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BRUSSELS (AP) — Cyprus secured a 10 billion euro ($13 billion) package of rescue loans in tense, last-ditch negotiations early Monday, saving the country from a banking system collapse and bankruptcy.

"We've put an end to the uncertainty that has affected Cyprus and the euro area over the past week," said Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone's finance ministers.

In return for the bailout, Cyprus must drastically shrink its outsized banking sector, cut its budget, implement structural reforms and privatize state assets, he said.

Read more: http://www.sfgate.com/news/world/article/Cyprus-secures-bail...
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Details are a bit sketchy still but it appears the terms for their banks are now much closer to a traditional bankruptcy, with bondholders and deposits above €100'000 getting a decent haircut in Bank of Cyprus' case, while being wiped out in case of Bank Laiki.

Under the terms of the agreement the island's second largest lender Laiki (Popular Bank) will be wound up overnight, an operation Dijsselbloem said would deliver a 4.2 billion euros ($A5.25 billion) saving.

Even the best-protected senior bondholders investing in the bank would see their holdings "wiped out", Dijsselbloem told journalists. Loans to the government in Nicosia once the parliament there approves the deal in April, will be for 10 billion ($A12.49 billion).

The Bank of Cyprus, the island's No.1 lender, survives: but it will have to endure a major "haircut" - a forced wipeout of investment value, on all deposits of more than 100,000 ($A124,899).

That is a massive blow to its major investors - and the bank holds the lion's share of the island's Russian deposits.



While those local riches and Russians still holding large deposits who didn't receive a tipp-off in time will not be happy, the confiscational one-off tax for all depositors including small savers was abandoned.

So while Europols amply demonstrated how they love to play Calvinball, the final terms seem to make more sense. Given Cyprus had a weak hand they got what they wanted anyway:

Earlier, French Finance Minister Pierre Moscovici had argued that it was time to put an end to "casino economy" practices on Cyprus.



Casino economy = low taxes + light regulations + oversized banking sector

Hmmm... Wonder how other 'casino economies' and their depositors will deal with that message.




http://www.google.com/hostednews/ap/article/ALeqM5gSkhbtB_r3...

http://news.smh.com.au/breaking-news-world/cyprus-sacrifices...
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Even the best-protected senior bondholders investing in the bank would see their holdings "wiped out", Dijsselbloem told journalists. Loans to the government in Nicosia once the parliament there approves the deal in April, will be for 10 billion ($A12.49 billion).

I read somewhere this past weekend that up to 70% of the Cypriot workforce is dependent on the banking industry for their employment. So if one of the logical consequences of this new "solution" is to destroy the majority of the banking system, thus massively increasing unemployment, then one wonders where the Cyprus government will get the revenues to make payments on this 10 billion Euro loan?

Poz
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Terms for their banks are now much closer to a traditional bankruptcy, with bondholders and deposits above €100'000 getting a decent haircut in Bank of Cyprus' case, while being wiped out in case of Bank Laiki... Laiki (Popular Bank) will be wound up overnight... The Bank of Cyprus... will have to endure a major "haircut" - a forced wipeout of investment value, on all deposits of more than 100,000 ($A124,899)... the lion's share of the island's Russian deposits.

It only took 5 years and innumerable bailouts of other banks (and governments) for the EU to finally let go of insolvent banks. Unfortunately, the deal concentrates losses on particular discrete individuals, some of whom will lose virtually everything they have. Not all these individuals are Russians, either.

I heard Maria Caruso-Cabrera interview a Cypriot single mother with two kids who, in one fell swoop, will lose her bank job and her life savings in Popular Bank. This lady (shedding genuine tears) is not the only one, I'm sure.

Although I have never supported bank bailouts - including Citi and the rest, I find it very sad that everyone in the world has been led to believe that large banks cannot fail (TBTF/TBTJ). Obviously, it is merely large banks in small countries that can fail.

Large depositors are indirectly being told they must only deposit large sums in large banks in large countries. That is, except for Luxembourg, Liechtenstein and Switzerland, which presumably have the resources to stand behind their banks. I wonder if that is, in fact the case.

Between the Russians and the Cypriots (and possibly some European expats living in Cyprus), there are more than a few who will lose virtually everything. After bailing out banks in Ireland, Portugal, Spain, Belgium and even Greece, the authors of this deal will be seen by those affected as having purposely singled out and targeted individuals in Cyprus.

