Cypriots Stunned by Forced Savings Cuts

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

Looks like you called the scenario pretty precisely:

I wonder what would happen if the Cypriots called the EU bluff and liquidated their insolvent banks. Make the shareholder and then bondholders take the hit that they should take. Instead of offering future nat gas production revenues to Russia's Gazprom, perhaps instead commit to use those revenues to make good, over the next 10 or 20 years, on every bit of deposit insurance for Cypriot citizen's and small business accounts under $100k that it is unable to service today. Let the northern Europeans figure out how to deal with the knock-on effects from the Cyprus bank collapse on their own banks. That's a performance I would pay to get a ticket to watch...

I believe this is a very real possibility. But it is not obvious to me that it will permit you the Shadenfreude you appear to be anticipating. The result could also wind up strengthening the party toward which you are least favorably inclined. If Cyprus leaves and enters a death-spiral, it will force the other holdouts to either leave, or fold entirely. That could be exactly what the northern europeans want. Remember that many of them didn't want to let these borderline countries in to begin with.

It looks like you will be getting your wish! Although I think it's clear at this point that it was not the EU, but the Cypriots who wanted to protect the banks, and were called on their bluff.

But, as you wanted, the shareholders and bondholders are taking the hit, no natural gas futures were involved. And since the finance sector will obviously be taking a hit, perhaps the natural gas exploration will provide opportunities for growth in the production/consumption economy. All deposits under 100k euros are and remain protected by deposit insurance, and the northern (and southern!) Europeans will indeed have to figure out how to deal with knock-on effects of collapsing banks.

Nicely done!

(And you don't even have to pay to get a ticket to watch!)

[Chris Coles]

Re: Cypriots Stunned by Forced Savings Cuts

In fact, we have been watching the whole implosion for some decades; it is just that most could not see it coming.

My take is slightly different to Astonas in that I do not see the problem as one involving parasites; instead, I see it as one of a combination of insufficient education combined with, up till now, a complete lack of any perceived need to change direction.

Everyone sees the problem from their particular viewpoint; indeed one can say that about any circumstance.

A good example of what I am trying to get across is the idea that free downloads were a great way to get at entertainment; where the direct consequences for long term employment were never in mind. The consumer society based upon endless expansion of debt from the FIRE economy has been very carefully engineered to reject the old fashioned ideas of an industrial economy. Here in the UK we often would hear the phrase describing industry as some form of dirty enterprise; even satanic!

You all got a very good representation of that in the Olympic opening ceremony with the wonderful representation of satanic mills with slaves beating out hot metal.. Whole generations have been brought up to believe that working in an industrial enterprise was a downgrade to be rapidly sold on to "others".

Just a few weeks ago I found myself sitting at a dinner table at a major banking conference with a young man on the other side of the table, upon hearing me speak about what I see as the advantage of equity capital; droning on like an automaton about equity capital investment was like giving money away for no return. He likened it to government welfare, money doled out for no return. He had had no education whatever, relating to the capital structure of business; not one single concept of the need for underlying prosperity within society. As he saw it; all money MUST BE LENT and as such MUST involve a return. The idea of a long term view was a complete anathema to him.

Thus I do not see the problem as one where we should do everything we can to eliminate the "Parasites", instead I believe we should simply ignore them. You cannot teach an old dog new tricks. What we have to do is create new thinking that treats the underlying problems as challenges to be overcome with positive thinking. If we do that, then the way forward has little to do with the existing parasitic nature of the FIRE economy; but everything to do with a combination of a return to old fashioned thinking, combined with new thinking that takes account of the need to re-educate everyone.

For a start, I do not believe that the existing FIRE players are immune to new thinking. Instead, we should assume that they too have a very real interest in changing direction. What they do need is strong leadership.

Yes, there is a case to say that, as with most things in life, we may have to wait for a complete collapse before enough see the need to change direction. But as I see it, that is the negative way forward. In other words, we have to just get on with it; do everything we can to keep the debate going and make a special point of keeping the existing leadership pointed towards us, not as prospective disruptive influences; rather as the strong voice for a change in direction.

[jabberwocky]

Re: Cypriots Stunned by Forced Savings Cuts

[QUOTE=Chris Coles;253921][QUOTE]In fact, we have been watching the whole implosion for some decades; it is just that most could not see it coming


[/QUOTE
Indeed.

