Cypriots Stunned by Forced Savings Cuts

[GRG55]

Re: Anything here?

No, not at all surprised. (Thanks for the prediction.)

I agree that Dubai, Singapore, and Switzerland, all safe from either EMU or EU meddling, are likely to see a pickup, more than Malta and Luxembourg anyway. I'm less certain about including London on the list, given the impending EU referendum showdown there. What led you to think it might benefit? Is it that many of the customers are themselves from anglophone countries? Or perhaps that there is very high confidence that Britain would sooner leave the EU than submit to bank regulation?

London enjoys a long history as the preeminent global financial center. Despite the fact that Sterling has long ceased to be the world reserve currency, and British military capability is much diminished from that at the height of its empire, there are still many constituencies that see London as one of the safest havens for their wealth. There was, for example, a max exodus of Arab and Muslim Asian wealth out of the USA in the aftermath of 9/11 on fears that assets would be frozen or seized by US authorities. Some of that money ended up in London after cycling through Dubai, etc. and helping to ignite the wide-spread Middle East real estate bubble. Given the way Homeland Security treats people from those regions at the border points don't expect any of their money to return to New York any time soon - as the stats show they can buy US Treasuries in London.

The Central London property market reflects this also. It's the only place in the UK where property prices have not declined...in fact, after a brief pause in 2009, Central London prices resumed their seemingly relentless rise. As a financial center London's serious competition is never going to come from continental Europe, or even New York. Singapore is the greater danger by far. But even among Asians London seems to enjoy a unique status; two anecdotes to illustrate. When I was in Hong Kong in the fall of 2010 the English language televisions stations were running Chinese only advertisements for very top end London real estate, including One Hyde Park. The following spring at EBACE in Geneva I spoke with a Gulfstream rep about how the market was recovering after the financial crisis and was stunned to hear that their G550 order backlog was back over 3 years. He told me the orders were being placed by private Asians because the G550 is the only executive jet capable of flying Hong Kong to London non-stop...

[don]

Risk/Reward in the Age of Confiscation

will rates inevitably rise?

“It is my opinion that banks worldwide are simply not safe anymore, and we are on the precipice of a banking crisis that will make the Lehman fiasco look like a test run. For one, interest rates will definitely have to rise. Yes, I know Bernanke is running ZIRP, the ECB is QE to infinity and beyond, yada, yada… But these entities are not the end all and be all for market rates. They can manipulate rates, but they can’t ultimately control them for the long term. After 6 years, it’s been long term… With banks failing and taking depositor’s and bondholder’s funds with them, there’s simply not enough people stupid enough to accept .7% returns in exchange for the very likely possibility of losing a large chunk of (the majority of, or possibly all of) their principal to go around!!!”

Reggie Middleton

[GRG55]

Re: Risk/Reward in the Age of Confiscation

will rates inevitably rise?

“It is my opinion that banks worldwide are simply not safe anymore, and we are on the precipice of a banking crisis that will make the Lehman fiasco look like a test run. For one, interest rates will definitely have to rise. Yes, I know Bernanke is running ZIRP, the ECB is QE to infinity and beyond, yada, yada… But these entities are not the end all and be all for market rates. They can manipulate rates, but they can’t ultimately control them for the long term. After 6 years, it’s been long term… With banks failing and taking depositor’s and bondholder’s funds with them, there’s simply not enough people stupid enough to accept .7% returns in exchange for the very likely possibility of losing a large chunk of (the majority of, or possibly all of) their principal to go around!!!”

Reggie Middleton

Every short term US Treasury bill interest rate out to the 2-year bond is lower on the close last week than it was at the beginning of March. 30 day Tbills dropped from 0.07% to 0.04% in that time. That looks to me like another "flight to safety".

Eventually the endless predictions of rising interest rates will prove accurate...but not until the Fed has telegraphed that it's moving away from ZIRP, QE and plans to stop expanding its balance sheet.

