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PostPosted: Sun Mar 17, 2013 12:12 pm    Post subject: Cyprus Bank Deposits to Be Taxed in $13 Billion Bailout Reply with quote

Europe isn't going to make it. The well has got to be running dry ...


Cyprus Bank Deposits to Be Taxed in $13 Billion Bailout

Euro-area finance ministers agreed to an unprecedented tax on Cypriot bank deposits as officials unveiled a 10 billion-euro ($13 billion) rescue plan for the country, the fifth since Europe’s debt crisis broke out in 2009.

Cyprus will impose a levy of 6.75 percent on deposits of less than 100,000 euros -- the ceiling for European Union account insurance -- and 9.9 percent above that. The measures will raise 5.8 billion euros, in addition to the emergency loans, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, told reporters early today after 10 hours of talks in Brussels. The International Monetary Fund may contribute to the package and junior bondholders may also be tapped in a so-called bail-in, the ministers' statement said.

Officials have struggled to find an agreement that would rescue Cyprus, which accounts for just half of a percent of the euro region’s economy, without unsettling investors in larger countries and sparking a new round of market contagion. Finance Minister Michael Sarris said the plan was the “least onerous” of the options Cyprus faced to stay afloat.

“This decision should not be compared to the ideal, but to the very real possibility that much more money could have been lost in a bankruptcy of the banking system or indeed of the country,” Sarris said in Brussels.
Late Meeting

Policy makers began meeting at 5 p.m. yesterday in a hastily convened gathering, seeking to overcome differences on bondholder losses while financial markets were closed.

“Further measures concern the increase of the withholding tax on capital income, a restructuring and recapitalisation of banks, an increase of the statutory corporate income tax rate and a bail-in of junior bondholders,” according to a statement released by ministers after the talks. It didn’t specify whether bank or sovereign bond holders could be affected.

The European Central Bank will use its existing facilities to make funds available to Cypriot banks as needed to counter potential bank runs. Depositors will receive bank equity as compensation.

President Nicos Anastasiades called leaders of the political parties to a meeting at 8:30 p.m. local time today. The Cypriot parliament will convene tomorrow to vote on legislation needed for the bailout.
‘Uncharted Territory’

While the tax on deposits carries some risks of setting a precedent for other countries in the euro area, the ECB has shown it’s prepared to do what it takes to preserve the currency union, said Holger Schmieding, chief economist at Berenberg Bank in London.

“We are optimistic that it will not spark massive contagion,” Schmieding said in a note. “Still, with the unprecedented haircut on Cypriot bank deposits we are in uncharted territory again.”

The tax on deposits, as well as hurting wealthy Russians with money in Cypriot banks, will also sting ordinary citizens. Some ATMs in the country ran out of cash, Erotokritos Chlorakiotis, general manager of the Cooperative Central Bank, told state-run CYBC.

Funds to pay the levy were frozen in accounts immediately, ECB Executive Board Member Joerg Asmussen said. The levy will be assessed before Cypriot banks reopen on March 19 after a March 18 national holiday. Sarris said electronic transfers will also be limited until then.
‘Unique Measures’

“As it is a contribution to the financial stability of Cyprus, it seems just to ask a contribution of all deposit holders,” Dijsselbloem said, noting the country’s financial industry was five times the size of its economy. The plan includes “unique measures” that address the “exceptional nature” of Cyprus and show “inflexible commitment to financial stability and the integrity of the euro area.”

The IMF will consider contributing money to the rescue, said IMF Managing Director Christine Lagarde, who travelled to Brussels for the talks. “We believe that the proposal as outlined by Jeroen is actually sustainable,” she said.

Euro ministers expect the region’s bailout fund, the European Stability Mechanism, will approve a bailout proposal “by the second half of April 2013 and subject to completion of national procedures.”

Cyprus pledged to step up asset sales and enact budget cuts amounting to 4.5 percent of gross domestic product. The aid program, which should be completed by the second half of April, calls for its debt to be 100 percent of GDP by 2020. The EU forecasts it at 93 percent this year. The deal calls for the banking sector to shrink substantially by 2018.

Skeptics including Luxembourg’s Jean-Claude Juncker had said that imposing investor losses in Cyprus risked reigniting the financial crisis that has so far pushed five of the euro zone’s 17 members to seek aid. Last year, the euro area took what officials called a unique step to ask Greek bondholders to absorb losses.

Asmussen said tapping deposit holders was needed to expand Cyprus’s tax base. European Union Economic and Monetary Affairs Commissioner Olli Rehn called the assessment a strictly fiscal measure. Rehn had warned against so-called haircuts on depositors to avoid setting a destabilizing precedent.

