3/16/13, "For Everyone Shocked By What Just Happened... And Why This Is Just The Beginning," Zero Hedge
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3/16/13, "This Crazy Cyprus Deal Could Screw Up A Lot More Than Cyprus...," Business Insider, Henry Blodget
"What's going on in Cyprus could actually matter--not just to the rest of Europe, but to the rest of the world. Here's the short version of what's happening:
Cyprus's banks, like many banks in Europe, are bankrupt.
Cyprus went to the Eurozone to get a bailout, the same way Ireland, Greece, and other European countries have.
The Eurozone powers-that-be gave Cyprus a bailout--but with a startling condition that has never before been imposed on any major banking system since the start of the global financial crisis in 2008.
The Eurozone powers-that-be (mainly, Germany) insisted that the depositors in Cyprus's banks pay part of the tab.
Not the bondholders.
The depositors. The folks who had their money in the banks for safe-keeping.
When Cyprus's banks reopen on Tuesday morning, every depositor will have some of his or her money seized. Accounts under 100,000 euros will have 6.75% of the funds seized. Accounts over 100,000 euros will have 9.9% seized. And then the Eurozone's emergency lending facility and the International Monetary Fund will inject 10 billion euros into the banks to allow them to keep operating.
Cyprus's government tried to explain this deal by observing that it was better than the alternative: Immediate bankruptcy and closure of the major banks. In that scenario, depositors would lose a lot more of their money. Businesses would go bankrupt. And tens of thousands of people would be instantly thrown out of work.
But, still, not surprisingly, news that deposits in Cyprus's banks would be seized triggered an immediate run on the banks.
Depositors rushed to ATMs and tried to withdraw their money before it could be seized.
But the ATMs weren't working. And the government has now made it impossible to transfer money out of the country.
So, assuming Cyprus's government approves the deal (still pending), depositors will have some of their money seized on Tuesday morning.
Now, half of these depositors are said to be Russian oligarchs and other non-residents. And unless you happen to have the misfortune of having an account in a Cyprus bank, you may not care much whether these depositors have their money seized.
After all, that was the risk they took for storing their money in bankrupt banks, right?
Well, yes, that was the risk they took.
But ever since the Great Depression wiped out a big percentage of the world's banks, vaporizing the bank depositors' savings in the process, banking system regulators have tried to do everything they can to protect bank depositors.
And they are smart to do so.
Because the moment depositors think that there is risk to their savings, they rush to banks to yank their money out.
That's called a run on the bank.
And since no bank anywhere has enough cash on hand to pay off all its depositors at once, runs on the bank cause banks to go bust.
That's what happened to hundreds of banks in the Great Depression.
And it's what happened to Bear Stearns, Lehman Brothers, and other huge banks during the financial crisis (though, with Bear and Lehman, the folks who yanked their money out weren't mom and pop depositors but other big financial institutions). It's what threatened to bring the entire U.S. financial system to its knees. And it's why the US and European governments have been frantically bailing out banks ever since.
But now, thanks to Eurozone's bizarre decision in Cyprus, the illusion that depositors don't need to yank their money out of threatened banks because they'll be protected has been shattered.
Depositors in Cyprus banks will lose some of their deposits. They will be furious about this.
And they will, rightly, feel that it is grossly unfair--because depositors in the bailed-out banks in Ireland, Greece, etc. didn't lose their money.
And they will feel like fools for not having taken their money out.
And...here's the important part...
Other depositors at weak banks all over Europe, in places like Spain, Italy, and Greece, will rightly wonder whether this is the beginning of a new era of bank bailouts, an era in which bank depositors are going lose some of their money.
What do you think those other depositors in Spain, Italy, Greece, etc., are going to feel like doing when they realize that, if their banks ever need a bailout, they might have their deposits seized?
That's right.
They're going to feel like yanking their money out of their banks.
And if some of them yank their money out of their banks, well--then the financial condition of those banks will go from weak to insolvent.
And the banks will go rushing to their governments and the Eurozone for help.
And if, god forbid, the Eurozone decides to seize the deposits of more bank depositors...
Well, then, a good portion of Europe is going to suddenly experience a good old-fashioned bank run.
That, to put it mildly, could be a disaster.
It could bring the European financial crisis, which has lurched from one flare-up to another for most of the past five years, to a rather sudden head.
How much would it cost for the powers-that-be to bail out all of Europe's weak banks at once?
A lot.
More than the Eurozone has in its emergency lending facilities, certainly. And more than the International Monetary Fund has on hand.
So the U.S. would probably have to get involved.
And, regardless of whether the U.S. needed to get involved, the European economy would likely suffer the equivalent of a heart attack.
That wouldn't be good for the U.S. economy. Or the Chinese economy. Or any other economy that sells things to Europe.
So, you can see, this little decision to seize a little money from bank depositors in the little island of Cyprus could be a much bigger deal than you think.
It could conceivably precipitate a run on weak European banks.
And a run on weak European banks could hammer the European economy and then the economy of Europe's trading partners. And it could cause global markets to crash.
So keep an eye on what's going on over there in Cyprus. It's potentially much more important than it seems."
