From an Anglo Far East client note (“no”, the client is not me, and “no, sorry”, no link):
Cyprus Steals the Money
At AFE, we have said many times that when governments become desperate, the record of history is very clear – they confiscate the wealth under their jurisdiction. I am sure there are many who thought this could never happen in today’s modern economy, yet here we are, and it is happening.
A bank holiday is called, which prevents depositors in Cyprus from accessing their funds. Next, Cyprus announces that it is in negotiations with the ECB and IMF for a bailout of its biggest banks to the tune of $17B. The ECB/IMF offer to cover $10B, and Cyprus is told to come up with the rest.
The first idea was to call a bank holiday, and before depositors could get to their funds, depositors would have up to 10% of their wealth confiscated. This measure was rejected by the Cypriot Parliament.
The ECB/IMF then gave Cyprus a deadline of today to figure out a solution accompanied by the threat of cutting off rolling credit lines, therebyforcing insolvency of one or more of its largest banks and collapsing the banking system.
The end result has been the worst nightmare of depositors.If you are a depositor with more than 100,000 Euro, they will be taking up to 40% directly out of your account before you have access to your money again. The total amount of the theft: Up to €4.2 Billion Euros
“Deposits above 100,000 Euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize Bank of Cyprus.” – Reuters
We spoke to one of AFE’s Cyprus clients on the phone today. Comments included, “They are very afraid. The banks are still closed, and they are worried there will be bank runs.” This client also believes that once banks re-open, they will limit the amount allowed to be withdrawn in order to avoid a bank run.
New Zealand Prepares to Steal the Money
Last week we notified our clients that plans have been in place for some time in New Zealand to be able to declare a bank holiday and instantly haircut all depositors. As it turns out, this can be done with as little as “a few mouse clicks.”
AFE’s inside source (a senior developer for one of New Zealand’s largest banks) confirms that these plans started some time ago. According to this source’s personal knowledge of the system’s implementation, which facilitates instant theft on behalf of the government, this project was initiated years ago. Interestingly, it was the Reserve Bank of New Zealand that instructed all banks to put this system in place as well as providing the deadline as to when it had to be implemented.
AFE’s Duncan Cameron says, “You don’t build bridges to nowhere with no plan on walking them.”
“If depositor’s funds are protected up to €100K, and anyone holding deposits over that amount has to bail out their bank if that bank gets into trouble, it will set a precedent for other banks’ depositors worldwide who have deposits over the insurable amounts within those nations!
In Australia and the USA, the insurable amount is $250K for any single entity (person); therefore, any one entity over the insurable limit could be subject to similar scenarios.
Think you won’t be affected, that you’ll not have any of your
money digital bookkeeping entries stolen to prop up a Too Big To Fail bank, because you have less than $250K there?
As we saw in March 2012, the Australian government’s Bank Deposits Guarantee Is No Guarantee At All:
How many of them [bank customers] would know, for example, that the standing appropriation to meet any initial payout of deposits is limited to $20 billion per failed bank?
It might seem like a lot, but it pales when compared to about $200bn in eligible deposits for each major bank.
…the initial payout is effectively capped by legislation at $20bn, albeit with provision for the government to go back to the parliament for more.
There is no mention of any of this in Swan’s press release.
After reading that document, you’d come away thinking that the government will cough up for pretty much all bank deposits of less than $250,000 in full.
In fact, only one-tenth of all eligible deposits (ie, under $250K) would be protected.
At best. If you’re lucky.
The important outtake from all of this?
“Trust” in the banking system – and government – is gone.
The events of recent days in Europe all tends to suggest that Cyprus is just a test case.
Or as Eurogroup head, the Dutch Finance Minister let slip, Cyprus is a template for Europe.
And the rest of the West.