Bailout of Cyprus to cost depositors 10% immediately

Clawhammer · Mar 19, 2013

Regardless of what happens, surely this still marks the end of the banking system in Cyprus.

The moment the banks open every sane Cypriot would be extracting their wealth from those banks (whether they've taken a haircut or not).

Caput Lupinum · Mar 19, 2013

I wonder if they will place a smaller withdrawal limit per day for each account and slowly increase it until they believe a bank run is no longer a threat

Holdfast · Mar 19, 2013

Cyprus' parliament has rejected the levy on bank deposits!

Now watch the mass exodus of cash, from Cyprus banks! This could have a particularly nasty flow-on effect.

Looks to me, Gold will strengthen, the Aussie dollar will strengthen and... this could be the signal for those with dual citizenship to think about returning to Australia.

Clawhammer · Mar 19, 2013

I wonder if they will place a smaller withdrawal limit per day for each account and slowly increase it until they believe a bank run is no longer a threat
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Well that's what they did in Argentina...they called it the "Corralito" or something..it means corral...like the pen you put cattle in. :/

Fykus · Mar 20, 2013

did argentina end up with hyper inflation? if so thatd make sense... trick everyone into drawing out their cash and then start printing loads of it so that its not worth anything anymore while money in the bank gets to keep up with inflation because of interest rates (or is that wrong)

fishball · Mar 20, 2013

http://www.zerohedge.com/news/2013-03-19/spain-preparing-its-own-deposit-levy

While Spain's economy minister Luis De Guindos proclaimed in the Senate today that bank deposits under EUR100,000 are "sacred"and that "Spanish savers should stay calm," Spain, it would appear, has changed constitutional rules to enable a so-called 'moderate' levy on deposits as under previous Spanish law this was prohibited.

For now, they claim the 'levy' will be "not much higher than 0%" and is mainly aimed at regions in Spain that have "made no effort to collect taxes" based on new revenue expectations.

As El Pais reports, the minister of finance and public administration, Cristobal Montoro, defends the need for such a 'levy' in their constitution on the basis of standardizing taxes across regions (and is preparing a proposal on the amounts to be paid) and although it would appear that while the European Commission could previously argue that such a 'tax' would violate the free movement of capital in Europe, it now leaves the door open to eventually effectively taxing the deposits.
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I lol'd.

JulieW · Mar 20, 2013

Jim Sincair at KWN today - worth reading the whole thing:

http://kingworldnews.com/kingworldn...Danger_After_Putin_Crushes_IMF_In_Cyprus.html

Right now we have had a significant change in the world financial landscape and paradigm. The fact that Russia has faced down the IMF is not any different from the day I faced down the gold banks in late 1979. What I believe this means for gold is that its slavery to the Fed is over and it's on its way to freedom from US manipulation.

The important point here, besides the fact that what we have just witnessed is a clear and decisive Russian victory and an IMF defeat, what is absolutely crucial is for investors to understand that a wrong decision by the IMF here could create runs on banks throughout the entire Western world that make the likes of what we have seen previously in Greece and Spain look likes child's play.

What I am saying is that another major mistake here by the IMF could destabilize the entire Western financial world in such a way that it simply could not recover without unprecedented turmoil and destruction. The bottom line here is Lagarde took on Putin, but Putin has checkmated both her and the IMF the same way a Russian grandmaster chess player would destroy his opponent."

Sinclair also predicted: "Cyprus cannot, will not, absolutely must not leave the euro. They know that quite well. So the break of the euro market down into the 1.28 area must have sent shock waves through decision-makers in euro land. Cyprus must be rescued because they cannot be allowed to leave the euro. In the end, however, all of this will create a demand for other alternative ways of being able to support the value of money, and gold will benefit enormously from it."
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tozak · Mar 20, 2013

So word is Russia is arranging a proposal now to bail out Cyprus, I wonder what the terms of this bailout would be considering Russia is also passing new laws to prevent Russians from having off-shore bank accounts.

With more Russian vessels headed for the Mediterranean perhaps we will see a new boat harbor set up in Cyprus for the Russian vessels and perhaps Cyprus will move off the Euro and onto the Rubel?

Caput Lupinum · Mar 20, 2013

Cyprus would make a more appealing naval base for Russia than Syria atm. I don't think the EU will look too kindly of Russia bailing out one of their own. Then again, if the bankers can save a euro or two from the deal, they probably won't care.

Clawhammer · Mar 20, 2013

Gonzalo Lira has already "gamed out" how the next country will exit the Euro;
http://gonzalolira.blogspot.com.au/2012/07/how-country-rationally-exits-eurozone.html#more

1. The government decrees the creation of a new local currency, and establishes its convertibility on a one-to-one basis with the euro. (Let's call the new local currency the nueva peseta.)

2. The government makes these nueva peseta available to the local financial sector, and orders everyone to convert. Thus the local Central Bank takes all of the local banks' euro-denominated deposits and converts them into nuevas peseta. And all the local banks in turn convert their retail customers' euros into nuevas peseta as wellall of these conversions taking place on a one-to-one basis.