When asked if a deposit assessment could be ruled out for future rescues, Rehn said in an interview: “It can and there is no concrete case where it should be considered.”
ECB Role

“This kind of stability fee is clearly a much better choice from the point of view of financial stability and Cypriot citizens than a full-scale bail-in, which would have led to very chaotic consequences in the Cypriot economy,” he said.

Cypriot banks are on track to regain access to ECB emergency lending facilities once they have been successfully recapitalized, Asmussen said. Cyprus is “systemically relevant” and needs assistance to ensure stability of the euro, Asmussen told reporters.

The ECB also will be available to euro-area banks that may need extra liquidity, Asmussen said. Authorities plan to ringfence Cypriot bank branches in Greece, through transactions with Greek banks that won’t require money from Greece’s rescue funds, he said.

Corporate tax rates in Cyprus will rise to 12.5 percent to 10 percent as part of the deal, Dijsselbloem said. Rehn told reporters that Russia, whose banks have loaned as much as $40 billion to Cypriot companies of Russian origin, would ease terms on its existing loans to Cyprus as the rescue unfolds. Cyprus’s finance minister is scheduled to fly to Moscow on March 20.

At the talks, the ministers also agreed to give extra time to Ireland and Portugal to repay loans to the European Financial Stability Facility. The euro group, IMF and ECB will approve the details of the extensions and the Cyprus deal once technical details have been ironed out and national parliaments have acted as needed, the finance ministers said in a statement.

If you were in Italy right now, wouldn't you be thinking of getting your money out of the bank too, now that you see what can happen? And if you had a lot of money, maybe you'd be wondering if it wouldn't be a good idea to get it out of the country ... or even Europe?

And what if you were in Spain? Portugal? Ireland? This is what they are afraid of.

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PostPosted: Tue Mar 19, 2013 9:33 pm    Post subject: Reply with quote

If anyone's interested ...

This is a reaction to events in Cyprus.

It Begins: Confiscation of Private Funds by Government Desperate for Cash

The small country of Cyprus is giving the world a grave reality check today by reminding everyone that government money is simply the people's money redistributed as the European Union prepares to seize private bank account savings in order to bailout years of bad economic decisions.

The surprise decision by euro zone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets on Monday, with shares and the bonds of struggling euro zone governments tumbling.

The bloc struck a deal on Saturday to hand Cyprus rescue loans worth 10 billion euros ($13 billion), but defied warnings - including from the European Central Bank - and imposed a levy that would see those with cash in the island's banks lose between 6.75 and 9.9 percent of their money.

The initial response of investors was unambiguous. Shares lurched lower, the euro fell to a new three-month low, while safe-haven assets such as gold and German government bonds jumped.

The cost of insuring the debt of even high-quality European banks against default also rose sharply with analysts citing fears the decision could spark contagion across peripheral regions with the potential for widespread outflows of deposits.

"If I were a saver, certainly in Spain or maybe Italy, I think I'd be looking askance at these measures and think this could yet happen to me," Peter Dixon, global financial economist at Commerzbank said.

Cyprus is an incredibly small country. It's smaller by area than Hawaii and has the same GDP as the state of Vermont yet, it's having a massive impact on the markets as individuals make a run on banks and investors pull out their money. Europeans in stronger countries like Germany are asking if this could happen to them and here in the United States, people should be asking the same question.

As a reminder, the United States government has been eying and researching how Americans use their 401k plans for quite some time now. Recently we saw the U.S. Consumer Financial Protection Bureau suggest the government help "manage" retirement plans.

The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.
“That’s one of the things we’ve been exploring and are interested in in terms of whether and what authority we have,” bureau director Richard Cordray said in an interview. He didn’t provide additional details.

The bureau’s core concern is that many Americans, notably those from the retiring Baby Boom generation, may fall prey to financial scams, according to three people briefed on the CFPB’s deliberations who asked not to be named because the matter is still under discussion.

The retirement savings business in the U.S. is dominated by a group of companies that handle record-keeping and management of investments in tax-advantaged vehicles like 401(k) plans and individual retirement accounts. The group includes Fidelity Investments, JPMorgan Chase & Co. (JPM), Charles Schwab Corp. (SCHW) and T. Rowe Price Group Inc. (TROW) Americans held $19.4 trillion in retirement assets as of Sept. 30, 2012, according to the Investment Company Institute, an industry association; about $3.5 trillion of that was in 401(k) plans.

In February, the Washington Times went so far as to ask "is your 401k about to be nationalized?"

The $19.4 trillion sitting in personal retirement accounts like the 401K may be too tempting an apple for a government that is quite broke, both monetarily and morally. The U.S. Consumer Financial Protection Bureau director Richard Cordray recently mentioned these accounts in a recent interview, stating “That’s one of the things we’ve been exploring and are interested in, in terms of whether and what authority we have.”

