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EU and Cyprus agree to take big depositors’ money without calling it a “tax”

EU and Cyprus agree to take big depositors’ money without calling it a “tax”

So the EU has reached a deal to bail out Cyprus, but unlike the prior proposal, there will be no tax levied on anyone.

Insured deposits under 100,000 Euros will be safe and transferred to a new “good” bank, but the losses will be concentrated on the larger depositors who will be stuck at the “bad” bank.  And in a move eerily reminiscent of the maneuvering to get Obamacare passed, the deal is structured to avoid calling it a tax (which would require parliamentary approval).

Via NY Times:

The deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders.

“We have a deal,” President Nicos Anastasiades was quoted as saying by Greek media. “It is in the interests of the Cypriot people and the European Union.”….

Under the proposed deal, Laiki Bank, one of Cyprus’s largest, would be wound down and senior bondholders would take losses.

Depositors in the bank with accounts holding more than 100,000 euros would also be heavily penalized but the exact amount of those losses would need to be determined.

The plan to resolve Laiki Bank should allow the Bank of Cyprus, the country’s largest lender, to survive. But the Bank of Cyprus will take on some of Laiki’s liabilities in the form of emergency liquidity, which has been drip-fed to Laiki by the European Central Bank.

Depositors in the Bank of Cyprus are likely to face forced losses rather than any form of tax.

Zero Hedge summarizes what it means:

… In other words, a deal far worse then the original on proposed by the Eurogroup last week – when the banks still existed. The key appears to be the ‘saving’ of the insured depositors (crucial to avoid a pan-European bank run) and the crushing of the ‘whale’ depositors….

UPDATE: It appears the ‘deal’ to default/restructure the banks has been designed to bypass the need for parliamentary votes, since it is theoretically not a tax.

There does not appear to be a European John Roberts to declare it really a tax.

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Comments

With all due respect, it’s not a levy, it’s not a tax, it’s government confiscation. Period. Tomorrow should be a bumpy ride in the markets.

That’s the end of the EU. Watch the bank runs starting in a few hours.

Agree that it is not a tax, its just plain theft, as the previous commenter, sybilll, stated. I don’t see how this can help European banks in Spain, for example. If large depositors start pulling out of euro banks, won’t that wreck the balance sheets of already fragile banks? ZeroHedge has often been prescient, but I don’t know about this case.

[…] via » EU and Cyprus agree to take big depositors’ money without calling it a “tax” – Le·ga…. […]

Confiscation made even more despicable by the fact that elderly retired people will be more likely to lose money. People that tightened their belts for a lifetime so that they could have the comfortable retirement any reasonable person might expect. But I suppose this is by design, as these people will die soon anyway, and no longer be able to vote the criminals out of office.

    cosmicray in reply to Willy. | March 25, 2013 at 12:19 am

    The average income in Cyprus is $27K/yr. I doubt that Mom and Pop have much more than a nest egg of five years of salary in a single cash account. Maybe some cash, but also a small place, paid off, maybe a plot of land…. Nope, it is the outside….(cough, cough, russian, cough)….monied folk who will take the big hit.

      Insufficiently Sensitive in reply to cosmicray. | March 25, 2013 at 11:50 am

      There will still remain numerous retired folks who, like many Greeks, worked very hard for a lifetime, perhaps had a small business, didn’t rush around displaying conspicuous consumption, and did amass savings over the ‘soak the rich’ limit. If the European Bank and the IMF suffer some righteous slings and arrows, let it be from them.

Russian mobsters are going to take a buzz cut. Boy will they be pissed. If I were a Cypriot legislator I’d get knee armor and a food taster.

    SirBill in reply to cosmicray. | March 25, 2013 at 12:37 am

    You have to wonder and what point Russia figures it’s cheaper to invade than to have prominent citizens eat the losses.

    But it does seem like the Russian Mafia would take action first. Then again, perhaps even the Russian Mafia don’t want to rile the Germans too much. No want wants a riled-up Germany again…

Another place that will take a hit is Syria.

https://now.mmedia.me/lb/en/commentaryanalysis/cyprus-russia–and-syria

Wheels within wheels.

If someone took MY MONEY in this fashion, bullets would fly. Really.

“Coming to a country near you”…tick…tick…tick

Midwest Rhino | March 25, 2013 at 1:00 am

It’s not a tax, it’s a “stability contribution”. 🙂 That seems like a good name for blog donations, since they’d actually be contributed, not taken. And donations here offer more global stability than to Cyprus.

But if they can get three billion from the Russian oligarchs/mobsters, I can’t say I mind. The markets think this is great news, but they think everything is great news these days, with Bernanke still pumping $85 billion a month in QE. Anything that extends the bailout games, cheers the markets.

