The lunacy of the IMF and German government have pushed the limits of bank bailouts and proceeded to create a need for bank BAIL-INS. The IMF, with German prodding, desired the depositors in Cypriot banks to absorb some of the costs of the long-delayed bailout. It seems at this time that depositor with less than 100,000 Euros will be “taxed” at 6.75 percent while those with holdings MORE THAN 100,000 EUROS will be “taxed” at 9.9 percent. This is wealth confiscation in an effort to maintain the Cypriot financial system. DEPOSITORS WILL BE FORCED TO ABSORB LOSSES WHILE BONDHOLDERS WILL BE MADE WHOLE. There is no consistency in Europe: Greek depositors were left whole while sovereign bondholders were forced to take large haircuts. The efforts by the IMF and Germany and the ECB to sustain the Cypriot system, an amount of money equal to 10 BILLION EUROS is going to cost the global financial system possibly hundreds of BILLIONS of dollars. The immediate fallout from the weekend lunacy of the Eurocrats is causing large selloffs in global financial markets.
Again, 10 BILLION EUROS and the need to force depositors to absorb some of the hit is nothing more than the continuation of arrogance by policymakers to have the European Union’s problems under control. A large question now comes into play: U.S. MONEY FUNDS have gone back into the European financial markets out of fear about U.S. regulators demanding a holdback period on U.S. money market funds. Where will the short-term deposits head next? THE CYPRIOT EFFORT WITH IMF PRODDING IS VERY UNSETTLING. The Russians will be the most impacted by the European move at wealth confiscation. Your move, President Putin, as the pawns have been sacrificed.
Tags: 10 billion euros, Cyprus, German government, IMF, U.S. money funds
March 17, 2013 at 9:48 pm |
Watch the depositors run the banks in Spain and Italy as the sun begins to dawn on Europe. When Draghi promised he would do everything necessary to save the Euro and the Eurozone, I don’t think even he imagined the devices he would need to save it from angry depositors. What any banking authority could do to shake depositor confidence now pales in comparison to this bone-head move. Unbelievable!
March 17, 2013 at 10:05 pm |
Kevin–right on target.Asian Contagion,Europe in july 25th,2012–the contagion of the fear of euro bank depositors–priceless—oh President Draghi–do you have the conditions set for OMT
March 18, 2013 at 1:23 am |
“Watch the depositors run the banks in Spain and Italy as the sun begins to dawn on Europe.”
I’m french and I told all my family to empty their bank accounts asap, leaving the strict minimum. Go to phyz gold. Go to cash. Store it outside banking system.
I knew Lagarde was silly, but THAT silly?? The only word that comes is unbelievable. Do they think they can steal russian oligarch’s money without retribution?
And all this for a mere 10 billion euro?
It’s a nice gift they just made to Jim Sinclair : his birthday will meet his recent forecasts!!
March 18, 2013 at 4:30 am |
Got an email from a friend in Warsaw Poland.the bank runs started on Saturday in Poland.knuckle headed eurocracts!!!!
March 18, 2013 at 5:42 am |
It’s unbelievable. After thinking about that problem for months, they are unable to generate another solution! This eurocrats are so proud that don’t take into account the consequences of their decisions.
I don’t expect a banking run in Spain, al least in the short run, because TV’s are well controlled. A different thing is the flight of funds and buyers of bonds.
March 18, 2013 at 5:51 am |
Not a surprise to this skeptic (cynic?). Didn’t Nancy Pelosi float the idea a couple of years ago of making 401K’s part of a larger federal government program? What makes anyone have faith in governments to do the right thing for the people who are not either in the elite ruling class (and this holds true more for communists and socialists than even our own U.S. anointed pols), contributors to, industries in support of, and foundational bureaucrats. Was Kafka ever far from the future truth? Years ago, reading his “The Castle”, I was totally engrossed, but carried a dark omen cloud since (1978 to now?! Yikes). For me no doubt, “The Trial” can’t be far behind…
Seriously, (can one be more serious than Kafka?) I see this as only a “running up the flagpole” of a concept that governments everywhere will watch, and likely many will copy. Even easier for sovereign governments not associated with a some larger “Union”.
To the point of bondholders, are there any?
By golly, this wouldn’t fly in the U.S.! Bondholders would be more surprised than Captain Renault in Casablanca and aver to take legal action – oh, the same people who do it are the ones who run the courts. Guess we have to go to Dick the Butcher for the answer: “The first thing we do, let’s kill all the lawyers” (King Henry VI)
Boy, it’s difficult to be serious about this. Governments, more precisely, those who run governments, will stoop a low as it takes to assure their continued rule. It is as it has always been.
