how vitally important it is for Cyprus to remain in the euro.  Especially when there isn’t even the remotest prospect for this blatant theft to repair the situation or do anything more than buy a little more time.