Cypriots Stunned by Forced Savings Cuts

[don]

Re: Cypriots Stunned by Forced Savings Cuts

It’s why the average Joe belongs in the streets.

there's enough players in the mix it would make an excellent boardgame!

[don]

Re: Cypriots Stunned by Forced Savings Cuts

repercussions? there ain't no stinkin' repercussions . . .


“We have a technology problem regarding customers’ balance information. It has nothing to do with cyber threats. It is an internal issue. We are very sorry to our customers for the inconvenience. This began earlier this evening. It is not confined to the West Coast.”

Chase Bank

Millions of Chase Bank customers were affected by an unfortunately timed glitch which resulted in their checking and savings accounts showing a zero balance for several hours yesterday, prompting many to take to Twitter and express panic that their money had been stolen.

Reaction to the glitch was undoubtedly made more intense by the fact that the top global news story yesterday was about how residents of Cyprus were facing a mandatory “tax” that would see 10 per cent of their savings plundered for a banker bailout.

Unsurprisingly, it seems that people who owed money to Chase did not see their debt reduced to zero.


"Those who think there is little risk of a levy being imposed on other periphery members are missing the point. The seeds of doubt have been planted. As a saver facing zero yields on deposits and a potential haircut, why keep your savings in a bank? Sure it is convenient for electronic transactions, but individuals can adapt easily. As one of my more amusing colleagues put it, 'mattresses now hold a 10 per cent premium.'"

Ben Davies (tip of the hat to Jesse's Cafe Americain)

[don]

Modern Money: A Study In Confidence and Crisis

Modern money is a game of confidence, an arrangement based wholly on the perception of value founded in counterparty risk.

This sounds easy enough, but what is surprising is how few people really understand it. This is due to the illusion of the familiar.

We are so accustomed to using money in our daily lives that we give little thought to what it really is. It seems solid, immutable, and lasting. 'As sound as a dollar.'

We forget that money, like much of society, is a man-made, artificial construction based on a series of agreements. Sometimes those agreements are based on implied force, such as punishment for breaking the laws. But by and large the enforcement is not equipped to deal with all but the outliers to a general compliance with the law. This is, of course, the basis of the power of civil disobedience, and why autocracies are so sensitive to any mass demonstrations of dissent.



The President of Cyprus, Nicos Anastasiades, recently elected from the conservative DISY party, blanched at the original bailout deal offered by the troika, the European Commission, the European Central Bank, and the International Monetary Fund, to assess a levy only on the non-guaranteed deposits in the troubled Greek banks, which are those deposits in excess of €100,000.

He proposed instead to limit the levy on large deposits to 9.9%, and to make up the difference by violating what had been the general guarantee in Europe by assessing a lesser amount, of about 6.7%, on the 'guaranteed deposits' of less than €100,000 by small savers. That the troika did not blanch at the prospect of violating what had been a generally established EU policy to ensure bank stability speaks volumes about their cravenness.

The arrangement was made all the more clever by promising equity in the (worthless) banks in return for the levy, and perhaps even a guarantee of return based on 'future natural gas discoveries' which seem to be of much less value to the EU and the government.

This was one of their conditions for a €10 billion loan to the government under the European Stability Mechanism (ESM). The other involved the usual austerity measures, which are a favorite of the International Monetary Fund.

The austerity proposal had been revealed last November and include cuts in civil service salaries, social benefits, allowances and pensions and increases in VAT, tobacco, alcohol and fuel taxes, taxes on lottery winnings, property, and higher public health care charges.

The troika did not care about the details of the levy as long as the 'bail in' by depositor funds occurred. This was a sacrifice of a general European principle and was a serious policy error.



When this 'levy' on bank deposits was revealed over the weekend during a bank holiday, because it had to be submitted to a vote by the Cypriot Parliament, there was a general revulsion expressed amongst the markets and the people of Cyprus at such blatant misuse of the money power.