[QUOTE]My take is slightly different to Astonas in that I do not see the problem as one involving parasites; instead, I see it as one of a combination of insufficient education combined with, up till now, a complete lack of any perceived need to change direction.]

Is it insufficient education, or incorrect and dogmatically fixed education? "It ain't what you don't know that gits ya', it's what ya know for sure that just ain't so!"

[QUOTE]Everyone sees the problem from their particular viewpoint; indeed one can say that about any circumstance.

[/QUOTE
Rashomon.
T'was ever thus, but, unfortunately, I believe "rational maximizers", like some here, (No insult intended. Simply my inference.)don't seem able to grasp that, beyond a certain age and point, different perspectives are not available to most human observers, and that makes compromise and resolution near impossible. Henry Kissinger might describe this as a question of perceived "legitimacy". He discusses a somewhat similar period of international instability with deep insight in his (thesis paper?) "A World Restored".

Just a few weeks ago I as like giving money away for no return. He likened it to government welfare, money doled out for no return. He had had no education whatever, relating to the capital structure of business; not one single concept of the need for underlying prosperity within society. As he saw it; all money MUST BE LENT and as such MUST involve a return. The idea of a long term view was a complete anathema to him.

This is the problem of interest bearing money, conceptually.

Thus I do not see the problem as one where we should do everything we can to eliminate the "Parasites", instead I believe we should simply ignore them. You cannot teach an old dog new tricks. What we have to do is create new thinking that treats the underlying problems as challenges to be overcome with positive thinking. If we do that, then the way forward has little to do with the existing parasitic nature of the FIRE economy; but everything to do with a combination of a return to old fashioned thinking, combined with new thinking that takes account of the need to re-educate everyone.

For a start, I do not believe that the existing FIRE players are immune to new thinking. Instead, we should assume that they too have a very real interest in changing direction. What they do need is strong leadership.

Some of those you describe as "old dogs" are really young psychopaths. This is Gresham's dynamic at work in finance.

Yes, there is a case to say that, as with most things in life, we may have to wait for a complete collapse before enough see the need to change direction. But as I see it, that is the negative way forward. In other words, we have to just get on with it; do everything we can to keep the debate going and make a special point of keeping the existing leadership pointed towards us, not as prospective disruptive influences; rather as the strong voice for a change in direction.[/QUOTE

]

I hope you are correct. I fear you are very wrong.

[jabberwocky]

Re: Cypriots Stunned by Forced Savings Cuts

It is fascinating for me to observe myself struggle with this site, given my brain injury. I have learned so much about thinking and learning after being deprived of part of my brain. It is almost worth it!
I apologize to everyone for my errors, but I hate not to participate.

[shiny!]

Re: Cypriots Stunned by Forced Savings Cuts

It is fascinating for me to observe myself struggle with this site, given my brain injury. I have learned so much about thinking and learning after being deprived of part of my brain. It is almost worth it!
I apologize to everyone for my errors, but I hate not to participate.

Same here. I would never have guessed you have a brain injury, as you're one of the sharpest tools in the shed! I have NVLD; makes me not able to do math much above long division, and even that's hard.

My great-aunt was a third grade teacher. At reading time she always read the class books rated for fifth grade. When her principal asked why, she said that if she only made them think at the level they were at, they would never stretch their minds to do more. iTulip does this for me.

[Chris Coles]

Re: Cypriots Stunned by Forced Savings Cuts

Jabberwocky,

Your point about education, "is it insufficient education, or incorrect and dogmatically fixed education?" is correct; dogmatically fixed education is the underlying problem. But that does not mean that the same people cannot receive a re-newed education.

I once worked with what, at the time, I would have described as a young psychopath. Later, I was truly staggered to discover that, given new direction and responsibility; he responded by becoming a very useful part of our small team. Young emulate their peers; put any young person with others that one might describe as psychopaths and watch them copy their traits. The lesson I learned was not to take people at face value; instead, give them time to regroup under your own strong banner and then see if they are up to it. We can only take forward those lessons we have learned the hard way; in the university of life.

[jabberwocky]

Re: Cypriots Stunned by Forced Savings Cuts

You are too kind, Shiny. Thank you so much.

