UPDATE: Cash is being flown to British Troops in Cyprus. The banks will stay shut til Thursday. The finance minister has resigned. [SkyNews]
Remember how the EU was supposed to promote stability?
Sooner or later a central fund managed by central bureaucrats is going to fail in a “central” way. This isn’t it, but we are getting closer to the center.
Without competition between states on currency, Europe left itself open to be a case study in centralized stupidity. The bureaucrats needed to stop the waste of public spending, they needed to halt the corruption, increase competition. And their answer? Steal 10% of depositor’s funds from everyone in Cyprus. It seemed like a good idea at the time.
We are now in new territory. In previous bank bailouts, if anyone took any losses it was the shareholders and the bond holders, and the depositors did not lose any money. In the Cyprus bail out, the bondholders and shareholders lose nothing but the depositors lose about 10%. (Any chance the bondholders of the Cyprus banks include the ECB or IMF?)
Where is the natural law that makes sense in this decision? Don’t punish the shareholders, or the bondholders, break the centuries long promise that is the entire reason for banking. If the government can steal your money in the bank, why keep it there? Hello Bank-run.
Wasn’t the point of banking to keep your money safe from burglars?
The Cyprus move is changing everything:
James Turk : “There are bank runs here in Europe again, Eric. Today is a national holiday in Cyprus, so the banks are closed. But people are lining up at ATMs to get their money out before the ATMs run dry. And there is talk that a bank holiday will be declared, possibly keeping them closed for days.
Depositors in Cyprus are going to lose some of their money as part of a proposed EU bailout of that country announced over the weekend, which like a a number of other countries, along with its banks, are insolvent and teetering on the edge of bankruptcy….
“To help fund this bailout the government is taking 9.9% of all deposits over €100,000 and 6.7% under that amount, even though these small deposits are supposed to be insured, which is a key point. Bank insurance means nothing these days when bureaucrats and politicians are looking for wealth to grab.
It is indeed mind-blowing, particularly when considering that the banking system in Cyprus is not that big. The total amount taken from depositors is only €5.8 billion. Given what the ECB and other central banks are printing these days, €5.8 billion is small change.
James Turk Founder & Chairman of GoldMoney
This is organized crime on a mass scale. The not-so-funny irony is that it’s organized crime against organized criminals!
The bureaucrats not only broke the rules, but look who they targeted. If you were hoping for easy money to patch up the budget, would you take it from the Russian mafia and ex-KGB officers?
Legendary trader Jim Sinclair: “This has quickly turned into a PR nightmare because it is not a ‘tax,’ but instead a ‘confiscation.’ They have stolen KGB money in order to meet the liabilities of the banks. Up to this point, bank depositors have been held whole in this most serious Western, and by consequence international financial meltdown.
Up to now the psychology has been that if you have money in the bank you really don’t have to worry too much. This represents a complete change in the strategy that has existed up to the present time, which has been crucial in holding together the financial world after the meltdown of the over-the-counter derivative has done so much damage.”
Eric King: “The aftermath of this debacle and some of the chess moves that are going on here, your thoughts?”
Sinclair: “Taking Russian money is very foolish. You have to understand the culture of the people you are dealing with. The government leaders in Cyprus have no ability to protect themselves from the retribution of the former Russian KGB agents, including Putin himself.
The government leaders in Cyprus are trying to back-pedal right now in order to save their lives. Let me say it again, they are trying to save their own lives. Remember, ‘revenge is best served cold.’
I would also add that this was the biggest mistake made by the IMF and the ECB in their history. Every time you do business with a Russian company, you do business with a bank in Cyprus. Money goes in, it goes out, but it all funnels through Cyprus.
Coming down on Cyprus as a test case for the new ‘Bail-In’ rather than ‘Bailout,’ the utilization of the depositors money to pay for the losses, could very well derail the entire efforts so far to maintain the appearance of solvency in the West.
Jim Sinclair known as Mr. Gold for his remarkably accurate timing regarding the gold bull market of the 70’s
(By the way, speaking of bank rescues, not many Australians are aware that the US Federal Reserve bailed out Westpac and NAB around 2008 – 2009. Rumors were strong that an Australian bank was a day or two from going under. The US Fed provided $1bn to one, $3bn to the other. Worldwide, at one stage, the US Fed. was providing over $3 trillion in emergency loans to non-US banks. Our government at the time was extolling the safety of the Aussie banks, boasting of how good our system was and basking in the reflected glow. The news of the US Fed rescue only came out a couple of years later in response to questions in the US Congress.)
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Why is this here? Jo Nova and David Evans have been following currency and gold markets since before gold was $250 an ounce. They founded GoldNerds in 2007 to help give them the information they needed as investors. David quit working for the Australian Government climate bureaucracy in 2005, and we have been living off savings and investments in the gold sector since. (Jo couldn’t blog if she had to rely on government grants :)) David occasionally speaks about currencies at international conferences. They are self-funded analysts following the data… not the dollar. But the stakes are high…