Monetary inflation, such as had been used in the US and UK, is more often used because so few people see their loss as blatantly as when the government simply confiscates 10 percent of their wealth on deposit. It is much easier done in smaller amounts, over longer periods of time. But one needs to have their own currency to do it. These days monetary policy and inflation is merely the continuation of bank fraud and plunder by other means.

By the way, this is why I thought the 'platinum coin' of a notional and whimsical trillion dollars in value was such an awful, dangerously cynical idea. It exposed the farce of monetary inflation in too great an amount, in too short a period of time, in a way in which too many people would readily understand it. And it therefore had the potential of fomenting a money panic.

Cyprus had been reasonably stable before the financial collapse, but was rocked by the Greek bond restructuring. What dealt a fatal blow was the impediment to borrowing because of a credit downgrade to BB+, which made the Cypriot bonds unacceptable as collateral to the ECB, and certainly not viable on the public markets.

And like many small, warm weather island nations, it's economy was overly dependent on tourism, retirement, and an outsized financial sector. Since Cyprus had been a British crown colony, its legal system resembles that of Britain, which still maintains significant military bases on the island, involving approximately 3,500 serving members.

Cyprus is in a bit of a box, because it really needs to leave the Eurozone and default on its obligations, and issue a currency of its own at a devaluation to the euro. But how would they recapitalize their banks, and what would the basis be for any reasonable valuation on this new currency?

If Cyprus owned gold reserves, or even forex reserves of some stable currency, they could make this the basis of their currency, while imposing capital controls. They could liquidate, nationalize if you will, the banks, and keep the depositors whole. Although the conversion to the new Cyprus currency would be a haircut of sorts, and likely impair their banking haven status.

Iceland was able to do something like this, and so was Russia for that matter, when they defaulted, devalued, and reissued the rouble back in the 1990's.

What would the Eurozone say if Cyprus forged a deal with Russia and provided them with military bases similar to the Sovereign Base Areas, currently occupied by the British, in return for a Russian bailout? Russia is a key debtholder and a major stakeholder in Cyprus. Their interests and presence must be dealt with, and carefully.

The question of Cyprus is important, not because it is a large and significant portion of the Eurozone economy. It is most certainly not, being much less than one percent of the total.

Rather, Cyprus is showing the fatal flaws in the conception of the Eurozone, and their single currency without real fiscal union, transfer payments, a common system of taxation, and a banker of last resort.

And it has also demonstrated the weakness of the guarantees by the bureaucrats, not only in Europe but elsewhere, when it comes to money.

This is a lesson that every central banker around the world should keep in mind. And the bureaucrats should remember that there is a step beyond which they may go, which will shatter the confidence of the people. And once that confidence is broken, it is very hard to recover it.

There is one lesson I hope that the people of the world take away from this. And that is to remember that a single currency is not possible without a complete union of monetary policy, and therefore a fiscal and political union that is complete and comprehensive. Otherwise a powerful group will wield monetary policy for their own benefit, and the rest of the currency area be damned.

When the single world currency proponents come around again with their proposals, what they are really proposing is a one world government to be established in the ensuing crisis which their actions will eventually provoke.

And despite the consistent capping of the precious metal markets, it demonstrates that there is only one money of last resort, that provides for no counterparty risk. And that is gold. And to a lesser extent the reserve currency of the world, which for now is the dollar.

It is confidence that sustains the integrity of a system based on counterparty risk, and it is that confidence that supports modern money. And where confidence declines, force is required. And where both force and faith fail, a break in confidence happens, and hyperinflation ensues. Hyperinflation is not simply a very high level of inflation.

A hyperinflation is a break in confidence, a monetary panic.

And in what is certainly a bit of historic irony, the German people are once again flirting with bank failures and a hyperinflation. But in this case it is because they, in their righteous indignation, are imposing the same kind of collective punishment, in terms and conditions of economic austerity and privation on others, that were imposed on them in post war reparation. Oh the irony, indeed.

Spring is in the air. Plus ça change, plus c'est la même chose.

[littleshark]

Re: Modern Money: A Study In Confidence and Crisis

This is all you need to know about Cyprus:

http://www.bloomberg.com/video/fink-...ExWMY1v6g.html

Mr. Market has spoken. Debate what's right and wrong all day if you'd like.

