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Old 03-18-2013, 12:38 AM   #1
ZenGum
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The Cyprus Bailout

"Good evening, Ladies and Gentlemen, it's so good to see a packed house at Ye Olde Timber Theater tonight, and now that we're all in, let me say ...

...

...

FIRE!!!!!!!!!!!!!!!!!!!!!!!
"


The short version is that some banks in Cyprus are in trouble, a bail out is needed, and that bailout is partly coming from seizing from 6.75% up to 10% of the savings of regular depositors.

Why is this bad? [Grandpa voice] Back in the start of the great depression, there was no deposit insurance, and when a bank went belly-up, Mom and Pop lost out. This led to runs on banks - as soon as a rumour went around that a certain bank was short of cash, everyone would try to pull their money out, thus causing the bank to collapse. Pick a new bank, repeat.

Eventually we wised up and provided deposit insurance for smaller account holders. This is a crucial foundation of modern banking.

So imagine you were a Cypriot, or Greek, or even Spanish or Italian citizen with your modest savings in the bank. It's earning sod all interest, but at least it is safe, right.

RIGHT?

Senors and senoras, please stampede in an orderly fashion.

Of all the crazy financial shenanigans we have seen, this might just be number one. For it to be a simple mistake would require a staggering ignorance of history and ignoring of human nature.

Forbes describes it as The Botching of the Cyprus Bailout: Worse than Lehman Bros

The guardian reports Cyprus bailout: 'people are panicking, they're afraid of losing their money'

Business Insider warns This Crazy Cyprus Deal Could Screw Up A Lot More Than Cyprus...


This could be interesting.
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Last edited by ZenGum; 03-18-2013 at 12:47 AM.
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Old 03-18-2013, 05:28 AM   #2
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When I was a kid, the world was safe because I knew the grown ups were in charge and they were smart.

I miss that innocence.
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Old 03-18-2013, 06:54 PM   #3
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My father has financial business with older Russians on a regular basis, and he notes that many of them pay even very large debts in cash, and flatly refuse to use banks of any kind. They have told him that this is because when the USSR was collapsing, many of the banks simply seized all the money, and they would rather trust their mattress and a shotgun than put their money in a bank ever again.

I sometimes wonder if they're right. You think, "it could never happen here," right up until it does.
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Old 03-18-2013, 06:58 PM   #4
ZenGum
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Ironically, quite a lot of the larger Cyprus depositors are Russians. Not exactly your prudent saver types, though, more of your ... ahem ... "legitimate businessman" types.
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Old 03-18-2013, 10:39 PM   #5
Aliantha
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Well, I guess if they're in trouble, maybe they have no other options. Not saying this is a good idea, or that it wont lead to a complete collapse of the financial markets, but is anyone likely to put their hand up to loan the money to fund a bail out?

Perhaps the thinking is that this will speed up the process of the collapse so that the recovery can start from scratch.

I'm hardly an economist, so what would I know right? Just my initial observations.
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Old 03-18-2013, 10:56 PM   #6
tw
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Some numbers. Loan estimates to Cyprus put Russian banks at $15 billlion. And Russian depositors at $25 billion.

Cyprus was on a list of popular money laundering venues. Especially with Russians who needed to hide money. After all, when the rich do not pay taxes, then jobs are created? BTW, Israel and one American trust island in the Pacific are on that list. The British Isle of Jersey has lately come under scrutiny.

The French provided the Swiss government with a CD of suspect accounts in Swiss banks. The Swiss 'misplaced' the CD and said nothing. A combined American and EU pressure on the Swiss resulted in major confrontations resulting in hefty fines to Swiss banks. I believe one is not longer permitted to conduct business in the US. Prosecution that were stifled until Obama took power.

Everyone knew about Cyprus long ago. But it was not fixable until a newly elected government took power. Everyone had plenty of time to resolve that problem. And did what most finance types (ie Bernie Maddof, Lehman Bros, Enron, AIG, Long Term Capitial Management, AT&T, GM, etc) do. Ignore it hoping the problem would go away.