The government thus has exchanged all these newly minted nueva peseta it has created for euroseuros which are now in the government's coffers.

3. At the same time as it obliges the financial sector to convert to the nuevas pesetas, the government by decree says that all local debts of the government are now to be paid in nuevas pesetas. Any euro-denominated bond or contract that the government signed is now automaticallyand irrevocablyin nueva peseta. All pensions and government salaries are also in nuevas pesetas.

4. The government also decrees that all private debtsas well as all consumer debts with the banking sector (ie., credit card debts, mortgage debts, etc.)are to be converted to nueva peseta on a one-to-one basis as well.

5. The government decrees a wage-freeze and a price-freezeobviously. If it does not implement a wage-and-price freeze, consumer prices will go to the moon, creating runaway inflation. This is not to say that there won't be hoardingthere will be, regardless of the wage-and-price freeze. And a black market will also sprout up. But a wage-and-price freeze will halt any possible inflationary panic; or at least slow it down enough to keep it from becoming hysteria.

Capital controls would not be necessary, due to the fact that depositors' euros had been converted to nuevas pesetas. Certainly dollar deposits would flee the second the announcement was madebut cash dollars account for a relatively small amount of a prospective euro-exiter's balance of payments.

6. The government also tries to convert all sovereign debt obligations into nueva peseta. This won't necessarily happenit could be that the sovereign debts have riders that make it impossible to convert. It could be that foreign bond holders have the political leverage to prevent forcible conversion of euro-bonds into nueva peseta-bonds. But the government will most certainly try to convert its foreign debt from euros into nueva pesetaand will likely succeed in at least a tranche of these outstanding bonds.

7. Once the government has converted as much of its obligations as possible to the new local currency, it devalues the nueva pesetahard. An initial devaluation of 20% to 30% is historically reasonable (see the Latin American countries during the 1980's), with an eventual devaluation of a full 100% within 6 to 18 months.

I insist: This is the rational approach to eurozone exit.

So if we posit the rationality of this decision and its implementation, then in order to be effectiveand in order to minimize panicall of the aforementioned steps (except step 6) would have to be accomplished as swiftly as possible: Say over a weekend.

This is totally doable: Modern financial technology would easily allow a government to forcibly convert banks' euro deposits into nueva peseta deposits almost instantaneously. Ditto with retail banking customers' deposits and debts.

Step 7the devaluation of the nueva pesetawill also happen immediately: On Sunday night of this very busy weekend. The devaluation of the nueva peseta is of course the whole point of this exercise: The government is exiting the euro and devaluing the nueva peseta in order to re-ignite the economy.

The problem wouldn't be the implementationthe problem would be leaks: If any sector of the public gets wind of what's coming up, then you would get what happened in Argentina in 2001huge convoys of armored trucks, carrying the oligarchy's money away, before it can be converted by the government.

So if a government makes the decision to exit the eurozone, it will have to be swift and surprising. If it takes too long, or if the decision is long-winding, or if there are leaks, then there will be a massive capital outflow like Argentina in 2001, which will cause terrible damage.

Critics consistently claim that no country can exit the eurozone, because if it does, it will be shut out of the bond marketsand thus will not be able to borrow money with which to buy necessary imports, like grain, oil, etc.

This is a stupid objectionbecause it ignores the mechanics of an EMU exit and reversion to a local currency: If a government forcibly converts its banks' and people's euro-deposits into nueva peseta -deposits, that government will have essentially confiscated all those euros. Obviously: It's printing up nuevas pesetas, and forcing everyone to take them in exchange for euros.

And where do those euros go? To the government's coffers.

Thus in the short-to-medium term, the government will have no need of the euro-bond market, because it will have all the euros it could possibly need.

(It also explains the need for swiftness and secrecy in the decision and implementation of this decision: If there's a leak, the capital flight will leave the government without any euroswhich the government can't allow. Of course, the argument can be made that the government is stealing the euros from the peoplewhich it is. But I'm not arguing the morality of these decisionsI'm arguing the practical aspects of it from the point of view of a desperate government that is facing bankruptcy and has thus decided to exit the eurozone.)

Though the government that exits the eurozone and forcibly converts to a local currency will have all the euros it needs to cover its international balance of payments in the short-to-medium termincluding all necessary and essential imports like grains and oilthis does not mean that it will never have need again for the international bond markets: It means that in the short-to-medium term, the government that exits the EMU will be sitting pretty in terms of its hard-cash position, and thus have the ability to flip the bird at the euro-bond markets.

Again, continuing on this rational scenario: Euros will be needed in order to buy necessary imports, like grain and oil. To prevent hyperinflation of the nueva peseta, the government will likely subsidize some of the larger local importers of grains, oil and other essential imports in order to cushion the impact of rising oil and food prices on the general population. The way this subsidy will happen is by selling the euros the government confiscated to these local importers at a better exchange rate than the open market, with the understanding that the grains and oil the importers buy will be sold at lower prices to the general population.