[big67]

Re: Cypriots Stunned by Forced Savings Cuts

"Those who think there is little risk of a levy being imposed on other periphery members are missing the point. The seeds of doubt have been planted. As a saver facing zero yields on deposits and a potential haircut, why keep your savings in a bank? Sure it is convenient for electronic transactions, but individuals can adapt easily. As one of my more amusing colleagues put it, 'mattresses now hold a 10 per cent premium.'"

Ben Davies (tip of the hat to Jesse's Cafe Americain)

I am wondering about Cyprus people.

How will they endure this? Can they still purchase something at all? What about people that needs medicines?

Banks are still closed, and I think they will stay closed for some days.
Even after, they may allow only minimal money withdrawal, Argentina corralito's style.

Now that this kind of bank account risk has been exposed, as a further measure I am withdrawing some cash to have a cash cushion available, sufficient for a couple of months or so.

[big67]

Re: Cypriots Stunned by Forced Savings Cuts

By the way, please remember that BullionVault money will need to transit via your bank account, so BullionVault is a good solution to keep purchasing power intact for a part of your savings in a crisis, but clearly it is not a solution for managing a banking crisis Cyprus style.

To recover your money from BullionVault after your bank seizure, I *assume* you will need to open a new bank account, get it recognized by BullionVault and finally transfer the money.

Untill this procedure is tested I can't really say how much time and effort will it take, or even if it is viable in the short term. I will try to clarify this procedure asap, just in case.

That's partly why I see BullionVault more as a medium to long term investment.

[Chomsky]

Re: Cypriots Stunned by Forced Savings Cuts

Thanks for posting this! I hadn't encountered Harrison before, and am glad you've pointed him out here.

This is important reading for anyone interested in seeing another perspective on this crisis. It is certainly unusual to find this level of balance among the usual Anglo-Saxon media outlets. To the extent that Germanic nations are in the driving seat, these are the views that will be determining the direction that the Euro travels.

Harrison is, in my opinion, an excellent commentator and observer. Glad you found his piece informative.

[big67]

Re: Cypriots Stunned by Forced Savings Cuts

From BV help

"Banking details Your BullionVault account is tied to a single bank account set by us when you first deposit funds. For security and money laundering reasons it cannot be manually changed."

I was unable to find a clear procedure to be used in case of bank seizure and impossibility to access your original bank account... I will try to get a reply from BV support, just in case...

[jk]

Re: Cypriots Stunned by Forced Savings Cuts

a couple of tidbits:

the talks are about a deal with Moscow for the sale of Popular Bank of Cyprus, known also as Laiki, and possibly other banks. The article said the Russians will seek some form of compensation. A naval port in Cyprus for the Russian fleet and access to the country’s natural gas reserves are among the rewards Moscow might seek.

and

A Spanish entrepreneur is selling viscoelastic mattresses with a built-in state-of-the-art safe deposit box, El Mundo reported last week. The inventor explains:

"History repeats itself. In the old days people believed that the safest place to keep their money was under the mattress. Now we propose the same thing, having seen people's unease with the current situation. I won't deny the idea is a bit mad, but we believe that with this mattress people will not only rest well, but also reassured that their savings are well kept."

[ProdigyofZen]

Re: Cypriots Stunned ..ngs Cuts

Really? How many non-Cypriots will see accounts holding less than 100k as wealthy Russian tax-haven funds?

The Germans screwed this one up. They think that everyone else thinks the way they think. Institutionalized national arrogance.

From Bloomberg:

"...“Cyprus has rebuffed the outstretched hand” of its partners, Hans Michelbach, a German lawmaker from Merkel’s Christian Democratic bloc and its ranking member on parliament’s finance committee, said in an e-mailed statement. The vote is “an act of collective unreason” and “the people of Cyprus must now pay a high price.”..."

No one will question that the Germans are arrogant. I am just saying most of these events are not as bad as people say.

Obviously it sets a negative precedent but as another article said it is a specific case with Cypriot's unique economy that is not duplicated anywhere else in the EU.