I fear that another Gavrilo Princip will be created out of all this.* If I were among the European powers-that-be, I would consider going into hiding for a while.

:-o

* This is a big problem in a world where the prevailing zeitgeist involves a small group of "elite leaders" picking "winners and losers" - in a seemingly arbitrary manner.
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I heard Maria Caruso-Cabrera interview a Cypriot single mother with two kids who, in one fell swoop, will lose her bank job and her life savings in Popular Bank. This lady (shedding genuine tears) is not the only one, I'm sure.


How is she losing her life's savings?

Obviously, it is merely large banks in small countries that can fail.

Cyprus is not merely a small country with large banks. It is purposefully designed as a center for money laundering and tax evasion.
The business model of the country is criminal and parasitic.
Not even Greece was quite like that.
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Unfortunately, the deal concentrates losses on particular discrete individuals, some of whom will lose virtually everything they have. Not all these individuals are Russians, either.


Mutt

The obvious question is why would anyone keep so much money in a single bank? Really the single mom or European Expats you mention surely could have diversified savings around couldn't they?

OK that may be a bit of closing the barn door thinking but one would think that it would occur to people with over 100,000 Euros that they would have more than one bank to choose from.

Cutting the size of the global banking industry may be rough on employees but clearly needs to be done.

Any <thinks banks are supposed to be the grease not the locomotive> mouse
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Archduke Franz Ferdinand of Austria has been Assassinated!

Cheers
Qazulight (See rules of acquisition number 34)
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Archduke Franz Ferdinand of Austria has been Assassinated!

Cheers
Qazulight (See rules of acquisition number 34)



Er...lest you start your own private market crash you probably should mention that it happened almost 99 years ago... not everyone is a history buff.


Any <We're all going to die!!!> mouse

http://en.wikipedia.org/wiki/Assassination_of_Archduke_Franz...
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...Archduke Ferdinand...assassinated [by Gavrilo Princip in 1914]...

The US waited until 1917 to enter WWI.

Many Americans were not in favor of the U.S. entering the war and wanted to remain neutral. However, the U.S. eventually did enter the war.

http://www.americaslibrary.gov/jb/jazz/jb_jazz_wwi_1.html

This time around (European Financial War I, a/k/a World Currency War), the US is already fully committed to the battle on behalf of its ally, the ECB, led by General Ben Bernanke on the front (swap) lines.

Ellis Island (also known as JP Morgan) is standing with open doors ready to welcome $$$ depositing immigrants from war-torn European banks.

The Whale Depositors of PIIGS countries are welcome to support JPM's next London Whale in making even bigger bets about who will win the European war.

All hail derivatives! (salute).

:-o
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How is she losing her life's savings?

IIRC, (it was 6 AM and I was technically still asleep), she said something about having the bank take out money from her paycheck for a pension that she said was being wiped out. Maybe she was buying bank bonds with it. Who knows? I do remember she said she would be left with nothing.

Maybe she'll be lucky and had less than 100,000 Euros cash. That should tie her over for a few years while she finds another job. It might take a few years for Cyprus to recover its jobs. The cost of living (and the price of real estate) in Cyprus should come down pretty quickly.

I imagine that some folks will lose at least the bulk of their life savings. At the same fuzzy moment, I seem to recall Maria saying something like the losses to depositors over the 100K figure could range up to 70%. That would certainly put a dent in someone's life savings. I wonder whether Cyprus might become a retirement haven. There should be a lot of former bank employees who might be available for work as domestic servants.

If the banking industry was going to collapse anyway, it's sort of a shame that Cyprus won't be getting the benefit of a cheaper currency to boot.

I'm still wondering whether Luxembourg just might also have an "oversize banking system" for its size. My guess is that Luxembourg would get a bailout. 10 Billion is chickenfeed when it comes to rescuing banks whose big depositors have ancient European titles, rather than "dirty oligarchs" with last names ending in "ov" or "ski."

What is the real difference, though, between Luxembourg (or Lichtenstein) and Cyprus? A stupid "investment" in Greek bonds, I guess. That's why Cyprus should never have bought any Greek bonds. Although, IIRC, the Europeans had a bit of a hand in that decision. I wonder how many Spanish, Portuguese or Italian bonds are held by Luxembourg banks.

