The Cyprus situation should bring a shudder to every citizen
of every democracy in the world. When a
government can arbitrarily reach into your "deposits" and take (not
tax) 7-15% tomorrow without a vote or democratic representation, what is the
difference between that and fascism?
If you read my early morning post, you will realize that
Cyprus in the scheme of monetary threat is not a threat. What is a threat to the whole free world is
the Eurozone's ability to close the banks indefinitely in a sovereign country and take up to 15% of savings for
everyone having more than 99,999.00 Euros in deposits.
Were not the people of the EU promised that
the Euro was the same throughout the Eurozone, treated the same throughout the
Eurozone, and allowing transfers between banks throughout the Eurozone? So much for that.
Now, please play out this scenario in your head. You are a retiree, and over the years you
have saved for your retirement. Your
bank (in Cyprus) has many different "deposit" accounts, which
includes, savings, bonds, notes, stocks and checking. You are very fortunate if you've been making
more than 2% over the last 8 years during the European crises. Now, Cyprus is still discussing what
"deposits" mean, but for the moment, suppose it is everything you
have deposited with that bank, and your cash holding (Checking and Savings) is
Euro 10,000, but your deposit is 1,000,000 Euro. If they took 15%, then you would have to
liquidate something. That is only one
challenge of course. Basically, the
country would take more than you can earn on those savings over the next 10 or
so years (assuming the country does not do that again) even if you have the
cash to cover now.
All the politicians in Europe are trying their best to spin
this as it will only cost the Russian Depositors. In fact that is a spurious argument as
personal property is personal property, and taking enough property from foreigners
is tantamount to war between countries.
For those of you that are USA citizens, this is similar to
the same war between the Democratic Socialists (led by Maxine Waters and Nancy
Pelosi) and those that believe in freedom to own personal property (Ron Paul)
without threat of confiscation by the government. It is guaranteed in our Bill of Rights and
the Constitution, but those freedoms are under attack ever since the days of
Franklin D Roosevelt.
So you (and I)
of the USA do not think our government would ever, never, ever do what Cyprus
has set the precedence for? I will remind you that President Obama's
current approval rating is 52%, and if push-came-to-shove, we have no idea what
the man would do, but we do have some history what Liberal Democrats would
do.
At this point are any educated people in the USA surprised
that sovereign nations can default, and that banks can go bankrupt, and that
banks can be too large for some countries (Cyprus, Greece, Spain, Portugal) to
bail them out? And would it surprise you
to learn that there are countries that are rated AAA by Moody's that could not
cover their commitment in sovereign debt?
Read on...
Given, the ECB (European Central Bank) and the Eurozone
politicos should have worked out a response to Cyprus years ago. Clearly the
Russians (and some large US companies) thought the EU had a plan, which they
clearly did not.
Now, USA citizen: ask yourself again. Do you have blind faith in the US government
to have a plan to bail out the "too-big" to fail US banks and what if
the Federal Reserve itself finds its asset in mortgages due to collapse where
there is trillions of dollars in mortgages they are holding?
The USA government under the central planning regime of the
Federal Reserve wants you to believe that they would just print more money to
cover any bank including GS, JP Morgan, Bank of America, Wells Fargo, Citibank,
and so-on. "I believe, I believe, I
believe" Donkey in Shrek I
Some Facts:
(I kind of dislike facts, because I'm only privileged to
what the media and the politicos release.
But I will provide what I can, and you should verify.)
·
Cyprus Bank deposits (undefined what deposits
mean) - Roughly 68Billion Euro.
·
That is FOUR times the size of the total national
GDP.
·
The total size of Cypress banks, however, was
roughly eight times GDP (this is where you can imagine other kinds of deposits
sit rather than just checking)
·
The "Troika" recommended Cyprus needed
17B Euro, but they could only lend 10B (oh poor Troika after just lending Spain
hundreds of billions)
·
Troika demanded (oops recommended) that the
depositors in the banks fund the other 7B.
·
The Cyprus parliament totally rejected the
Eurozone proposal.
·
Cyprus banks will remain closed (under capital
control) until at least Thursday. Then
there will likely be controls on what can be removed. (Mr. Anastasiades said these controls will be
relaxed gradually, and I'm sure he believes this, but gradually can be forever
as we learned from the Federal Reserve who was only going to have QE
temporarily - which is now QEternity.)