All is not sweetness and light in this scenario: A whole slew of small-to-medium businesses will go bustwith the concomitant bump up in unemploymentbecause these businesses will have foreign currency liabilities they cannot meet because their locally-sold products are now that much cheaper due to the devaluation of the nueva peseta.

However, the point that matters is that now the government will have both euros and nuevas pesetas to throw at the populationwhich they will, and thus ease their country into this new phase.
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renovator · Mar 20, 2013

It sounds well thought out . The local business people would be unhappy .
But i suppose there needs to be some sacrificial lambs to slaughter. It would work for the short to medium term until they run out of euros .Who knows what would happen after that

libertadiac · Mar 20, 2013

Fykus said:

did argentina end up with hyper inflation? if so thatd make sense... trick everyone into drawing out their cash and then start printing loads of it so that its not worth anything anymore while money in the bank gets to keep up with inflation because of interest rates (or is that wrong)
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No, they had deflation, and salaries of public employees were cut. Bank accounts were frozen for over a year . When I was In Buenos Aires in oct 2002 ATMs had been smashed/removed, and bank doors were locked - if you waited for an hour or more you could push past someone coming out to get in, but you could only withdraw from overseas accounts.. The peso lost 3/4 of it's value, after 10 years pegged to the US dollar, and people traded mostly US dollars ( but there was no large scale barter as widely reported)
It is now illegal to possess any other currencies or precious metals or to have offshore bank accounts.

southerncross · Mar 20, 2013

Current inflation rate in Argentina is about 25% .

http://www.nasdaq.com/article/argentina-says-inflation-at-111-economists-say-its-26-20130215-00757

JulieW · Mar 20, 2013

Words from Gerald Celente - who predicted 'Economic Martial Law' in his 2012 Trends, suggesting the Central Bankers would do something like grab ten percent of deposits in the Meditteranean countries.

So worth listening to for a perspective from someone who called this move.
(Alex Jones video so sorry for the people who are irritated by his rants - but he does good work imho)

[youtube]http://www.youtube.com/watch?v=bv-TfBXEOAc[/youtube]

menotcrimex · Mar 20, 2013

Banks not open in Cyprus untill next Tuesday at the earliest!

Everyone (Global) seems to be buying physical! Great stuff

Safe companies must be rubbing their hands together

Remember layer your security to protect

1) your family and yourself

2) what you own

Simple measures include reinforcing the timber around the inside of your doors with metal plate, prevents a quick kicking in.
Good cctv
Extra internal door bolts
Good Alarm, wireless can be easily disabled....so wired is better

Insurance etc

Don't let's friends or family know.....people often talk without meaning harm...word gets around fast

Caput Lupinum · Mar 20, 2013

Is it time to start looting yet? I have my looting sack and cinder blocks ready to go

tozak · Mar 20, 2013

tozak said:

So word is Russia is arranging a proposal now to bail out Cyprus, I wonder what the terms of this bailout would be considering Russia is also passing new laws to prevent Russians from having off-shore bank accounts.

With more Russian vessels headed for the Mediterranean perhaps we will see a new boat harbor set up in Cyprus for the Russian vessels and perhaps Cyprus will move off the Euro and onto the Rubel?
Click to expand...

http://www.youtube.com/watch?v=DrWXvQvNAd8&feature=youtube_gdata_player

Holdfast · Mar 20, 2013

JulieW said:

Words from Gerald Celente - who predicted 'Economic Martial Law' in his 2012 Trends, suggesting the Central Bankers would do something like grab ten percent of deposits in the Meditteranean countries.

So worth listening to for a perspective from someone who called this move.
(Alex Jones video so sorry for the people who are irritated by his rants - but he does good work imho)

[youtube]http://www.youtube.com/watch?v=bv-TfBXEOAc[/youtube]
Click to expand...

Excellent viewing JulieW, thanks for sharing; I hope many stackers watch your video.

Caput Lupinum · Mar 20, 2013

The Troika and IMF have already knocked the proposal of nationisating Cyprus' pension funds on the head as it would create yet more debt for Cyprus which they would have no way of paying. The Russian deal I think hinges on whether Russia wants to wait at least 6 years before the gas reserves south of Cyprus which have only an estimated reserve volume is actually up and running. This proposal has also angered Turkey who are claiming the gas reserves are rightfully theirs. If there's no resolution to this by Monday evening euro time then my bullish position on popcorn will be revised upwards again.

Dogmatix · Mar 20, 2013

Clawhammer said:

Gonzalo Lira has already "gamed out" how the next country will exit the Euro;
http://gonzalolira.blogspot.com.au/2012/07/how-country-rationally-exits-eurozone.html#more

1. The government decrees the creation of a new local currency, and establishes its convertibility on a one-to-one basis with the euro. (Let's call the new local currency the nueva peseta.)

...
Click to expand...

Click to expand...

Seems like Gonzalo thinks economies work in a vacuum?

A country that cannot trade, what are they to do?

Imagine if the entire eurozone refused to trade with them until they honour their debts?

I could be way off, but trade takes two parties, and if you annoy your trade partner, you risk trade problems.

I'm just pointing out that Cyprus' problems may not be solved through currency policy on it's own.

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