Given the volatility of the geographic region and the strategic value of a potential military base, one might think that Cyprus has more contemporary value than Luxembourg, which had a similar geographic value during the Middle Ages.

I wouldn't be surprised if Russia doesn't end up with some sort of strategic outpost in Cyprus. The Russians, after all, are the ones that the EU was targeting when it made the decision to "treat Cyprus different" than it has treated Greece, Spain, Italy, Ireland or Portugal.

AD, you're excellent at this sort of analysis. What do you think?

???
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Really the single mom or European Expats you mention surely could have diversified savings around couldn't they?

Yeah, sort of like the large US corporate depositors do. It's not like there's a shortage of banks to choose from. Just put 100K in each one. Unless, of course, they're one of the too-big-to-fail. Then, you can pile it all in one place.

I agree that the bank wipeouts should occur. It just seems arbitrary that Cyprus is the first country in 5 years where the power brokers allowed banks to go down with depositor wipeouts.

Everywhere else, the big corporate depositors (as well as the crooks and the single moms) were bailed out.

No matter. It doesn't affect me (right now, anyway).
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Cyprus is not merely a small country with large banks. It is purposefully designed as a center for money laundering and tax evasion.
The business model of the country is criminal and parasitic.


Sort of like Liechtenstein, Luxembourg, Switzerland, Monaco and Andorra? Only each of them had decades or centuries of time for their dirty money to develop a "patina," and/or acquire a noble title.

There's a lot of ill-gotten gains in this world and it always somehow finds a home. The best home for dirty money today, of course, is in too-big-to-fail banks where occasional money-laundering fines are a much better bargain.

I don't seem to recall HSBC, Credit Suisse, Barclays, Lloyds, ING, or RBS - ABN Amro paying fines of $10 Billion as a result of their money-laundering activities. Seems like they all got socked with mere $ Millions (or some hundreds of millions).

http://www.firstpost.com/business/from-barclays-to-hsbc-mone...

For money laundering, those stupid Russians should have gone to London, Hong Kong and Singapore, like everyone else does. Or they should have changed their last names to sound British, French or German - before they made their deposits.

It always seems to come down to crony capitalism, doesn't it? That's about the only explanation for the arbitrary manner in which the financial crisis has created winners and losers.

In the end, it's still a house of cards.

:-o
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Casino economy = low taxes + light regulations + oversized banking sector

Just what all the talking heads on bubblevision advocate for the US.

I heard Maria Caruso-Cabrera...speak of the devil...interview a Cypriot single mother with two kids...the USian media's favorite camera fodder, the po' victim single mom...I'm calling Potemkin Village on this bit of bubblevision drama about the "tragedy" of a large bank that is not propped up to infinity by government.

Steve
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(See rules of acquisition number 34)

34. War is good for business.
http://en.wikipedia.org/wiki/Rules_of_Acquisition#Mentioned_...

#23 ain't bad either:
23. Nothing is more important than your health, except for your money.
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BRUSSELS - The rescue programme agreed for Cyprus represents a new template for resolving euro zone banking problems and other countries may have to restructure their banking sectors, [Dutch Finance Minister Jeroen Dijsselbloem,] the head of the region's finance ministers says.

http://uk.reuters.com/

This should help Spain's, Portugal's and Italy's large depositors make up their minds about what to do from here on out.

Bubblevision just had a guy on who says that the "flow data" indicates that Russian money is going to Latvia, Israel and Malt, among others.

...Asked what the new approach meant for euro zone countries with highly leveraged banking sectors, such as Luxembourg and Malta, and for other countries with banking problems such as Slovenia, Dijsselbloem said they would have to shrink banks down.

"It means deal with it before you get in trouble. Strengthen your banks, fix your balance sheets and realise that if a bank gets in trouble, the response will no longer automatically be that we'll come and take away your problem...

The marked change in attitude, which Dijsselbloem agreed was a shift in strategy for EU policymakers, has consequences for how banks are recapitalised and for how financial markets react...

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

Dijsselbloem, 46, who took over as Eurogroup president only in January, said he had discussed the new approach with financial market participants and said he expected that they would adjust to the new regime over time...

"It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them."


http://uk.reuters.com/article/2013/03/25/uk-eurogroup-cyprus...

