Cypriots Stunned by Forced Savings Cuts

[jabberwocky]

Re: Cypriots Stunned by Forced Savings Cuts

I suspect, with respect, that your initial "sense" of your co-worker as a psychopath was, more likely, in error.
The literature seems to fairly robustly support a genetic predisposition to psychopathy, twin studies, for example, so that early mitigation may "nuture" away some problems, but the "nature" abides, if you follow.
Re-education programs have a dreadfull history, lestwise, the era of the "New Man" would have already arrived. (I know you didn't imply that old canard, but I couldn't help myself! lol)
Our present crop of bankers, manager-industrialists, and politicians just need to go. If they are not fired and/or jailed, some may end up being pissed upon by women in the square, and thereafter, hung upon a meat hook. And, NO, I am not being literal. Just offering an apt allusion from Western history.
On a slightly different note, it was humourous to hear Krugman cite Planck about progress being made one funeral at a time, when Max was actually talking about Paul................as premonition!

[don]

Re: Cypriots Stunned by Forced Savings Cuts

Dijsselbloem: Cyprus deal is template for the future

Eurogroup head Jeroen Dijsselbloem has sent the euro tumbling by declaring that the Cyprus rescue should be seen as a template for the rest of the eurozone.

In an interview with reporters in Brussels after the Cyprus plan was agreed, Dijsselbloem argued that Europe could now take a new approach to tackling struggling banks.

Dijsselbloem said (via Reuters):

What we've done last night is what I call pushing back the risks.
If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'.
If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.

Dijsselbloem, who began his term as Eurogroup president by presiding over the botched original bailout for Cyprus, argues that it's fair for big depositors to take the hit:

If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on....
The consequences may be that it's the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take

That last line is a concern -- are we really in calm waters now? With no stable government in Italy (or even an instable one), Greece trudging through another year of recession, Portugal and Ireland striving to exit their bailout. And don't even mention France.
The key to Dijsselbloem's comments is that he's suggesting that Europe will no longer need the ESM -- the €700bn bazooka that was meant to be on standby to prevent a banking collapse, by injecting new capital when needed.
He said:

We should aim at a situation where we will never need to even consider direct recapitalisation.
If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller.

The interview has sent the euro sliding, and pushed shares down across Europe. Trading in several Italian banks have just been temporarily suspended (for dropping more than 5%).

but wait . . .


Jeroen Dijsselbloem has just released a statement insisting that Cyprus is a 'specific case'

It's an attempt to repair some of the damage caused since his interview to the Financial Times and Reuters hit the electronic streets.

Statement by the Eurogroup President on Cyprus

Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.
Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.

Hope that's clear.

[jk]

Re: Cypriots Stunned by Forced Savings Cuts

we can hope cyprus is a model, in that it is the first time there's been a big bank cram down- [at least it looks like that- it still hasn't really happened]- in which you wipe out first the shareholders, then the bondholders, then the uninsured deposits. that's how it should happen. that was the scandinavian model, and it's what i wished had happened in the u.s.

[astonas]

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.

I agree that this is the crux of the matter, and that its viability can only truly be known in hindsight.

Institutional structures influence culture as well, and not just the other way around, so there will be in each theater an initial cultural gap that can, when under a new set of structures, only diminish over long spans of time. It is a lot to ask of a people to accept that some of what they used to think of as "normal" is now not just illegal (via imposed law), but also inadvisable (via independently held belief) in its own right. Even if such a transformation is possible, it is unclear that new structures will be given enough time to do so.

But that is the challenge that is "baked in" to the idea of a European Union. It is what has been debated there, in high office and on the street, for several decades now. It isn't coming as a surprise. It's a part of the plan-of-record. The question is whether that plan will change, or continue as it was first laid out.

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.

Yes, the ECB is a strange entity. In spite of the fact that it was modeled after the Bundesbank, it's governance still involves a great deal of compromise, and while Germany does still have more influence than others, that is mostly because it has found enough like-minded nations that support its underlying philosophy, though to different degrees. (I refer to this coalition as the "germanic" nations in my posts.) And this block doesn't exactly run in lock-step, so other nations (particularly France and at the moment also Italy (Draghi)) have been crucial. So the tea leaves start to get muddled.

Even if Erhardian monetary philosophy pretty much opposes interest-rate-stimulation as a rule, there are plenty of people involved in the decision-making process who are strongly Keynesian (France is a vocal proponent). These would want to see interest rates manipulated in a way that made sense to them, even if the "benefit" (germanics would say "drag" on the economy) accrued mostly in Germany. A strict Erhardian would assert that Germany's financial strength was harmed by the ecb policies you cite as reinforcing it. That (reinforcement) is a Keynesian concept.

