Cyprus: 10% Savings confiscation

[gizmo_rat]

"euro zone finance ministers force Cyprus' savers to pay up to 10 percent of their deposits"

http://uk.reuters.com/article/2013/03/1 ... 7R20130316

Shocking just shocking, I never thought I'd see this in the Eurozone.

[clacy]

"euro zone finance ministers force Cyprus' savers to pay up to 10 percent of their deposits"

http://uk.reuters.com/article/2013/03/1 ... 7R20130316

Shocking just shocking, I never thought I'd see this in the Eurozone.

Scary stuff.

Japan and Europe could be very interesting over the next few years with the US likely right behind it.  I do think the US will be more stealthful in it's attempts to confiscate however.  I think this was just a direct way of getting their hands on a lot of Russian money that is parked in Cyprus.

I think the MMT/MMR'ers will be proven wrong, even though I hope they are correct. 

[murphy_p_t]

I agree...this is shocking.

Is there any precedent for this action?

In Cyprus...they don't control the currency...so this is viewed as a way out since they can't devalue the currency?

[Ad Orientem]

Was just about to post this related story which I will just link here instead...

It is a bad day to have your money deposited in a bank in the Mediterranean island nation of Cyprus. And it may just mean some bad days ahead for the rest of us.

Early Saturday, the nation reached an agreement with international lenders for bailout help. Part of the agreement: Bank depositors with more than 100,000 euros ($131,000) in their accounts will take a 9.9 percent haircut. Even those with less in savings will see their accounts reduced by 6.75 percent. That’s right: Anyone with money in a Cypriot bank will have significantly less money when the banks open for business Tuesday than they did on Friday. Cypriots have reacted with this perfectly rational reaction: lining up at ATM machines to try to get as much money out in the form of cash before the money they have in their accounts is reduced.

From here...
http://www.washingtonpost.com/blogs/won ... al-crisis/

[Ad Orientem]

I think this is a colossal mistake. People are very logically going to conclude that if this can happen in Cyprus why not in another debt strapped country? It could precipitate a run on banks in every Euro Zone country that has major debt problems. If I lived in Italy Spain or Portugal I would be waiting at my bank on Monday morning to yank every Euro.

[Pointedstick]

I think this is a colossal mistake. People are very logically going to conclude that if this can happen in Cyprus why not in another debt strapped country? It could precipitate a run on banks in every Euro Zone country that has major debt problems. If I lived in Italy Spain or Portugal I would be waiting at my bank on Monday morning to yank every Euro.

Absolutely. Frugal, are you listening?

What's amazing to me is how it's only for bank deposits. Anyone with the bulk of their money invested is likely to be okay, while the average working stiffs lose between 6.7 and 10%. Just amazing. This is the kind of thing that revolutions are made from.

[clacy]

I think this is a colossal mistake. People are very logically going to conclude that if this can happen in Cyprus why not in another debt strapped country? It could precipitate a run on banks in every Euro Zone country that has major debt problems. If I lived in Italy Spain or Portugal I would be waiting at my bank on Monday morning to yank every Euro.

I agree.  I feel the collapse of the EU/Euro Currency was a matter of when, not if, but this is going to start a huge chain of problems for them, IMO.

Europeans in many countries will see this as a horrible sign and start to buy real assets in the US/UK/Australia as a way to protect their wealth.

This will end up being devastating

[clacy]

The wealthy in Europe are not stupid. 

They would be stupid to not immediately start moving any "paper" wealth out of the Eurozone.

[Ad Orientem]

Indeed. The more I think about it the more this seems one of the more idiotic things I have heard of in a while (which is saying a lot). This really could set off the Euro-debt bomb.

[clacy]

Indeed. The more I think about it the more this seems one of the more idiotic things I have heard of in a while (which is saying a lot). This really could set off the Euro-debt bomb.

Agreed.  You would think they could have figured out a more stealthful way of seizing money. 

I'm not normally a financial-Armageddon type guy who advocates holding only guns, gold and ammo in their portfolio, but I don't see how this doesn't signify a HUGE crack in the EU's entire banking and political system.

[Ad Orientem]

The NY Times is reporting that a senior Euro official declined to rule out that the same measure could be taken elsewhere. Wow. Just wow.

[WiseOne]

If Harry Browne were around today, the "I told you so's" would be deafening.  It's incredible how you can think one day that this would be unimaginable, and then there it is in the newspapers the next day.

Makes you pretty happy that you've got some gold coins stashed out of sight, doesn't it?  Those who have been hesitating to buy the real thing, take note.  ETFs won't protect you when some bright person remembers to apply a rule like this to brokerage accounts.

[WiseOne]

Another article on why knocking the support out from under FDIC-type insurance is so dangerous.

Under the system until yesterday all depositors in Cypriot banks were insured up to the value of €100,000 with any one bank. Today that solemn and governmental promise has been shown to be false. And not even the European Union nor the European Central Bank are going to make them stick to it. Indeed, very much the other way around. The EU and ECB are insisting that the Cyprus authorities breach this deposit insurance provision.

http://www.forbes.com/sites/timworstall ... insurance/

[Reub]

Well, as long as they are doing it to the Russians and the "rich" it should be okay.
Right?