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3/16/13, "For Everyone Shocked By What Just Happened... And Why This Is Just The Beginning," Zero Hedge (logo via Zero Hedge)
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3/16/13, "Europe Does It Again: Cyprus Depositor Haircut "Bailout" Turns Into Saver "Panic", Frozen Assets, Bank Runs, Broken ATMs," Zero Hedge
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3/16/13, "Saxo Bank CEO: "This Is Full-Blown Socialism And I Still Can't Believe It Happened"," Zero Hedge
"Authored by Lars Seier Christensen, CEO Saxo Bank; originally posted at his blog at TradingFloor.com,"
"It is difficult to describe the weekend bailout package to Cyprus in any other way. The confiscation of 6.75 percent of small depositors' money and 9.9 percent of big depositors' funds is without precedence that I can think of in a supposedly civilised and democratic society. But maybe the European Union (EU) is no longer a civilised democracy?
I heard rumours about this when I visited Limassol last week, but dismissed them as completely outlandish. And yet, here we are. The consequences are unpredictable, but we are clearly looking at a significant paradigm shift.
This is a breach of fundamental property rights, dictated to a small country by foreign powers and it must make every bank depositor in Europe shiver. Although the representatives at the bailout press conference tried to present this as a one-off, they were not willing to rule out similar measures elsewhere - not that it would have mattered much as the trust is gone anyway. It is now difficult to expect any kind of limitation to what measures the Troika and EU might take when the crisis really starts to bite.
If you can do this once, you can do it again. if you can confiscate 10 percent of a bank customer's money, you can confiscate 25, 50 or even 100 percent. I now believe we will see worse as the panic increases, with politicians desperately trying to keep the EUR alive.
Depositors in other prospective bailout countries must be running scared - is it safe to keep money in an Italian, Spanish or Greek bank any more? I dont know, must be the answer. Is it prudent to take the risk? You decide. I fear this will lead to massive capital outflows from weak Eurozone countries, just about the last thing they need right now. Even from the EU as a whole, I suspect, as the banking union is in place in most countries already.
Another open question is what will happen to the huge number of brokerages based in Cyprus? There is about 100 or more FX and other brokers currently operating under the relatively light Cypriot regulation. How will this impact the trustworthiness of these many small institutions? What IS the exact impact on the client deposits they might be holding in Cyprus? Will anyone dare to do business with them going forward?
This is a major, MAJOR game changer and the fallout will be with us for a long time to come. I believe it could be the beginning of the end for the Eurozone as this is an unbelievable blow to the already challenged trust that might be left among investors. Talk about a possible own goal.
Market reaction? it must be very good for gold - and for safe-haven countries like Switzerland, Singapore and economically more healthy non-Euro countries in, for example, Scandinavia. I would think the EUR and associated markets will be undermined by increasing lack of confidence when the full implications become clear for investors.
This is full-blown socialism and I still cannot believe this really happened. Be careful out there..."
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Ed. note: Please excuse unpleasant white background behind most of this post. It was put there by a hacker.
"It is difficult to describe the weekend bailout package to Cyprus in any other way. The confiscation of 6.75 percent of small depositors' money and 9.9 percent of big depositors' funds is without precedence that I can think of in a supposedly civilised and democratic society. But maybe the European Union (EU) is no longer a civilised democracy?
I heard rumours about this when I visited Limassol last week, but dismissed them as completely outlandish. And yet, here we are. The consequences are unpredictable, but we are clearly looking at a significant paradigm shift.
This is a breach of fundamental property rights, dictated to a small country by foreign powers and it must make every bank depositor in Europe shiver. Although the representatives at the bailout press conference tried to present this as a one-off, they were not willing to rule out similar measures elsewhere - not that it would have mattered much as the trust is gone anyway. It is now difficult to expect any kind of limitation to what measures the Troika and EU might take when the crisis really starts to bite.
If you can do this once, you can do it again. if you can confiscate 10 percent of a bank customer's money, you can confiscate 25, 50 or even 100 percent. I now believe we will see worse as the panic increases, with politicians desperately trying to keep the EUR alive.
Depositors in other prospective bailout countries must be running scared - is it safe to keep money in an Italian, Spanish or Greek bank any more? I dont know, must be the answer. Is it prudent to take the risk? You decide. I fear this will lead to massive capital outflows from weak Eurozone countries, just about the last thing they need right now. Even from the EU as a whole, I suspect, as the banking union is in place in most countries already.
Another open question is what will happen to the huge number of brokerages based in Cyprus? There is about 100 or more FX and other brokers currently operating under the relatively light Cypriot regulation. How will this impact the trustworthiness of these many small institutions? What IS the exact impact on the client deposits they might be holding in Cyprus? Will anyone dare to do business with them going forward?
This is a major, MAJOR game changer and the fallout will be with us for a long time to come. I believe it could be the beginning of the end for the Eurozone as this is an unbelievable blow to the already challenged trust that might be left among investors. Talk about a possible own goal.
Market reaction? it must be very good for gold - and for safe-haven countries like Switzerland, Singapore and economically more healthy non-Euro countries in, for example, Scandinavia. I would think the EUR and associated markets will be undermined by increasing lack of confidence when the full implications become clear for investors.
This is full-blown socialism and I still cannot believe this really happened. Be careful out there..."
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Ed. note: Please excuse unpleasant white background behind most of this post. It was put there by a hacker.
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