The real problem here is that it is very hard to know if an economy is improving because of easy money, or in spite of it. One can hardly expect a party to be grateful for having interest rates that "benefitted" them, if in fact they believe that those same rates were obstacles to their growth. Judging the actions of a country based on a philosophy (Keynesianism) that it soundly reject as ludicrous is never going to give a satisfactory answer. The premise of any judgement is in dispute, not merely the judgement itself.

[jabberwocky]

Re: Cypriots Stunned by Forced Savings Cuts

Thank you, astonas. Would that I could keep up, or add.

[jiimbergin]

Re: Cypriots Stunned by Forced Savings Cuts

I know, this is from zerohedge!, but if true very interesting.
http://www.zerohedge.com/news/2013-0...ir-cash-cyprus

Have The Russians Already Quietly Withdrawn All Their Cash From Cyprus?



Submitted by Tyler Durden on 03/25/2013 17:00 -0400

• European Central Bank
• Latvia
• New Normal
• recovery
• Reuters

Yesterday, we first reported on something very disturbing (at least to Cyprus' citizens): despite the closed banks (which will mostly reopen tomorrow, while the two biggest soon to be liquidated banks Laiki and BoC will be shuttered until Thursday) and the capital controls, the local financial system has been leaking cash. Lots and lots of cash.
Alas, we did not have much granularity or details on who or where these illegal transfers were conducted with. Today, courtesy of a follow up by Reuters, we do.
The result, at least for Europe, is quite scary because let's recall that the primary political purpose of destroying the Cyprus financial system was simply to punish and humiliate Russian billionaire oligarchs who held tens of billions in "unsecured" deposits with the island nation's two biggest banks.
As it turns out, these same oligrachs may have used the one week hiatus period of total chaos in the banking system to transfer the bulk of the cash they had deposited with one of the two main Cypriot banks, in the process making the whole punitive point of collapsing the Cyprus financial system entirely moot.
From Reuters:

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access their money.

No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia.Russians were among Cypriot banks' largest depositors.

So while one could not withdraw from Bank of Cyprus or Laiki, one could withdraw without limitations from subsidiary and OpCo banks, and other affiliates?
Just brilliant.
And if there was any doubt that the entire process of destroying one entire nation was simply to punish Cyprus, it can be completely cleared away now:

ECB officials contacted Latvia, another EU country that has received large Russian deposits, to warn authorities against taking in Russian money fleeing Cyprus, two sources familiar with the contacts said.

"It was made clear to our Latvian friends that if they want to join the euro, they should not provide a haven for Russian money exiting Cyprus," a euro zone central banker said.

If one thinks there is any material Russian cash therefore left in Cyprus with this epic loophole in place, we urge them to make a deposit in the insolvent nation. One person who certainly will not be allocating any of his money into Bank of Cyprus is German FinMin Schaeuble:

German Finance Minister Wolfgang Schaeuble said the bank closure had limited capital flight but that the ECB was looking closely at the issue. He declined to provide figures.

Perhaps because if he did, it would become clear that the only entities truly punished by this weekend's actions are not evil Russian billionaires, but small and medium domestic companies, and other moderately wealthy individuals, hardly any of them from the former "Evil Empire."

Companies that had to meet margin calls to avoid defaulting on deals were granted funds. Transfers for trade in humanitarian products, medicines and jet fuel were allowed.

The stealth withdrawals by Russians of course means that the two megabanks are now utterly drained of capital, and that the haircuts on those who still have unsecured deposits with the two banks will be so big it will likely mean a complete wipeout of all deposits. As in 0% recovery on your deposits!
In other words, by now any big Russian funds in Cyprus are long gone, and the only damage accrues to the locals: for one reason because their money over the critical EUR100K threshold has been "vaporized", and for another because the marginal driving force and loan demand creator in Cyprus, the Russians, are gone and are never coming back again.
This is what passes for monetary real-politik in the New Normal - an entire nation becomes collateral when pursuing a wealthy group of people. And the "wealthy group" is victorious in the end despite everything...
If we were Cypriots at this point we would be angry. Very, very angry.

[unlucky]

Re: Cypriots Stunned by Forced Savings Cuts

Dijsselbloem: Cyprus deal is template for the future


Dijsselbloem, who began his term as Eurogroup president by presiding over the botched original bailout for Cyprus, argues that it's fair for big depositors to take the hit:[INDENT] If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on....
The consequences may be that it's the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take.

but wait . . .


Jeroen Dijsselbloem has just released a statement insisting that Cyprus is a 'specific case'


Hope that's clear.

Mr Dijsselbloem (being dubbed Diesel-Boom by anglophones) hasn't had a very good bail-out. In his role as Eurogroup president he is of course perfectly correct to be standing up for the principle of equality of member states. Ergo, if burning bank investors is OK in Cyprus then it should be OK everywhere. Unfortunately his comments had the effect of instantly vaporizing several billion dollars worth of market cap in the big US banks (huh? not in the Eurozone, last time I looked), after which I imagine the telephone switchboard in the Dutch ministry where Mr Dijsselbloem works probably melted.