So, how do we, mere citizens trying to preserve and maybe grow our capital respond? Gee, I wish I had a quick answer for that. It’s so much easier to see what not to own after it is clear you should not have.
March 18, 2013 at 6:03 am |
To all–these are very good responses to a difficult situation.Again,the need to keep a copy of the Rotten heart of Europe so you have a program at hand to know the players—can’t know the players without a scorecard.The reference to Kafka is spot on—I will reiterate the idea of the movie—Bang the Drum Slowly,where the card game of choice is TEGWAR—the exciting game without any rules—Europe is struggling to find some consistency in the rule of law
March 18, 2013 at 6:33 am |
And, most of the Europeans just take it. Think this sort of govt behavior is okay.
March 18, 2013 at 7:29 am |
Pointsnfigures, you are absolutely right.
March 18, 2013 at 7:51 am |
Again—the Euro crisis was obvious to those who wanted to see.As a person at ABN Amro told me in a discussion back in 1999 when I informed him that the CME was going to keep the Deutsche Mark contract–you are crazy because the powers that be have too much money and energy invested in the Euro concept–the Deutsche Mark will never come back
March 18, 2013 at 9:28 am |
Is this so conceptually different from what happened in 2008 when the Fed bailed out C, BAC, JPM et el, except it was the taxpaper’s pockets that were picked instead of the individual accounts in Nicosia.. This allowed the banks’ bondholders and shareholders (whose holdings are making multi-year highs) to survive and prosper. The authors of the 16th amendment probably did not intend for our contributions to the denizens of D.C. to use our income for such purposes.
The unraveling of statist policies continues.
March 18, 2013 at 12:38 pm |
Yra,
Could you please explain the linkage between “U.S. money funds have gone back into European financial markets” and “out of fear about U.S. regulators demanding a hold-back period on U.S. money mkt funds.” Thanks.
March 18, 2013 at 1:18 pm |
Joseph–the July 25th move in the European credit markets was met with U.S. money funds becoming very nervous and scared about European solvency and the short term lending to European entities was curtailed and U.S. funds basically returned home.There is been much discussion by U.S. regulators about forcing a hold period on large money market funds being forced to have a 30 day period when their funds would be held by the funds so as to prevent a “bank run”.There is systemic risk when large pools of capital all run from the money fund on any hint of bad news.This was the worry about breaking the buck.The money market funds are not fdic insured and thus pay no insurance costs and thus can pay higher rates and it drives the banks crazy,because the money market funds have systemic risk capabilities—there is talk about fund holders getting only 90% out immediately and the rest at a later date.If any of these regs were invoked ,money rates would fall.The fear of the imposition of this reg has forced some of the large money market funds to return to the European markets–especially France and other deemed to be more solid—hope this helps
March 18, 2013 at 6:19 pm |
Yra,
Thanks for your response. I will try to synthezie from what you have said and what I previously knew. Chronology:
1. M Mkt Fds are pressed for yield and the need for risk avoidance.
2. Mario Draghi comes along in summer 2012 with “we will do whatever is necessary to save the Euro”. This hopefully interpreted iron-clad commitment offers m mkt fds an answer to both concerns. They buy short-term European soverign debt.
3. Events in Cyprus now calls into question that strategy which is dependent on “iron-clad” quality. Reversal of the strategy could cause a trafffic jam at the exits.
Regards, Joseph
March 18, 2013 at 4:35 pm |
Yra,
Great answer to JBP’s question on Money Market Funds. The tell is looking at the holdings of even “safe” mm funds on the SEC’s EDGAR database. A trip to: http://www.sec.gov/Archives/edgar/data/276516/000136492313000013/main.htm shows the Quarterly Holdings Report for Fidelity Money Market Trust Retirement Government Money Market Portfolio as of November 30, 2012. Notice that 50.7% of their portfolio is in repurchase agreements with (predominantly) foreign banks, especially European banks. Yes, the collateral may be U.S. Government Debt, but in 2008 we all learned that Repos are riskless, right?
March 18, 2013 at 7:20 pm |
Kevin and Joseph–both are great adds to a very active blog today—Joseph that was a high quality summation
March 19, 2013 at 6:46 am |
Here in the USA, the art of fleecing bank depositors is much more refined. After all, what is the difference of paying a 7% tax if you are in Europe or receiving no interest on your money and losing 7% to inflation if you are in the USA?
March 19, 2013 at 2:12 pm |
Michael–repression by any other name is still financial repression.But this is too cynical for you