I am much more concerned about the rumblings in New Zealand for enacting a Cypriot style tax on depositors to bailout the banks.

http://www.financialmirror.com/news-....php?nid=29154

[bill]

Re: Cypriots Stunned by Forced Savings Cuts

a couple of tidbits:

the talks are about a deal with Moscow for the sale of Popular Bank of Cyprus, known also as Laiki, and possibly other banks. The article said the Russians will seek some form of compensation. A naval port in Cyprus for the Russian fleet and access to the country’s natural gas reserves are among the rewards Moscow might seek.

and

A Spanish entrepreneur is selling viscoelastic mattresses with a built-in state-of-the-art safe deposit box, El Mundo reported last week. The inventor explains:

"History repeats itself. In the old days people believed that the safest place to keep their money was under the mattress. Now we propose the same thing, having seen people's unease with the current situation. I won't deny the idea is a bit mad, but we believe that with this mattress people will not only rest well, but also reassured that their savings are well kept."

Military and energy ,,,sounds so Russian.
What kind of deal will Mr Sarris cut?

http://www.guardian.co.uk/world/2013...ctive-minister

Wednesday 20 March 2013 09.47 EDTMichael Sarris, the Cypriot finance minister, in Moscow. Photograph: Maxim Shemetov/Reuters

The Cypriot finance minister ended a day of loan talks in Moscow on Wednesday without reaching a deal to help save the Mediterranean island from a financial crisis that could have a disastrous impact across Europe.
Michael Sarris met his Russian counterpart, Anton Siluanov, before holding higher-level talks with Igor Shuvalov, a deputy prime minister and close ally of Vladimir Putin, the Russian president. The talks ended at about 4pm Moscow time and Sarris cancelled a planned press conference because of the lack of results.
On Tuesday the Cypriot parliament rejected a plan to impose a levy on bank deposits in order to raise €5.8bn toward a €10bn bailout offered by the European Union.
Cyprus turned to Russia for a lifeline, seeking a five-year extension on a €2.5bn loan granted in December 2011 that is due to mature in 2016. It has also asked Russia to refinance the loan and lend an additional €5bn.
"We had a very good first meeting, very constructive, very honest discussion," Sarris said after meeting Siluanov. "We've underscored how difficult the situation is." However, he said there were "no offers, nothing concrete".
Sarris said he would stay in Moscow until a deal was reached. "We'll now continue our discussion to find the solution by which we hope we will be getting some support," he said. Asked by reporters whether that meant simply renegotiating a loan, Sarris said: "No, we are looking at things beyond that."
Russian banks and businesses are believed to have more than $30bn held in banks in Cyprus, the country's favoured offshore tax haven. The proposed levy would have forced rich Russians as well as not-so-wealthy Cypriots to contribute to the EU bailout.
Putin was one of the loudest critics of the plan, calling it "unfair, unprofessional and dangerous". Russian officials expressed dismay that they were not informed of the proposal in advance.
Now, in its role as potential saviour, the Kremlin is believed to be haggling for shares in Cypriot banks and gas fields in exchange for the requested loan, the Russian press reported.
On Wednesday the Cypriot government denied reports that Cyprus Popular Bank, the country's second biggest bank, was being sold to Russian investors.
The energy minister, George Lakkotrypis, who oversees commerce, industry and tourism, was also in Moscow on Wednesday, although Cypriot officials said he was visiting a tourism exhibit.
His appearance in Moscow has fuelled speculation that the state monopoly Gazprom was seeking exploration rights over gas fields recently discovered off Cyprus's Mediterranean coast. Gazprom has denied the reports.

[don]

From Cyprus Gambit to Gazprom

By ANDREW E. KRAMER

MOSCOW — When the European Union said it would bail out Cypriot banks by seizing a percentage of deposits, Cypriots erupted. Russian government officials also raged, on behalf of Cyprus’s many Russian depositors.