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

I know, this is from zerohedge!, but if true very interesting.
http://www.zerohedge.com/news/2013-0...ir-cash-cyprus

Have The Russians Already Quietly Withdrawn All Their Cash From Cyprus?

...

If we were Cypriots at this point we would be angry. Very, very angry.

Interesting indeed.

And the real question: Angry at whom?

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

Mr Dijsselbloem (being dubbed Diesel-Boom by anglophones) hasn't had a very good bail-out. In his role as Eurogroup president he is of course perfectly correct to be standing up for the principle of equality of member states. Ergo, if burning bank investors is OK in Cyprus then it should be OK everywhere. Unfortunately his comments had the effect of instantly vaporizing several billion dollars worth of market cap in the big US banks (huh? not in the Eurozone, last time I looked), after which I imagine the telephone switchboard in the Dutch ministry where Mr Dijsselbloem works probably melted.

I suspect the point is that deposits won't always be attacked, only if the local situation warrants it, but they are certainly on the table if it does. This actually makes some measure of sense, and not just as a flip-flop.

If you first wipe out stock- and bond- holders (which is the proper way of things anyway) then deposits shouldn't be on the table. Cyprus was very unusual, in that the value of both of these combined was so dramatically insufficient. But if they are enough, the priority of claims dictates that they are off the table.

All self-consistent so far.

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

I came across this graph made by the Economist. There's nothing surprising here, but I thought it might provide some interesting background, to inform future discussion.

20130330_gdc328.png

[Onlooker]

Re: Cypriots Stunned by Forced Savings Cuts

If you first wipe out stock- and bond- holders (which is the proper way of things anyway) then deposits shouldn't be on the table. Cyprus was very unusual, in that the value of both of these combined was so dramatically insufficient. But if they are enough, the priority of claims dictates that they are off the table.

Yes, quite so. But only if they act in a timely manner, at the first indication that solvency is in jeopardy (basically, whatever the exact criteria is supposed to be). That's the way it should work. But all too often they go into hope and pray mode, hoping that asset values will be reflated and make the problem go away. Nobody wants to face up to it until it's a crisis. That's the way of the world over the last - well - decade or more? Bail outs became the way things are.

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

Yes, quite so. But only if they act in a timely manner, at the first indication that solvency is in jeopardy (basically, whatever the exact criteria is supposed to be). That's the way it should work. But all too often they go into hope and pray mode, hoping that asset values will be reflated and make the problem go away. Nobody wants to face up to it until it's a crisis. That's the way of the world over the last - well - decade or more? Bail outs became the way things are.

You're entirely right, of course. But the NY Times' recent analysis seems to indicate that this may be changing, with people increasingly losing patience with the FIRE elements that were able to demand - and receive - bailouts:

...

First, there will be no more bailouts without bail-ins, meaning investors and even some depositors in banks that get in trouble may have to pay at least part of the price of rescuing them. European leaders recognize that their voters will no longer tolerate having to pay to save other countries’ irresponsible banks and their clients.

Second, there is a strong message that if the euro zone is going to work, with a banking union that has credibility, there will be no more “casino economies,” little islands like Cyprus with banking sectors many times larger than their gross domestic product, that do not follow the rules and make everyone else vulnerable.

...

The whole article is worth reading, since it is peppered throughout with some new investigative reporting that hasn't been brought up in other places yet. For one, they snagged a surprisingly blunt quote from Estonia:

Toomas Hendrik Ilves, the president of Estonia, said he and his European colleagues were shocked to hear Cypriot officials say, “Brussels is far away, and Russia is a good friend.”

Cyprus also lost sympathy by trying to protect depositors with more than 100,000 euros from too high a contribution — considered an effort to protect Russian money, for the most part — while proposing to tax depositors with accounts under that figure, which are supposed to be insured. “It meant only that they were in bed with the Russians,” said Mr. Ilves, who is blunter than most officials. “And German voters, let alone Estonians, were not going to accept bailing out Russian oligarchs.”

Politically, he said, “you can talk about solidarity with the poor Greeks, and that’s hard enough, but solidarity with thugs and money launderers is a different matter.”

It's statements like that which lead me to speculate that Germany may be finding success in behind-the-scenes diplomacy to strengthen the unity of the germanic block within the EU. If they can reliably count on not only Finland, Poland, Austria, Slovakia, and the Netherlands, but also Baltics like Estonia and Balkans like Slovenia going forward, they're going to have a much easier time on the ECB's Governing Council. More importantly, these are the regions that new additions to the EU and EMU will likely come from, so if these also land in the germanic block, there could actually be sufficient resolve to drive structural reform all the way to completion.