[BadJuju]

Re: Risk/Reward in the Age of Confiscation

Anastasiades requests investigation into allegations against family members


http://www.enetenglish.gr/?i=news.en.economy&id=481


A company owned by in-laws of Cypriot President Nicos Anastasiades withdrew dozens of millions from Laiki Bank on March 12 and 13, according to an article published in Cypriot newspaper Haravgi.
The newspaper, which is affiliated to the communist-rooted AKEL party, reports that three days before the Eurogroup meeting the company took five promissory notes worth €21m from Laiki Bank and transferred the money to London.
Responding to the allegations, Anastasiades said: “The attempt to defame companies or people linked to my family… is nothing but an attempt to distract people from the liability of those who led the country to a state of bankruptcy.”
The president added that no one, including himself, will be exempt from the ongoing investigations looking into responsibilities over the near collapse of the economy.
Anastasiades added that when the investigative committee convenes on Tuesday, he will request that its members look into this particular case with the same attentiveness as all other cases.
The company in question has firmly denied the reports.
Last Friday a list of companies and politicians that had loans written offby banks at the heart of Cyprus' bailout crisis was published in Greece and was subsequently handed to the Cypriot parliament's ethics committee. The list includes the names of politicians from Cyprus' biggest parties (excluding the socialist EDEK and the Greens).

[don]

Re: Risk/Reward in the Age of Confiscation

Last Friday a list of companies and politicians that had loans written off by banks at the heart of Cyprus' bailout crisis ... The list includes the names of politicians from Cyprus' biggest parties

If we have a bank holiday in the states will congress have all its mortgage debt forgiven.

(is that the debt forgiveness Hudson talks about)

. . .

[don]

Re: Risk/Reward in the Age of Confiscation

Every short term US Treasury bill interest rate out to the 2-year bond is lower on the close last week than it was at the beginning of March. 30 day Tbills dropped from 0.07% to 0.04% in that time. That looks to me like another "flight to safety".

The magic of flights to safety.

Agreed.

[don]

Re: Risk/Reward in the Age of Confiscation

Finance capitalism is fatally flawed in theory and in practice. Its ultimate product is that which is before us: a global plutocracy dependent on state capture, power and control to plunder and loot what will become, by necessity, increasingly resistant populations. The post-War ‘moderation’ cited by mainstream economists worked to the extent it did by limiting private debt creation. However, the base imperative of finance capitalism today is infinitely expanding (private) debt—it is the source of its political and economic power. Those in the U.S. who remain in the Democrat / Republican divide are blind to where real power lies. Events in Cyprus have provided a glimpse for those who see.

Rob Urie

[cobben]

Re: Cypriots Stunned by Forced Savings Cuts

If we don't hear even a peep about bank reform, however, I'd say that the EU has very little chance of making it.

Apparently there is a proposal in process to force EU banks to split their trading business from "traditional" banking.

(Article in Swedish, Google translation with a few fixes)

"Swedish banks at risk of being slaughtered"
Svenska banker riskerar
att styckas upp

Swedish banks are threatened with being cut in pieces - but Financial Markets Minister Peter Norman doing everything he can to stop the EU process. SEB is the bank that would be hit hardest.

Michel Barnier, the European commissioner for the internal market, is expected shortly to submit a proposal on banking division based on ideas from Erkki Liikanen, EU Special bank investigator and Central Bank Governor in Finland.

"According to my contacts Barnier has received a mandate from the Commission to move forward on the issue. Barnier's proposals may well come before the summer, "said Thomas Östros, president of the Swedish Bankers' Association.

According to Erkki Liikanen, who has published the so-called Liikanen report, increased capital adequacy and liquidity requirements are not sufficient. European banks should be split into two parts, traditional banking separated from trading.

This would include banks with insured deposits forbidden to engage in trade with too high a risk, according to Mr Liikanen.

And in various European countries is already a legislative efforts aimed at dismembering banks in different parts. Britain and France are more advanced than Europe, although they have not gone as far as Liikanen pleading. He wants a total separation.

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

The purpose is simple: reform, and through that, conversion. The model is that the powers that be (TPTB) in any country are necessarily corrupted by their power. Since all EU nations are to a greater or lesser extent representative democracies, these corrupted people in charge may in principle be removed from power by elections. However, their corruption has permitted them to retain their authority while ceasing to act in the best interests of the people they claim to represent. But if things get bad enough for the people, TPTB will eventually be thrown out by the people. Of course, this will only happen if things get very bad indeed. Exactly how bad they need to get will be directly related to the depth of corruption.


So that's the paradigm that (to minds in the northern states) unites their approach to the PIIGS, and now Cyprus: the unintended suffering of the people will lead to the leadership giving way, because it is the leadership that is diverting the suffering to the people, rather than itself. It is a similar, but mirrored picture in the other direction: The southern states believe that if they can embarrass the people in the northern states with their (southern) suffering and oppression, the north will have to back down (hence the intense focus on Nazi-era imagery during southern protests, they know exactly what button they want to push in the minds of the German voter.)