Mr. Neofytou (opposition to Mr. Anastasiades) said - “Will [have to]
wait for many years before they see what percentage they will get back from
their savings – 30 percent, 40 percent, 50 percent, 60 percent, it will be
seen….”
Supposition (by the Financial Times): On the surface it looks like large depositors
will lose about 15%. And if the Financial Times is right (and the betting line
is heavily on their side), a significant majority of that money is Russian.
Much of the remainder is tax-haven money.
It turns out that Cyprus voters vote, by the way. The last election they reported an 81%
turnout, and after the banks tallied citizen accounts vs foreigners, most of
the deposits held by that 81% were much less than 100,000 Euros. Easy to see why the politicos decided not to
tax accounts less than 100,000 Euros. Oh,
and by the way (more irrational thinking) if you were a Greek Bank with a
Cyprus bank, your deposits are exempt from the levy.
Are There Any Unforeseen Potential Negative Consequences?
There likely hundreds of them, but let's look at some
potentials that are not talked about (except in the London Times and the
Financial Daily and then only on the back pages).
Basell III requires Eur
1.
Luxembourg has banking assets of 13 times the
country's GDP. OK, gentle reader, you
are going to point out that Luxembourg banking is the epitome of strength and
reliability. They are mostly invested in
(you guessed it) credit institutions and other countries' central banks. If those assets had to be repriced (based on
Cyprus, Greece, Spain, and other pheripheral nations), they cannot even begin
to think about backing their banks.
2.
The Financial Times: "The chairman of the
group of eurozone finance ministers warned that the bailout marked a watershed
in how the eurozone dealt with failing banks, with European leaders now
committed to “pushing back the risks” of paying for bank bailouts from
taxpayers to private investors."
Ok, that started with the "haircut" that investors took on
Greek Bonds. Now the rules change again
to depositors.
3.
Corporations that run their cash-flow through a
bank in the EU is going to have to carefully consider moving their banking to
London or Switzerland (or Sweden or Norway).
Look at this way. If you own a large business doing hundreds of millions
(even billions) of Euro in cash flow monthly, are you not going to be very
concerned about the ability one fine evening of the Eurozone just attaching 15%
of your cash at that moment? Yes you
are, if you've answered honestly.
a.
I believe this will force all financial
institutions (and large international corporations) as well as investors in
bonds/notes/curriences to consider the risks they are taking on.
b.
This ability of the Gestapo to reach in and take
your money now has a precedence, and prudent finance people will have to
account for this risk.
4.
One begins to consider: a) Uninsured depositors
will be hit now and in the future as the Eurozone moves from one crises to the
next b) Euro countries will have to restructure the large banking sectors and
reduce their size as they are threat to the financial stability of the
Eurozone. c) Eurozone will seek ways to shift risks away from the public
sector.
5.
Here is the rest of the story: Malta is
hurting. Slovenia is in trouble.
Luxembourg cannot bail out its banks if the crises continue to unfold.
6.
And here is something from Mr. Dijsselbloem -
Dutch Finance Minister (who is a neophyte in politics obviously) "Essentially,
why will anyone keep more than E100k in any EZ bank – indeed, why deposit any
amount in certain EZ banks, as the value of the EZ bank-deposit guarantee is worthless in a
number of cases, as a number of the peripheral EZ countries can’t afford to pay
up. I repeat, the EZ bank deposit “guarantee” is not a joint and several
responsibility across the EZ; it is the responsibility of individual EZ
countries."
7.
French banks are in awful shape: One example,
BNP-Paribas: $2.5 trillion of asset vs. $80 billion of tangible common equity
(TCE) or 31X leverage; it has only
$730 billion of deposits or just 29% of its asset footings compared to about
50% at big U.S. banks like JPM; is teetering on $500 billion of mostly
unsecured long-term debt that will have to be rolled at higher and higher
rates; and all the rest of its funding is from the wholesale money market ,
which is fast drying up, and from repo where it is obviously running out of
collateral.
EuroZone and the Currency
Euro continues to drop. (but maybe not as bad as could be expected).
Euro Zone where is your deposit insurance? The Cyprus fiasco underscores you folks do
not have a deposit-insurance scheme. You
promised the world you would create one, but Germany has opposed it
vehemently.