Meanwhile Gazprom, the giant Russian energy company, quietly acted by offering a private bailout plan. Rather than tax deposits, Cyprus could raise money to right its economy by selling Gazprom exploration rights to offshore gas deposits in the Mediterranean Sea.

The fate of this proposal is uncertain. Gazprom refused to confirm it even made an offer. But it illustrates how a sprawling, wealthy company so deeply entwined with President Vladimir V. Putin of Russia that it is often called a state within a state is willing to seize an opportunity and exploit weaknesses and divisions within Europe to cement its position and power.

Gazprom already has vast gas deposits in Siberia. But the emergence of an independent gas industry in Cyprus could further undercut Gazprom’s monopoly pricing power in Europe, already threatened by the global gas glut from the American shale gas boom.

Ownership of Cyprus’s promising though undeveloped reserves, lying beside similarly large deposits found recently off the coast of Israel, would prevent potential competitors from obtaining them and ensure a supply of gas — and Gazprom’s continued power — for generations to come.

Gazprom, the world’s largest natural gas company, accounts for about a tenth of Russia’s gross domestic product as it earns billions of rubles by providing Europe with about 40 percent of its imported gas.

Often, its resources become the Kremlin’s tool of choice for settling domestic and foreign policy problems, as it did in 2004 in a dispute over gas prices and transshipping gas to Western Europe. After a pro-Western government came to power in Ukraine in 2004, Gazprom twice shut off the supply of natural gas to the country at the peak of the heating season. Some countries farther west along the pipelines also ran low on heating fuel, in a sign of the reach of Russian pipeline politics.

While the Gazprom proposal was widely interpreted as an effort to elbow aside the European Union and the International Monetary Fund, it was at the very least audacious: a private company was in effect offering to save a nation’s economy.

On Sunday evening, a day after the European Union announced its plan, the banking subsidiary of Gazprom, called Gazprombank, owned by the employee pension fund, had, according to a Russian news agency, delivered its proposal to the office of the president of Cyprus.

Gazprombank’s maneuver, while clearly aimed at benefiting the parent company, also highlighted the deep dependence of Russia’s business and political elite on Cypriot offshore banking. They have used it to avoid taxes and political risk at home and to access Cyprus’s relatively reliable court system to adjudicate disputes. Russian depositors in Cypriot banks risk losing about $3.1 billion to what the European Union is calling a stabilization tax on bank savings, from a total of $31 billion held by Russians in Cypriot banks, according to a report by Moody’s, the rating agency. Mr. Putin called the tax on deposits “unfair, unprofessional and dangerous.”

Dimitry Afanasiev, the chairman of Egorov Puginsky Afanasiev & Partners, a law firm that advises Russian companies on Cypriot investments, said in an interview, “My understanding is that Gazprom has suggested a private bailout” of Cyprus’s banking system.

A Cypriot television station, Sigma TV, reported that after Gazprom delivered its offer to the office of President Nicos Anastasiades of Cyprus on Sunday evening, Mr. Anastasiades did not hold talks on the offer.

The Cypriot Parliament on Tuesday overwhelmingly rejected the 10 billion euro bailout package that would have placed a tax on bank deposits. It was unclear, however, whether a Russian alternative might still be considered viable.

Gazprom’s spokesman, Sergey Kupriyanov, denied the gas company made the offer. Separately, however, an unidentified company spokesman clarified to the Itar-Tass news agency that a banking subsidiary, Gazprombank, was indeed in talks with the Cypriot government.

The fate of the proposal is as murky as the proposal itself. The Cyprus government wanted American energy companies to develop its offshore assets as a hedge against possible Turkish meddling, said Mr. Afanasiev, who has been a vocal advocate for a Russian alternative to the European proposal.

Gazprom and Gazprombank are commercially entwined but under distinct managements; the bank, one of Russia’s largest, has since 2007 been managed by a tight coterie of businessmen with longstanding ties to Mr. Putin.

Gazprom in 2007 transferred control of 47 percent of Gazprombank to its pension fund, Gazfond. The pension fund in turn hired an asset management agency belonging to another bank, Rossiya Bank, to run Gazprombank. This skein of financial transactions, Russian style, resulted in Rossiya Bank, based in St. Petersburg, controlling Gazprom’s financial arm, which over the weekend made the offer to Cyprus’s president.