This agency, created by the 2010 Dodd-Frank-Act, is very concerned about how safe your retirement savings are. They are apparently concerned that retiring baby boomers may become victims of financial scams.

If the government takes control of retirement accounts, it will not be called “nationalization.” There will most likely be an indecipherable document that provides an opt-out option (initially), but why would you want to do that? The US government only wants to ensure the safety of your retirement funds; they did after all create a new bureaucracy for that specific purpose. And what could be a safer investment than US bonds?

In case you're wondering, gold is up today.

Any thoughts?

What occurs to me is that a lot of people's retirement savings are in IRAs and or other tax sheltered vehicles. What if these funds are 'conscripted' to buy US bonds? People will have the option to take their money out. But it will be a painfully expensive choice to withdraw from these plans. They would take a huge one-year tax hit.

You would have to have very little trust in the system to do that, particularly if there were a large amount of money in the account.

You might scoff, but the Federal Reserve is now spending $85 billion a month, split between US Treasuries, and 'market activities' -- buying and selling other securities -- to the tune of $2.5 billion a day, five days a week. To me, this inflation is likely funding a big stock market bubble. (I am not expert, it's just a private opinion.)

More importantly, how long can this go on? Obama says a decade. Others say before Obama is out of office! Meanwhile, Congress is gridlocked, and the debt mounts. Everybody is laden with debt, because of low interest rates. Underwater mortgages ... but Consumption remains high because credit is cheap. The ethnic ghettos ... as they are called ... are happy because they get food stamps and cell phones, and there's never many jobs there anyway. It's the middle class that are being ground down.

On the other hand, the Government needs money. It has to dedicate a taxation stream to debt service, to revive the bond market. There aren't many pools of capital that are as inviting as the money in the retirement savings plans of America.

Anyone think this isn't crazy?

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PostPosted: Thu Mar 21, 2013 6:10 pm    Post subject: Reply with quote

The reaction continues ...

First, there's a war on bankers going on ... Remember Dominique Strauss-Khan, the French central banker who was charged with rape and taken through the lobby in handcuffs? He resigned as President of the IMF, and what do you know? The charges were dropped, the maid was paid off, and everything is tickety-boo again.

I think the point is that this is how some powerful people squeeze people out of their top positions in the IMF.

Now, in the wake of the Cyprus disaster, something similar seems to be happening to his replacement.

Christine Lagarde's flat raided by French police
IMF chief's residence searched amid inquiry into her handling of €285m payout to Nicolas Sarkozy supporter Bernard Tapie

Police have searched the Paris home of the head of the International Monetary Fund as part of a fraud investigation centred on a supporter of former president Nicolas Sarkozy.

Christine Lagarde's flat was raided along with that of her office manager and the home of businessman Bernard Tapie, a former politician, actor, singer and television celebrity.

The IMF chief has been the subject of preliminary investigations for "complicity in the embezzlement of public funds", since 2011, when Tapie was awarded €284m of public money in compensation in a financial dispute while she was economy minister.

The search came hours after the French government was rocked by a separate scandal after the budget minister Jérôme Cahuzac was put under criminal investigation amid claims he hid money from the French taxman in a secret Swiss bank account. Lagarde and Cahuzac have vehemently denied any wrongdoing[....]

Well, none of these people are very savoury. Gleithner is a tax cheat and he's still the Secretary of the US Treasury.

King World News interviewed a notable gold trader who knows this world well, and he feels that she's being squeezed out because she was a party to this, and allowed the Russians to be involved. There is a possibility that Russia will buy the Cyprus banking system, and possibly build a naval base there, something Russia has wanted since Peter the Great.

Eric King: “Remarkably, just a day and a half ago you stated on King World News that ‘Putin has faced down the International Monetary Fund, which by the way is located in Washington, DC, and is in fact Washington itself. So in the sense of a Cold War, you have Washington vs Moscow, and Moscow won this round. The bottom line here is Lagarde took on Putin, but Putin has checkmated both her and the IMF the same way a Russian grandmaster chess player would destroy his opponent.’ Within hours of KWN reporting that news, Lagarde's apartment was raided by police and she is now scrambling.”

Sinclair: “The important point is, how long has this case been going on in which there was a police raid on the Lagarde’s apartment? This is a 20-year old case, making it look a little less like just a coincidence. I would also add to that I don’t think it’s any coincidence that the Chairman of the Federal Reserve has now indicated the possibility that he will not be reappointed, and that he will not accept the reappointment....

“In truth, the IMF disaster which has just taken place in Cyprus is comparable to the assassination of Archduke Ferdinand that started World War I. This is a major event in history. We have the mainstream media and some talking heads telling people that ‘Cyprus is a tempest in a teapot.’ That is completely false.”

