Posted on 03/25/2013 9:06:05 AM PDT by redreno
magine waking up to find out that as much as 40 percent of the money you thought was safely deposited in the bank was seized, without your permission, to bail out a near-bankrupt government.
That's just what thousands of large depositors in Cyprus woke up to Monday morning after European Union officials accepted a last-minute deal offered by the island's lawmakers to secure a $13 billion bailout to avert imminent financial meltdown.
(Excerpt) Read more at foxnews.com ...
Okay, thank you.
Please ping me if you find out anything new on this.
Pootie-Poot Putin just lost 40 percent of his bank account. Scalping the KGB like that is going to cause some major Bolshevik Blowback!
Bondholders are taking a haircut also, assuming this agreement passes.
The European Union - the New Soviet Union?
http://www.youtube.com/watch?v=bM2Ql3wOGcU
The two banks in the agreement, Bank of Cyprus and Cyprus Popular, are largely government-owned.
Thank you, Toddsterpatriot also informed of that.
I was under the impression there was to be no vote. Has that changed as well?
That seems to be the understanding, but it’s not entirely clear yet. The President has agreed, but the minor sticking point is whether he has the authority to make the agreement w/o Parliament’s consent.
I can foresee the Romanians asking for a bailout. Arguably, it’s the poorest country in Europe.
It’s practically a real-life Elbonia, for all you Dilbert fans out there.
They will think twice about that now.
Bailouts will be slowing appreciably.
Very odd situation. Last week the deal was better, but Parliament voted it down. Now the deal is worse and Parliament might not get a vote?
Better - maybe. Better for whom is what matters tho’.
I, for one, am in favor of the rule of law. Last week’s agreement would have thrown that out the window by imposing cuts on depositors who had their accounts 100% covered by deposit insurance (those with less than 100,000 euros on deposit.) Those were also mostly actual Cyprus citizens, who were a bit peeved.
Yesterday’s agreement follows the contractual terms those depositors have, and only affects those with accounts over 100,000E, i.e., the amount that is not insured against bank failure. Plus, all bondholders take a hit, with junior taking more of a hit than senior. This is how it should be.
Mind you, it’s no fun for anyone involved, but it follows established law and is much more orderly than the mess Merkel and her finance lap-dog threw together last week. Except for the possibility that Parliament might say “You can’t do that!” But I think they’ll punt.
I guess I hadn’t thought that through. This does sound like a fairer deal. It also angers less people. Now I’m interested to see where it goes from here...what, if any, will the repercussions be?
Repercussions... who knows? But if I had money in a Portuguese bank, I’d probably be taking it out.
One thing I can almost guarantee is a bank run on the banks of the next country to approach the ECB for a bailout. That country best close its banks first.
Wouldn’t you take your money out now if you were rich? Who knows what the next threshold will be. 100K? 75K? 50K?
But to answer your question - probably. Just, not being rich, I have no idea where I'd then put it. I'm guessing the mattress isn't big enough.
I would have no idea either. College students don’t have too much money. I have plenty of eggs and Ramen noodles though.
Shh. You are not supposed to know that. And you are not supposed to know that Cyprus banks were busted when the Euro socialist scumbags bailed out Greece. Cyprus tried to help their Greek compatriots out by using the Russian mob money deposits to buy Greek bonds. Then Greece was bailed out by giving the bond holders a > 70 % Devils Haircut. You are not supposed to know any of that.
This excerpt from the following linked article explains how it all went down.
Euro zone clamor drowned out Cypriot bank warnings
GORGING ON GREEK DEBT
Bulging deposit books not only fuelled lending expansion at home, it also drove Cypriot banks overseas. Greece, where many Cypriots claim heritage, was the destination of choice for the island's two biggest lenders, Cyprus Popular Bank -- formerly called Laiki -- and Bank of Cyprus.
The extent of this exposure was laid bare in the European Banking Authority's 2011 "stress tests", which were published that July, as the European Union and International Monetary Fund (IMF) were battling to come up with a fresh rescue deal to save Greece.
The EBA figures showed 30 percent (11 billion euros) of Bank of Cyprus' total loan book was wrapped up in Greece by December 2010, as was 43 percent (or 19 billion euros) of Laiki's, which was then known as Marfin Popular.
More striking was the bank's exposure to Greek debt.
At the time, Bank of Cyprus's 2.4 billion euros of Greek debt was enough to wipe out 75 percent of the bank's total capital, while Laiki's 3.4 billion euros exposure outstripped its 3.2 billion euros of total capital.
The close ties between Greece and Cyprus meant the Cypriot banks did not listen to warnings about this exposure.
The banks sold down some of their Greek holdings, but then got back into the market as yields rose. "When the Germans were selling, they were buying," said Apostolides, referring to the German banks' 2011 dumping of Greek debt.
Simona Mihai, assistant professor at Cyprus European University's banking and finance department, said the banks' exposure stemmed from a desire to help their nearest neighbors, and a belief that Greece could recover.
"People are thinking in hope," she said. "They do not see it from an analytical perspective."