Why wasn't this their thinking 4 or 5 years ago, before the citizens of bailout nations were forced to take on many Billions of unnecessary debt?

Methinks that if French, Belgian, German or Dutch banks get in trouble, the Euro ministers will be pretty quick to switch back to the old bailout nation theme.
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Methinks that if French, Belgian, German or Dutch banks get in trouble, the Euro ministers will be pretty quick to switch back to the old bailout nation theme.

I suspect, that possibly, southern Europe will be out of the Euro by the time that those banks get into trouble and switching back will be very difficult or impossible.

While Cyprus did not leave the Euro, yet, the chances of everything getting better in Cyprus are somewhere be Slim and Nun, and currently they are copulating somewhere.

Cheers
Qazulight
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While Cyprus did not leave the Euro, yet, the chances of everything getting better in Cyprus are somewhere be Slim and Nun..

I guess Cyprus could wait until they have received the European loan, then later declare default (national bankruptcy) and print their own currency, dumping the Euro.

Russia could provide Debtor-in-Possession financing and/or purchase the gas rights and help the country re-build from scratch.

Russia wasn't willing to voluntarily kick in cash they knew would be heading straight into the hands of Brussels. However, if they knew the cash would stay in Cypress and help develop new gas fields (and maybe develop a Russian military base), Russia might then be willing to "invest" in that strategic location.

Russia has spent big money on other strategic locations, such as Cuba, in the past.

;-)
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Methinks that if French, Belgian, German or Dutch banks get in trouble, the Euro ministers will be pretty quick to switch back to the old bailout nation theme.

Right now, bankers in those countries, and more so, the UK and US, are probably licking their chops in anticipation of the money coming their way as the competition based in smaller countries is strangled.

Steve
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It only took 5 years and innumerable bailouts of other banks (and governments) for the EU to finally let go of insolvent banks. Unfortunately, the deal concentrates losses on particular discrete individuals, some of whom will lose virtually everything they have. Not all these individuals are Russians, either.

If not shareholders, bondholders, and large depositors, who else do you expect to pay though? Turns out those banks with their oversized interest rate pledges were closer to hedge funds than savings institutions.


Although I have never supported bank bailouts - including Citi and the rest, I find it very sad that everyone in the world has been led to believe that large banks cannot fail (TBTF/TBTJ). Obviously, it is merely large banks in small countries that can fail.

TBTF always related to large global players highly connected in terms of counterparty risk.

Recently the definition has apparently been expanded to Spanish cajas highly connected in terms of TBTJ politicians.

Cypriot banks didn't meet either definition. But yes, an example has been made using a small size object. As I know our Europols, it will be applied more widely goong forward as long as there is no explosion...

Large depositors are indirectly being told they must only deposit large sums in large banks in large countries. That is, except for Luxembourg, Liechtenstein and Switzerland, which presumably have the resources to stand behind their banks. I wonder if that is, in fact the case.

Hey! Switzerland has a real economy... And bailed out its banks in 2008... Oh and told them to put up a punishing level of capital since the government doesn't fancy a repeat.
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For money laundering, those stupid Russians should have gone to London, Hong Kong and Singapore, like everyone else does.


Or to the market leader, of course:


As Senator Carl Levin summarizes "Estimates are that $500 billion to $1 trillion of international criminal proceeds are moved internationally and deposited into bank accounts annually. It is estimated that half of that money comes to the United States."



http://www.jpmorgan.com/tss/General/The_Price_of_Globalizati...
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SB,

Are you throwing stones at Amerika?

sheeesh....only half?

Dave
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Thank you for recommending this post to our Best of feature.

Hey! Switzerland has a real economy... And bailed out its banks in 2008... Oh and told them to put up a punishing level of capital since the government doesn't fancy a repeat.



SB

Perhaps they were chatting with those damn Canucks? }};-D


Any <suggests the "blood eagle" for bankers that don't obey> mouse


http://www.youtube.com/watch?v=TzPMNop-xUc
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Methinks that if French, Belgian, German or Dutch banks get in trouble, the Euro ministers will be pretty quick to switch back to the old bailout nation theme.


France and Belgium will be made to sweat, a lot, before they get kind treatment. I doubt very much France would get a bail-out unless the current government is replaced or returns to "the railroad car in the woods" for a meeting with their "German counterparts".

david fb
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