Apple had an advantage. When Sculley and Spindler almost bankrupt Apple, then stock holders began yelling four letter words down upon the Board of Directors. Who were so shocked as to have another meeting and fire Spindler. They would bankrupt a company by ignoring the spread sheets and do nothing? But were shocked by four letter words?

The problem was easy to solve. Cyprus government would call a stockholder meeting. Conduct it on a pitch with citizens filling stadium seats. Then when citizens screamed football epitaphs down upon the government, then maybe the government would have done something.

Last edited by tw; 03-18-2013 at 11:01 PM.
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Old 03-19-2013, 07:02 AM   #7
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Something like that last paragraph might well take place. BYO pitchforks and fiery torches.
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Old 03-19-2013, 08:53 PM   #8
tw
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A fundamental problem remains with the Euro. It is structured so that governments and member states can avert fiscal responsibility. As so often stated, economics then takes revenge. Unfortunately, like everything in nature, revenge is not done fairly. The economic hardships fall on all Euro members.

And so dirt bags like Berlusconi could maximize their profits today. And pain is cast upon all other member states (and the Italian public) a decade plus later.

Cyprus is only a latest example of what happens when the currency is not held responsible by a Central Bank.

Of course American wackos hate the Fed only because of Limbaugh, tea party, and Paul Rand brainwashing. The concept of fiscal responsibility is not found in their diatribes.

Meanwhile, due to a Fed, we did not suffer a 40% unemployment. Due to a Fed that learned from 1929, we averted what was clearly another Great Depression. However we also know the Central Government (George Jr) did everything possible to subvert fiscal responsibility. Ie Mission Accomplished whose costs were never put into the budget. And are now appearing as budget shortfalls. Even with a Fed, scumbags still will enrich the rich at the expense of all others.

Too many banks in America, Japan, Europe, and elsewhere are protected from fiscal responsibility. Are so communist as to think their purpose is a profit (all others work for them) rather than serving the people. As should now be obvious to everyone without doubt - we cannot overregulate finance people. Because their very nature is to screw the economy tomorrow for their own self serving benefit today.

And so the PIIGS (Portugal, Italy, Ireland, Greece, Spain) are now called CPIIGS.

The European Union must surrender national budgets to a central government and banking system. In the US, states must have a balanced budget every year. Cannot invent money as the irresponsible of European governments do. Europe desperately needs something economically equivalent to force economics standards on the member states.

Heavy handed regulations are needed on every finance institution that thinks their executive should be paid more than a water company executive. A banker's job was not profits. His job is to service all others (and not be a prostitute).
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Old 03-20-2013, 08:13 AM   #9
ZenGum
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So, the angry mob has said NO!


Good for them.


Except that now, a number of their banks are insolvent, and everybody knows it, and there is widespread distrust about deposit security. All banks are closed to prevent a run and the moving of money is suspended, to prevent capital flight. So no business is getting done.

Bean counters are no doubt experimenting with new ways of piling the beans, good luck to them. What's needed is confidence, and really, the only thing to fear is fear itself. That and the fact that everyone else is already afraid.
And incompetence.
And corruption.
And greed.
And short-term profiteering.
Also selfishness, indulgence, nepotism, cynicism, and apathy.
And giant spiders. Zombies and vampires too.
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Old 03-20-2013, 08:18 AM   #10
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Quote:
Originally Posted by ZenGum View Post
And greed.
And short-term profiteering.
This got my interest. How can I profit from the woes of Cyprus?
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Old 03-20-2013, 08:18 AM   #11
DanaC
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You forgot the werewolves.
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Old 03-20-2013, 08:23 AM   #12
ZenGum
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Leverage your house and go short* on the Euro against the Greenback. If you win, give me 5%. If you lose, too bad.

*this was a random guess. Soon, I'll tell someone else the opposite. Ka-ching, baby.
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