Monday, March 25, 2013

Hurrah! Boo! Cyprus is Saved! Cyprus is Doomed!

There are so many angles to the story of what happened to Cyprus over the past week or so that it boggles the mind to consider just a few of the long-term ramifications, but, clearly, the deal struck late, late Sunday evening by the ECB, IMF and the European Commission, deferred to by the president of Cyprus - who really didn't have much say and actually threatened to resign (he should have) - was a game changer in more ways than one.

First, the deal.

Instead of making everybody pay, which was the original plan foisted upon the Cypriot parliament and summarily dismissed in a unanimous vote, the brain trust that is the ECB worked out a plan that would fold up one insolvent bank - Laiki - and reorganize another (Bank of Cyprus), impose capital control limiting withdrawals to 100 euros, and force depositors with over 100,000 euros - because there are so few bond holders - to pay down the bank's debt, with a levy of up to 40% on those deposits.

OK? Stay with me here. Because the plan is not a bailout, but a reorganization, the parliament of Cyprus will not have to vote on it. There. All fixed.

Except that mush of the money that's going to be "levied" in the "reorganization" is Russian money, laundered or otherwise, and the Russians are not very happy, even though Angela Merkel is. Hmmm... Russians unhappy, Germans happy. That doesn't sound familiar, does it?

Further, banks in Cyprus are supposed to open tomorrow, but probably won't, and even when they do, the flight of capital will be intense, even at the absurdly tiny levels of 100 euros a day. This story is still very, very fluid and has a multitude of effects on all of Europe and the rest of the world, so, stay tuned.

As far as the markets were concerned, news of a "solution" to the Cyprus problem was greeted with hallelujahs and buying, with the futures of US indices all heading skyward and the Euro ramping up against the dollar.

Stocks in the US (and Europe) opened higher, leveled off until, until, Dutch Finance Minister and recently-appointed head of the ECB, Jeroen Dijsselblom, went on the record to say that the Cyprus solution may well be a "template" for other troubled banks in the Eurozone.

Uh-oh. markets tanked. The Dow, which was up 51 points, went negative by 128. European bourses revered. The EUR/USD FX pair went negative in a big way. Impairment of depositor money (government-sanctioned theft) is not what rich people want to hear. Never mind the poor and not-so-poor with deposits of under 100,000 euros, which are guaranteed by the bankrupt ECB, it's the rich people's money that's going to bail out banks in the future Europe.

Ouchie! But, that's what should happen. Insolvent banks should be wound down first by smacking the junior and then senior bond holders and, if that's not enough to cover the debts, uninsured depositors pony up the balance.

So, that's Cyprus, the future of Europe and the global financial system all rolled up into 12 or 14 neat paragraphs. If you've got over 100,000 euros in any bank these days, you are either as nuts as our Federal Reserve chairman or a big business that needs that amount of capital to meet payroll, expenses, etc. For those, there is no alternative (well, there is, but what business really wants to keep that much cash lying around?).

For people with less than 100,000 euros or the equivalent in dollars (about $129,000 right now), how much do you want to risk in any bank, any bank which could be closed indefinitely in case of a financial crisis or emeeeeeeergency, with no access to your funds until the "officials" deem the situation resolved?

Let's just say that the answer for most people would be, "not much."

Well, that just raises another fearsome looking ugly head in the form of capital controls (you can only take out "so much" today) or, outright loss. The answer is bank runs of the kind not seen since the Great Depression, when, remember, banks were closed for weeks and longer and some never reopened. IT CAN HAPPEN HERE because it already did.

So, where do you put all that extra cash of yours, lucky you? Most Americans have sums of money in "investments" which are just promises and based upon given market levels which change from day to day. Trust. It's a fun term.

Others have money in banks. Best advice is, if you must keep your dough in a bank, spread it around. A better solution would be to invest (you have enough money, right?) in a very heavy safe, a good alarm system, a coule of good firearms and maybe a couple of alert, healthy guard dogs. Yeah. Old school, like medieval days, which is to where the world is headed. Maybe a moat filled with crocodiles, drawbridge and turrets should be the new home design for the 2020s?

You laugh. Don't. Money in banks, as proven by the bizarre and brazen moves of the psychopathic leaders of the ECB, IMF and EU. is not as safe as you'd like to think. Ask anyone who lived through the Great Depression. Most people kept more money stuffed into their mattresses than in their local banks, and, with good reason. The banks failed and their money was gone. Poof!

The choice is yours, dear readers, play the game of chicken with the elites, who have no taste nor mercy for the likes of you and yours, or take action. keep in banks only what you need, because, when you think of it, the FDIC insures deposits of up to $250,000 in the US. That went up from $50,000 prior to the crash in 2008. Why? Because people smart enough to understand what was going on were taking their money out and the government and the banks would really have gone bust in a huge way had there been real banks runs like in the 1930s.

Without looking it up, the FDIC budget is something along the lines of $50 billion. The amount of deposits in US banks is on the order of $14 TRILLION. Do the math.

That's it for today. We're all Cypriots now.

Dow 14,447.75, -64.28 (0.44%)
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