[c1ue]

Re: Cypriots Stunned by Forced Savings Cuts

I do find it amusing that the character of some of the deposits in Cyprus is being attacked, but not the actual actions which brought about the Cyprus financial crisis: bad Greek sovereign loans.

Did the Russian oligarchs force Cypriot banks to lend money to Greece? Or were they merely taking advantage of a situation that was offered to them because of greedy Cypriot banksters confronting a 'no lose' bet?

[Fox]

Re: Cypriots Stunned by Forced Savings Cuts

Maybe this need to be finally verified by a major news outlet; but looks like I have good news and bad news for us.

Bailing In

In short: depositors at the largest bank will lose ~40% of their deposits above the guaranteed threshold, depositors at the second-largest bank will lose ~100% of their deposits above the threshold, bondholders (both senior and subordinated) at the second-largest bank will be wiped out and bondholders (including senior bondholders) at the largest bank will be wiped out. Equity holders in both banks will be fully wiped out.

and my doomer alert quote of the day:

the head of the Eurogroup of eurozone finance ministers said that the Cyprus solution is the “new template” for resolving future eurozone banking problems.

so the good news is that they have decided to do what is the financial correct thing. You give (non-guaranteed) money to a questionable institution, you lose your money. That's what happens to us little guys, so it should be with the big guys.

The bad news is, in our fractional reserved, globally interconnected, Confidence founded, financial system, it means no money is safe any where. No bank in the world has the money on hand you put in to them. Banks runs in Cyprus will lead to bank runs in...? Who are the bond holders taking the hit? Nobody can afford large losses anymore with out requiring a bailout. Is Greece, Spain, Italy connected here?

And this is the new Template!? A good idea for the S&L crisis to put fear back in the hearts of investors. However 20 years later with derivatives thrown in and risk thrown out? If you shake confidence you crumble the world.

Hyperbole, sure for cyprus. However try this template on something bigger and its duck and cover time.

[GRG55]

Re: Cypriots Stunned by Forced Savings Cuts

...It's statements like that which lead me to speculate that Germany may be finding success in behind-the-scenes diplomacy to strengthen the unity of the germanic block within the EU. If they can reliably count on not only Finland, Poland, Austria, Slovakia, and the Netherlands, but also Baltics like Estonia and Balkans like Slovenia going forward, they're going to have a much easier time on the ECB's Governing Council. More importantly, these are the regions that new additions to the EU and EMU will likely come from, so if these also land in the germanic block, there could actually be sufficient resolve to drive structural reform all the way to completion.

Antipathy towards Russia was one of the prime driving forces to bring the small eastern European countries into the EU, so nobody should be surprised at the sentiment expressed by the Estonians. But I wouldn't put much weight on it in terms of supporting a "Germanic block".

These states don't trust Germany either. Poland in particular is extremely wary. The Germans under Angela Merkel's immediate predecessor, Gerhard Schröder, didn't do themselves any favours with their rush to cosy up to the Russians to secure gas energy supplies via Nord Stream. That sort of thing isn't forgotten, and not one of these states believes that the Germans or Europe will come their aid if push comes to shove with the Russians (my late father-in-law was born in Poland, fought against both the Germans and Russians in WWII, so my views might be biased based on that association). I don't think the Germans can or should count on the unconditional support of the FSU eastern Euro states.

A "Germanic restructuring" of the whole of southern Europe flies in the face of more than 2000 years of history. It is a doomed venture imo...unless this is the second coming of the Visigoths with a modern-day financialized version of the Battle of Adrianople...

From the BBC:

Today about 1,500 students marched to parliament in Nicosia. They believe the bailout deal robs them of a future.

Their angry chants were directed at the troika, the EU and in particular Germany's Angela Merkel. There were banners linking Mrs Merkel to Hitler. Outside parliament they shouted "Merkel is a whore!" Such a scene would have been unimaginable in Europe only a short while ago.

The eurozone crisis has soured relations between Germany and southern Europe. I have heard anti-German rhetoric in Italy, Spain, Greece and Cyprus.

The currency intended to bind Germany into Europe has ended up sowing division.

Germany did not, I believe, seek a leadership role in Europe. Its economy, however, has made it Europe's indispensable power. In order to keep the eurozone together Berlin has prescribed its medicine - cuts to the deficit and structural reforms that are intended to usher in growth later. To survive in the eurozone these mainly southern European countries are being told to regain competitiveness by cutting wages and benefits.

The ultimate test for the eurozone is whether this strategy will work. The German Finance Minister, Wolfgang Schaeuble, told the Athens daily Ta Nea that he believed the austerity measures were not just working but making up for decades of policy lapses...