A former neighbor of Mr. Putin’s at a summer home community outside St. Petersburg, Yuri Kovalchuk, co-founded Rossiya Bank in the 1990s. Another member of that summer home community, called the Ozero co-operative, Nikolai Shamalov, is a major shareholder in the bank.

The press office of Rossiya Bank did not respond to questions submitted in writing on Monday.

Though not widely publicized, the Russian proposal to prop up Cyprus with assets belonging to the Gazprom pension fund was apparently taken seriously enough by Germany’s chancellor, Angela Merkel. Her office issued a statement on Tuesday noting she had warned the president of Cyprus in a telephone call not to consider alternatives to the European bailout; Russia’s offer is the only known alternative.

Michael Olympios, chairman of the Cypriot Investors Association, said one possibility under active consideration was for a Russian bank to buy Cyprus’s biggest troubled lender, the Cyprus Popular Bank, in a deal that could reduce the amount of the 10 billion euro bailout sought by Cyprus. Any such move would most likely be backed by the Kremlin, Mr. Olympios added, and could reduce the tax that Russian depositors might otherwise have to pay.

Russian officials were preparing for talks in Moscow on Wednesday with the Cypriot finance minister, Michalis Sarris, who was expected to request that Russia postpone the maturity date on a 2.5 billion euro loan that it extended to Cyprus in 2011.

Liz Alderman contributed reporting from Nicosia, Cyprus.

[big67]

Re: From Cyprus Gambit to Gazprom

Just to tell that I received official confirmation by BullionVault that, as I expected, there is a precise procedure in place to allow clients to use a different bank account to recover their funds, in case the original bank account used in connection with BV is frozen (e.g. bank holiday, bank seizure etc.). They sent me some details and I am satisfied.

On a separate note, we received the new by the Italian press that Cyprus ATMs are working and cash withdrawal is available, and also credit cards are working, albeit with amount limitations it seems.

[GRG55]

Re: Cypriots Stunned by Forced Savings Cuts

One more tidbit:

European Commission redefines deposit insurance

This is hugely damaging. According to eKathimerini, a European Commission spokesman explained on Tuesday that deposit guarantees are only operative "in the event of a bank failure" and that a deposit levy is "a fiscal measure applied to all bank accounts", not to those in failing banks. Reuters quotes Klaas Knots, president of the Dutch central bank, as saying that bank customers should get used to the idea of this type of bail-in, at least for as long as the eurozone has no common bank resolution policies.

Since they are now using the levies as a protection against bankruptcy, the result is that banks do not go bankrupt because the insured depositors pay through a levy. Through this legalistic reasoning, the Commission has single-handedly voided all deposit insurance through the EU, or rather rendered it pointless. It means that all deposits, in all EU states, should be considered uninsured.

[astonas]

Re: Cypriots Stunned by Forced Savings Cuts

One more tidbit:

European Commission redefines deposit insurance

This is hugely damaging. According to eKathimerini, a European Commission spokesman explained on Tuesday that deposit guarantees are only operative "in the event of a bank failure" and that a deposit levy is "a fiscal measure applied to all bank accounts", not to those in failing banks. Reuters quotes Klaas Knots, president of the Dutch central bank, as saying that bank customers should get used to the idea of this type of bail-in, at least for as long as the eurozone has no common bank resolution policies.

Since they are now using the levies as a protection against bankruptcy, the result is that banks do not go bankrupt because the insured depositors pay through a levy. Through this legalistic reasoning, the Commission has single-handedly voided all deposit insurance through the EU, or rather rendered it pointless. It means that all deposits, in all EU states, should be considered uninsured.

Very sneaky. Nice catch.

It looks like the Dutch are also trying to use this excuse to throw some pressure on those nations that are dragging their feet about common bank resolution policy. City of London, Spain, etc. are being slowly roasted, but so far the temperature doesn't seem to be enough to make a difference. I wonder what that will take?