Then gentle reader: if something as straightforward and
necessary as deposit insurance cannot be achieved, than how can there really be
any hope that the Eurozone can survive?
A fiscal union is necessary if the Eurozone is to survive.
When the French banks declared the Emperor had no clothes
when they were pricing sub-prime assets that
started this mess, the French don't even have skin might as well
clothes. They hold sovereign debt backed
by no capital due to the zero-risk raging of BASIL III (good grief).
And what about German banks?
" Did you know that Deutsche Bank is levered 60:1 on a TCE/assets
basis, and that its Basel “risk-weighted” assets are only $450 billion, but
actual balance sheet assets are $3 trillion? In other words, due to the Basel
standards, which count sovereign and other AAA assets as risk free, DB has $2.5
trillion of assets with zero capital backing!" Graham Summers Phoenix
Capital UK.
Destruction of Middle Class Wealth in the Western World
My friends, if you believe this is all Europe, think
again. (I will leave Canada and Mexico
out for the moment, but they are in this as well because the USA is at the
center of mass wealth destruction.)
Let my comments stand against my own leaders: leaders that
start since I was a boy in the '50s.
The scenarios that are playing out are all a product of the
central banking and monetary policy over the last four decades
and the destruction of honest capital markets by the monetary central planners
who run the printing presses. Furthermore, this has fostered monumental fiscal
profligacy among politicians who have been told for years now that the carry
cost of public debt is negligible and that there would always be a central bank
bid for government paper. (Excepted from Ron Paul's speach on leaving public service).
Now, I have very good friends that are bankers and Quants in
NY. They vehemently disagree with me
that free markets are the best way to allocate economic resources
correctly. That argument is valid, in
that individually, people do not make rational choices when it comes to money,
and supposedly, the monster from Jekyll Island (the Federal Reserve) should
be much better able to handle US
finances. How is that working out? Let me introduce you to "Bubbles"
Greenspan -- where we lurched from one bubble to another in irrational
exuberance. Then let me introduce you to
Bennie and the Ink Jets - print money and accumulate debt like there is no
future repercussions.
"To every action there is always an equal and opposite
reaction" Newton.. Or the Chinese
concept of Ying and Yang.
Central Planners of the One World Government listen up: Adam Smith in the 1700's described the invisible hand, and that as long as the invisible hand was allowed to function freely, economies would allocate resources appropriately. As far as I can tell, Dr. Benanke, you have totally overthrown that principle of your education as an economists. You and your colleagues in the central banks world-wide believe you know what is best, and for the .1% of the bankers in the world, you are right. What about all the rest of us where low interest rates and inflation are destroying our savings. Savings we can fund our children's and grandchildren's education and our own retirement? Did you forget about us, or is the Federal Reserve's only mandate is make sure the wealthy get way way more wealthy, and the poor get enough freebies to keep them from rioting.
Now my dear friends in NY (and they are even when they get
angry with me), I ask you to prove that under Bush and Obama that the
middleclass of the US is growing and prospering. We can certainly find statistics (without my manipulation) from the US Government that shows exactly the opposite is taking place - the middle class is in its death throws.
Maybe we will all redefine the middleclass
someday as earning minimum wage and paying rent on a government supplied
apartment. And when the vast majority of
people no longer can afford to buy property (farms, homes, commercial
property), then personal property will be a thing of the past only held by
those that are in with the current ruling class. Will this happen? It is happening already, but people are
overwhelmed with all their day-to-day problems to understand:
"The rich get richer, and the poor (use to) have children..., in the meatime inbetween time, ain't we got fun..."
Remember, gentle reader, that you can invest your savings and make money. But I will remind you of what one of my dearest friends (a Quant in NY) said: All those people that think they can beat Wall Street are living in a fantasy world (actually he cussed alot 'cause that is how Quant's talk). In other words, he does not believe the average retail investor can make money in the markets. And I would agree in the sense you cannot beat the markets in the short term. One must own companies and learn to re-invest the proceeds and use compounding to your advantage.
And we need to learn how to invest outside the US diversifying in other countries and currencies.
My very best wishes to all (and especially best wishes to those that hate my stance on free markets.)
No comments:
Post a Comment