The key is that all this "bringing a country to its knees" business is sincerely seen in the germanics as a painful, but necessary intermediate step in the process of long-term improvement of the welfare of the people in the corrupted-leadership southern nations. Germany, for example, looks at its own recent decades of painful reforms (undertaken voluntarily) as an example of the best-case scenario. The corruption was low enough that the reform process could be entered into by societal consensus with minimal outside pressure, but even so the consequent economic development dividends speak for themselves. So the Northerners see themselves as helping the people in the south throw off the shackles of their corrupt governments, not as punishers of the people. They go to great pains to point out that the reforms they are asking for are not intended to be directed, as in Cyprus, at pension funds, but at the wealthiest of savers. But the local and corrupt politicians have a deep vested interest (their own continued power) in redirecting both the pain, and the blame, away from the intended objects.

The Eurozone is starting to be more explicit about the intentional link between austerity, combating corruption, and instituting structural reforms.

Graft Report: Austerity Can Help to Fight Corruption

Austerity measures are widely hated in many European countries. But a recent study has shown they can have a positive effect in combating corruption, limiting the amount of cash that public officials can give out for things like bloated government contracts.

Mediterranean countries like Spain, Portugal and Italy have been given a boost in their fight against corruption through the austerity measures so many of their citizens despise, according to a recent study on corruption in the European Union.

The wide-ranging study found that the euro-zone crisis "has acted as a strong anticorruption agent in these countries, drying up resources and opportunities for corruption." The report, titled "The Good, the Bad and the Ugly: Controlling Corruption in the European Union," was conducted by the Berlin-based Hertie School of Governance and is due to be presented to the European Parliament on Tuesday.

The study divided the EU's 27 member states into four groups, with the three aforementioned Mediterranean countries grouped with Slovenia and Slovakia as states with few opportunities for public corruption, but also with few mechanisms to prevent officials from acting in a corrupt way.

"The capacity to audit and control is considered insufficient in these countries," the study's authors write. "The independence of the judiciary is seen as problematic, at least in Italy and Slovakia, and the tools available to society to control the government are feeble, with low levels of Internet connection (Spain and Slovenia do somewhat better), weak civil society and little media capacity to confront corruption."

While austerity may limit opportunities for corruption in some countries, it could have the opposite effect in countries where, for example, civil servants who are already earning a meager living have their pay cut even further.

"I think it varies from country to country," said Dr. Alina Mungiu-Pippidi, the Hertie professor who led the study. "There are austerity measures that are beneficial... (but) if you reduce wages for policemen or judges, that's not good."

EU Funding Increases Risk for Corruption

Mungiu-Pippidi said she conducted the study to depart from the expert indicators of corruption and build a more complex model that takes into account what the underlying causes of that corruption are.

Her findings also directly contradict the notion that membership in the EU necessarily makes countries less corrupt.

"Older member countries Greece, Italy, Portugal and Spain have all regressed rather than progressed since they first joined -- the first two of them to worrying levels -- and that has raised doubts about the EU's transformative effect on its members," the study found.

Funding from the EU can also have the counterintuitive effect of fostering corruption when government officials are given too much freedom in how to spend that money. An EU grant to expand touristic infrastructure in a country, for example, may end up going to build a soccer stadium that no tourists will likely visit.

EU Needs More Effective Oversight

Mungiu-Pippidi said the EU's controls for how money is dispersed are "very strict formally, so if you respect the forms, you can easily allocate this money to whomever you want." She recommended that the current "post-facto" practice of evaluating projects after they've been funded be replaced with an "early warning mechanism" that flags when favoritism could be a factor in how money is being spent.

She added that there was a direct link between corruption, or favoritism, and overspending, leading to poorer and more corrupt countries spending up to four times more for infrastructure projects than more developed and less corrupt states.

The study concludes by making recommendations to EU policymakers, like reducing bureaucracy and streamlining regulation so that officials have fewer opportunities for corruption.

Opportunities for reform aside, the study also cites a clear link between the wealth of a country and its vulnerability to corruption. Romania and Bulgaria, the EU's two newest and poorest members, can only do so much against corruption as long as their economies lag behind the rest of Europe, Mungiu-Pippidi said.

Here's a link to the full report:

The Good, the Bad and the Ugly: Controlling Corruption in the European Union

It's worth taking a look at, particularly since a lot of the key information is presented in easy-to-skim graphs.

[doom&gloom]

Re: Cypriots Stunned by Forced Savings Cuts

Back in the day when there were 'partners' with their OWN capital on the line, places like Wall Street and High Street were not the wild, wild west of speculation.

I for one would love to see those old days return, sooner than later.