A former executive of one of the banks, who did not sit on the management team and asked not to be named, said the exposure and the banks' overall expansion stemmed from greed. "To help deliver profits, they lent and lent and lent and invested in Greek bonds," the person said.
Staff, who mostly got small bonuses and annual pay rises of around three or four percent, were unhappy about the mounting exposure to Greece but powerless to stop it, the source added.
Whatever the motive, the Greek exposure defied country risk standards typically applied by central banks; a clause in Cyprus' EU/IMF December memorandum of understanding explicitly requires the banks to have more diversified portfolios of higher credit quality.
"That (the way the exposures were allowed to build) was a problem of supervision," said Papageorgiou, who was a member of the six-man board of directors of the central bank at the time.
The board, which met less than once a month, never knew how much Greek debt the banks were holding, both Papageorgiou and another person with direct knowledge of the situation told Reuters.
PERSONAL BATTLE
Papageorgiou and two other directors voiced concerns about the toothless nature of the central bank board, leading to public and bitter clashes with Orphanides, who stringently denied any lapses and said he had encouraged the banks to offload their Greek positions.
"It was very sad, he accused me of undermining him," said Papageorgiou, who left the central bank board when he was elected to parliament in 2011 for the then-ruling AKEL party, which lost power to the right wing Democratic Rally party in February 24 elections.
Orphanides also clashed with leaders of the AKEL government. Apostolides says the central bank governor had told Cyprus' president that the banks could survive a maximum 25 percent loss on their Greek bonds.
The "haircut" ultimately agreed by European leaders, including Cyprus' president Demetris Christofias, was more than 70 percent, heaping losses of 4.5 billion euros on the banks.
Well, yes, but the amount seized isn’t reflective of the full bailout issue. It was seized because the Germans were not going to see German money go towards propping up the banks to insure that Russian depositors came away whole.
In effect, the Germans said “The Russians must suffer. Period, no negotiation.”
Also note that the amount of loss the Cyprus banks experienced due to the Greek Bailout Bond Haircut (~4.5 billion see above article) is fairly close to the amount the EU demanded from the Cyprus deposits. Coincidence ?
Sigh. No money was seized. No governments were bailed out. The Cypriot banks simply went bankrupt because they made bad investments with the money their depositors loaned them, and now that money is simply gone forever. Pretty bard to repay the depositors when you blew all the money they loaned you.
What people don’t realize is that when they deposit money in a bank, it’s not for the purpose of the bank to hold on to THEIR money for THEIR convenience, but what they are really doing is LOANING their money to the bank! They are actually a lender and not a depositor. And once they loan the money to the bank, it’s no longer their money, it’s the bank’s money! This is all spelled out in the account agreement one signs with a bank, and by loaning your money to the bank you’re giving the bank permission to use the money you loaned them pretty much as they see fit, and there is no real guarantee that you’ll ever get back any of the money you loaned the bank!
Prior to the illusion of FDIC insured deposits (loans) and it’s equivalent in other countries, banks used to go bankrupt all the time, completely wiping out ALL investors’ deposits. That was a big part of the death spiral of the Great Depression and why it was necessary for FDIC insurance to be invented, or otherwise no sane person would ever loan their money to a bank again.
And like in the EU, the FDIC actually only insures accounts up to a certain limit, and for anything over that there simply are no guarantees you’ll ever get the money you loaned the bank back. Period.
Now when banks DO go bankrupt, there are SUPPOSED to be lawful ways in which the remaining assets are distributed to the banks debt holders in an orderly, lawful fashion, the depositors being simply one class of debt holder. That process has worked pretty well in the U.S. recently, but given the propensity of the Obammunists to ignore the law and just do what they feel like, all bets are off for the future.
And in places like Cyprus, it sounds like they didn’t have ready-made procedures for bank bankruptcies anyway, so they had to make some up quickly. One could label such ex-post facto, ad hoc measures “theft”, but the net result to those foolish enough to make giant loans (deposits) to these crappy banks would probably be pretty much the same if Cyprus had a U.S.-like process in place prior to bank bankruptcy anyway, namely the depositors money has simply completely evaporated because the banks made really, really bad investments with their depositors’ loaned money, and they’d wind up with nothing anyway.
And most likely nothing criminal has been involved here either, except maybe criminal stupidity or maybe criminal greed by both the depositors and the banks themselves. Because the depositors were chasing unrealistic returns promised by the bank, and which they the bank delivered by “investing” their depositors money in Greek bonds. Greek bonds were paying extremely high interest rates, but the high interest rates were being paid because it was likely the bonds would fail, which is exactly what happened.
The takeaway lesson here, though, is simply don’t loan your money to a bank. Just keep enough money in your bank account to pay next month’s bills. Even better switch as much of your transactions as possible to cash. It’s actually easier to do than most people think. For example, I live in a small town and pay all of my insurance and property taxes by simply walking in and plunking down the cash. I could do the same thing for my utilities if I wanted. And I never use plastic except when I buy stuff on the Internet.
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