[D1984]

Did the stockholders, bondholders, and any depositors with deposits above the insured limit get 100% wiped out (or 100% wiped out for whatever was over the insured limit in case of the depositors) in this bailout? If not, legally shouldn't those two groups have lost everything before insured depositors were asked to sacrifice one single Eurocent?

Also, if (according to the Reuters article) that "it would not otherwise have been possible to save Cyprus's financial sector which, compared with national economic output, is more than twice as big as the EU average" then why not just let the financial sector go under and everyone invested in it besides the insured depositors would just lose everything? This is what happened in Iceland (which had an even larger financial sector vis-a-vis its real GDP than Cyprus did--IIRC Iceland's was six or seven times the size of its  entire non-financial economy) and they are now a lot better off in terms of unemployment and GDP growth than the PIIGS countries are. Does Cyprus simply not have enough money of its own--even presuming all the bank bondholders and stockholders were wiped out and as such didn't have to be paid back a cent--to pay off all the uninsured deposiutors if the banks all fail (this is what they get for not having their own currency...Iceland had no such problems because it was on the Krona and not the Euro)?

[KevinW]

http://www.economist.com/blogs/schumpet ... s-bail-out

What had not been anticipated was a 6.75% loss for savers with deposits in Cypriot banks below the insurance ceiling. Cypriots woke up this morning to find bank branches closed to them. By the time they will be able to get at their money, it will be too late.

I'll file that away for the next time someone says that FDIC accounts are just as safe as T-bills.

[number5858]

As usual, don't forget to read the small print. This isn't just about the haircut. There is also a nice healthy 500% corporate tax raise from 2.5% to 12.5% and they said the gov't will accelerate selling assets,aka privatization.

[Gosso]

http://www.economist.com/blogs/schumpet ... s-bail-out

What had not been anticipated was a 6.75% loss for savers with deposits in Cypriot banks below the insurance ceiling. Cypriots woke up this morning to find bank branches closed to them. By the time they will be able to get at their money, it will be too late.

I'll file that away for the next time someone says that FDIC accounts are just as safe as T-bills.

Hmmm, but private holders of Greek debt took a 50% haircut, while Greek bank accounts were unaffected.  Also Cyprus is relying on foreign governments to approve the bailout, which isn't required for the US and other similarly structured countries.

This whole situation reminds me of Icesave.  It seems the entire reason for the 10% tax is to punish Russian speculators looking for yield.  An easy solution is to have Cyprus citizens present a government-issued photo ID and then have the tax removed.  Voters are happy, foreign investors get screwed.

[MachineGhost]

Wow, the depraved depths the bank bondholders will go to just to avoid a haircut...  rich people win, little people lose.

[WiseOne]

Wow, the depraved depths the bank bondholders will go to just to avoid a haircut...  rich people win, little people lose.

Like the Paul Ryan budget?

They were more afraid of driving away Russian money launderers than of violating one of the linchpins of the European banking system and risking bank runs throughout the EU.  Unbelievable that the ECB didn't think of that little problem.

[AgAuMoney]

I'll file that away for the next time someone says that FDIC accounts are just as safe as T-bills.

Also, what's to say that if they were going to screw people via FDIC, they wouldn't do it to holders of T-bills? I mean, if your going to renege on your promises, what's the limit?

Obviously there is no limit.

It is one thing for the gov't to confiscate 3% every year on average via inflation.  It is another thing entirely to explicitly renege on an explicit promise.

The only thing that would be safe from confiscation like this would be holding assets in your possession (not a safe deposit box).  Going around raiding homes is yet another step.  But oh, wait, California has been doing that. 

And holding currency doesn't seem promising.

Confiscations like these start making the ideas that have been floating around of voiding currency based on serial number (like a reverse lottery) start sounding a bit more possible. 

[KevinW]

Also, what's to say that if they were going to screw people via FDIC, they wouldn't do it to holders of T-bills? I mean, if your going to renege on your promises, what's the limit?

Maybe that *could* happen. But this is a real documented example of a national government scooping money out of insured deposit accounts while continuing to service their short term debt. So the latter scenario is something that *does actually* happen.

***

I'm guessing that, come Monday and Tuesday, I'll be glad to be holding a PP.

[AgAuMoney]

Gold and silver sure spiked up when NY Globex opened.

[buddtholomew]

...and then gave it all back...GLD and SLV never do what you expect them to. I wouldn't be surprised if they were down significantly tomorrow for some reason we haven't considered. I've lost complete faith in anything financially related after this news...I hope the Cypriots riot and destroy the city. What a bunch of fools...

[brick-house]

Kevin W wrote: 

I'm guessing that, come Monday and Tuesday, I'll be glad to be holding a PP.

+1 - March Madness might be the markets this week more than the hoops.