Another day of reckoning postponed on account of (17 billion euros) of rain. Maybe Bernanke could fly over in his helicopter and toss a billion dollars out in solidarity.

This will not end well. When governments start taking “big depositors” money, “big depositors” will take their money out. Their money will be safer in their own mattresses, in their own private vaults. This will make the bank runs of the 1930s look like a piece of cake.

Well, you certainly won’t need an MBA to figure out there must be safer place for your money than an EU bank account, will you?

The amounts banks can risk on loans or investments depend on the amounts of liquid assets they hold on deposit. Even if only large depositors begin to flee the banks, it will affect their capitalization requirements, beginning a cycle of lowered profits and capitalization that won’t be reversed as long as the threat of a “haircut” hangs over deposits.

And there is no reason to assume that smaller “insured” depositors won’t figure out that once the big boys take their toys and go home, their “insured” deposits will be the only food left for a hungry beast.

Good Lord. It’s going to be a bloodbath.

Seriously.

They’ve just singled out, and hugely robbed, the creme de le creme of organized violent crime in . . . get this . . . Russia.

(Theory #2 would be that we’ve just sold all of the Russian mobs complete legality – or at least complete nonprosecutability – for a decade or two, at a cost of about a third of all of their wealth.)

(Our share of which I understand will be paid directly to OFA. So that that nasty Congress can’t interfere with all of the good we can do with it. We know better, after all, and we truly do care!)

Anyway, don’t sit near EU ministers at lunch or dinner for a while.

While most Americans fret and wonder what is going on, they don’t realize there is a strategy called Cloward-Piven that is working like a charm all over the free world.
http://en.wikipedia.org/wiki/Cloward%E2%80%93Piven_strategy

No reasonable person could intelligently argue that a fraud trust upon us calling himself ‘Barack Hussein Obama’ is not intentionally destroying the U.S. economy.

— And no reasonable person could argue that ‘thrust’ is spelled ‘trust.’

Apparently Cyprus and the EU subscribe to the “Dire Straights” school of economic thought:

http://www.youtube.com/watch?v=lAD6Obi7Cag

Coming to a bank near you.

huskers-for-palin | March 25, 2013 at 7:04 am

My advice to the EU idiots who came up to this plan: Before you drink your tea, use a Geiger counter….I’m just sayin.

I’m not going to sit on my ass and wait for this to happen here.

All they are saying is any implicit insurance or guarantee of the investments into Cypriot banks above the insured amount does not exist. It is the free market solution. Any deposit at a bank is simply a loan to them, an investment. The FDIC or any deposit guarantee is their simply to enhance the liquidity of the system.

It will be a good thing to see the markets brought back in to the European currency more fully place limits on nations. It would have been good to have had it there years earlier.

Showing that the most dangerous place in the world is between a desperate politician and your money.

Most of the lower and many in the middle class will support this action. The cycle of wealth redistribution and consolidation will continue. Nothing has changed. A new class of wealthy men and women will arise. The only difference is that the new elite class prefers to operate through monopolies and monopolistic practices enforced through granted and coerced authority. Such is the fate of poor and rich greedy bastards.

[…] As you know, the government of Cyprus is deciding what percentage of monies in the back accounts of it’s people to seize [here's the latest plan]. […]

stevewhitemd | March 25, 2013 at 3:30 pm

Seabisquit has it right, and folks should step back a moment and look at what happened.

Cypriot banks, like many other banks in the world, bought sovereign debt to excess. In this case, the debt they bought was Greek. Lots of it, fueled by dirty Russian mafioso money. They had to do something with the money, and the Russians wanted their interest. And who thought the Greeks would ever default, right?

They did. Oops.

So it’s the Cypriot banks, not Cyprus, that are tottering. Cyprus, like the rest of the EU (and the US), has depositor insurance which covers a set amount. Above that and you’re on your own, comrades.

What’s finally happening is that Cyprus is going to let the system work. Depositors will be kept whole up to the limit of their insurance. You have more than that in a Cypriot bank? Fool, you take a haircut (or more).

That’s just as it should be. That’s the free market solution.

It would have been wrong to nail the small depositors — that would have required the Cypriot government to renege on the insurance. But the large (e.g., Russian mobsters and English retirees) depositors had no guarantee, and thus their over-large deposits are lost to be replaced with ‘shares’ in the ‘bad’ banks that are being established.

If you put a large amount of money into a bank you had better know that the bank is good for it. You can’t count on stampeding the politicians. At least not this time.

If the Cypriot pols had simply applied their own law from the get-go this would have been a lot easier, and the people there would actually have some faith in the system.

Never forget, tax is always theft … at certain levels and for certain things it is accepted by most …

I would not like to be the person or the persons responsible for stealing the Russian Mafia’s money… there will be a huge price to pay for that; plus it will also send a message out to any future politicians from other countries who might think that they can do the same as Cyprus!

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