[Chris Coles]

Re: Cypriots Stunned by Forced Savings Cuts

It is fascinating for me to observe myself struggle with this site, given my brain injury. I have learned so much about thinking and learning after being deprived of part of my brain. It is almost worth it!
I apologize to everyone for my errors, but I hate not to participate.

Shiny is right; you should join in everywhere you wish; without apology. For the record, speaking only for myself, the underlying software is not so user friendly as it once was and I also make many mistakes with my presentation. Take your time; we value your contribution.

[don]

Re: Cypriots Stunned by Forced Savings Cuts

Shiny is right; you should join in everywhere you wish; without apology. For the record, speaking only for myself, the underlying software is not so user friendly as it once was and I also make many mistakes with my presentation. Take your time; we value your contribution.

+1

and so many voluntarily give up the grey matter . . . .

[c1ue]

Re: Cypriots Stunned by Forced Savings Cuts

This is amusing: we have a 'deal' in which the terms still aren't settled, but which can't be voted on.

[jabberwocky]

Re: Cypriots Stunned by Forced Savings Cuts

Democracy in action!

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

It is fascinating for me to observe myself struggle with this site, given my brain injury. I have learned so much about thinking and learning after being deprived of part of my brain. It is almost worth it!
I apologize to everyone for my errors, but I hate not to participate.

I am sorry to hear that you are struggling due to a brain injury. I wanted to make it clear that the extra effort you have to expend is greatly appreciated by those of us who enjoy your contributions. They are extremely thought-provoking, judicious analyses, that help elevate the conversation, regardless of any errors you may perceive. I hope that your condition continues to improve, and that your burden lightens.

[don]

Re: Cypriots Stunned by Forced Savings Cuts

The terms of the latest bailout announced Sunday night are curious. The New York Times reports that, "the deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders." Say, what? In fact, there is no material difference between the so-called "tax" and the "forced losses." That was just semantics. The word tax had been bandied about two weeks ago when the EU first proposed that the Cyprus government might pass a legislative act skinning its bank depositors. That didn't go down, of course, so now its just an EU mandated haircut on deposits over E-100,000 and bank bondholders. As for the deposits under E-100,000... you're welcome to them, the catch being that the banks aren't open for business... and the EU bailout money will not arrive in Cyprus until May. They are sending it by packet boat from Antwerp and hoping for fair winds.

Jim Kunstler

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

The terms of the latest bailout announced Sunday night are curious. The New York Times reports that, "the deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders." Say, what? In fact, there is no material difference between the so-called "tax" and the "forced losses." That was just semantics. The word tax had been bandied about two weeks ago when the EU first proposed that the Cyprus government might pass a legislative act skinning its bank depositors. That didn't go down, of course, so now its just an EU mandated haircut on deposits over E-100,000 and bank bondholders. As for the deposits under E-100,000... you're welcome to them, the catch being that the banks aren't open for business... and the EU bailout money will not arrive in Cyprus until May. They are sending it by packet boat from Antwerp and hoping for fair winds.

Jim Kunstler

Jim appears to be having difficulty reading English. I've added the implied emphasis above, in bold. (The emphasis is more obvious in the original context.)

Prior approaches discussed leaving the bondholders intact, which was why the plan was "highly controversial". Such an action would have reversed the generally accepted priority of claims. The terms of the final plan do not.

[jk]

Re: Cypriots Stunned by Forced Savings Cuts

astonas, your theory that germany is trying to force structural reform in the rest of europe is quite interesting and even plausible.

using your cancer analogy- chemo depends on the cancer cells being more susceptible to the therapeutic poison than the rest of the body is. sometimes that isn't the case, however. it remains to be seen whether e.g. the greeks can learn to administer a real tax system, whether italians can learn to raise their productivity, and so on.

also, that reminds me, your analysis neglects the ecb's history of administering rates based [pretty much] solely on the needs of the german economy. e.g., it was the very low central bank rates [when germany needed them to ease reunification] which underlay the spanish and irish real estate bubbles. and then it was tightening when germany began to overheat that exposed and popped those peripheral bubbles. so, yes, germany can't clean up the structural deficiencies of the periphery, but its power was reinforced by ecb policies which accrued to its benefit.