Eric King: “This IMF disaster which has occurred, and obviously Lagarde is now being dealt with, but going forward you talked about the possibility of destabilization in the Western world. You are saying they can’t make a misstep here, and what about this Bernanke development?”

Sinclair: “The gamble was they were going to shift the onus of the funds required from the busted banks to the depositors and away from central banks. That would have been to the depositors, and away from QE. This is also being proposed in New Zealand and in Spain, but in tiny, negligible amounts. Obviously no amount of theft is acceptable, but the theory coming out of Cyprus was a 10% theory, and that is enormous money.

It was a historic mistake because what Mrs. Legarde and the IMF have done is potentially ruined all of Bernanke’s work. It has also potentially ruined all of the work of the central banks which have been doing QE in order to maintain sovereign solvency.

If she (Lagarde) had succeeded, the ease would have been to the governments, and the pressure would have been to the depositors. Up to now what has been done is to insure the bank depositors without them having to lose. This was the ‘Super Glue’ to hold together the possibility of an economic recovery. That’s what has been put into risk because of this debacle by Mrs. Legarde and the IMF in Cyprus.

This police raid and the 20-year old case is tied directly to her colossal failure in Cyprus. It is also directly tied to Bernanke’s indication that he wouldn’t seek to be Chairman of the Federal Reserve after his term is up.

Again, what the IMF’s catastrophe in Cyprus has done is put into jeopardy every single dollar that any central bank has put in to maintain sovereign solvency. This is enormous. The IMF originally telling Cyprus to ‘Go to hell,’ has in fact said to the world, ‘Go to hell.’ The Western financial world may now indeed go to hell, and Fed Chairman Bernanke knows it.”

Eric King: “Just so I understand this, the degree of damage that has been done because of the IMF disaster in Cyprus now has Bernanke saying, ‘I want out.’”

Sinclair: “This historic event is one of the single largest and most important in my 50+ years of being involved in markets. It is as serious as what I have said, and the Chairman of the Federal Reserve is saying, ‘They are going to screw up all of my work; to hell with them, I don’t want to be Chairman when this hits the fan.”


It' like a James Bond movie ...

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PostPosted: Fri Mar 22, 2013 9:57 am    Post subject: Reply with quote

Bugs wrote:

It' like a James Bond movie ...

It certainly has been proving to be.

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PostPosted: Tue Mar 26, 2013 8:09 am    Post subject: Reply with quote

Apparently, grabbing depositer's money is part of the 'new solution' to banking problems. In effect, deposits are no longer insured. Investor's capital is also vulnerable, as it should be.

It's probably a good thing. It takes away a moral hazard. But, at least in the case of some banks, it will make things harder.

Cyprus bail-out: savers will be raided to save euro in future crises, says eurozone chief

Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe's single currency by propping up failing banks, a senior eurozone official has announced.

The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'," he said.

"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders."

Ditching a three-year-old policy of protecting senior bondholders and large depositors, over €100,000, in banks, Mr Dijsselbloem argued that the lack of market contagion surrounding Cyprus showed that private investors could now be hit to pay for bad banking debts.

"If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on,'" he said.

"The consequences may be that it's the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take."

The announcement is highly significant as it signals the mothballing of the euro's €700bn bailout fund, the European Stability Mechanism (ESM), which Spain and Ireland wants to be used to recapitalise their troubled banks.

"We should aim at a situation where we will never need to even consider direct recapitalisation," he said.

"If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller."

The eurozone had been planning to roll out the ESM as a "big bazooka" in mid-2014 that could help save banks and prevent financial turmoil in countries such Spain or Italy, a development that has been delayed by German resistance.

Mr Dijesselbloem's comments will alarm countries like Ireland and Spain that had been hoping to access the ESM in order to restructure banks without killing off their financial sector by inflicting huge losses on investors.

"I think the approach needs to be, let's deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side," he said.

"Banks should basically be able to save themselves, or at least restructure or recapitalise themselves as far as possible."

In a note published on Monday following the Cyprus bailout deal, Barclays warned that "the decision to bail in senior bank debt and large depositors will likely have a price impact on equity and credit instruments of those euro area banks that are perceived as the weakest".

Mr Dijsselbloem acknowledged that "there is still nervousness" but claimed that any jitters on financial markets caused by the new approach would be a good thing because it would raise the cost of borrowing for unsound banks, an argument unlikely to win friend in Madrid or Rome.
"If I finance a bank and I know if the bank will get in trouble, I will be hit and I will lose money, I will put a price on that," he said.

"I think it is a sound economic principle. And having cheap money because the risk will be covered by the government, and I will always get my money back, is not leading to the right decisions in the financial sector."
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Cyprus Bank Deposits to Be Taxed in $13 Billion Bailout

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