Pagina 1 di prova

Showing posts with label default. Show all posts
Showing posts with label default. Show all posts

Sunday, April 7, 2013

Why Cyprus Matters (And The ECB Knows It)


When Zig turns to Zag and the Red Queen is after your head then extraordinary care is necessitated. To quote Holmes, "The game is afoot" on the Continent.

I have been asked, with some frequency, why the bondholders have not been tagged in the Cyprus fiasco. That answer is simple. Most of Cyprus's bonds are pledged as collateral at the ECB or in the Target2 financing program. Then one may also ask why the bonds of the two large Cypriot banks are not being hit. The answer is the same; most are held as collateral at the ECB or Target2. In both cases, remember uncounted liabilities, the government of Cyprus has guaranteed the debt. Consequently if the two Cyprus banks default it is of small matter as the sovereign has guaranteed the debt. However if the country defaults and leaves the European Union then it will matter and matter significantly as the tiny country of Cyprus would wipe out the entire equity capital of the European Central Bank. While it is not a matter of public record it is estimated that Cyprus has guaranteed about $11.6 billion of collateral at the ECB.

Friday, March 29, 2013

Cyprus and the Unraveling of Fractional-Reserve Banking


[Originally posted on Circle Bastiat, the faculty blog of the Mises Institute. Read Circle Bastiat for Austrian analysis of current economic events from today’s top Misesian and Rothbardian economists.]
The “Cyprus deal” as it has been widely referred to in the media may mark the next to last act in the the slow motion collapse of fractional-reserve banking that began with the implosion of the savings-and-loan industry in the U.S. in the late 1980s.
This trend continued with the currency crises in Russia, Mexico, East Asia, and Argentina in the 1990s in which fractional-reserve banking played a decisive role. The unraveling of fractional-reserve banking became visible even to the average depositor during the financial meltdown of 2008 that ignited bank runs on some of the largest and most venerable financial institutions in the world. The final collapse was only averted by the multi-trillion dollar bailout of U.S. and foreign banks by the Federal Reserve.

The Deeper Meanings of Cyprus


The deposit-confiscation "bailout" of Cyprus reveals much about the Eurozone's fundamental neocolonial, neofeudal structure.

At long last, Europe's flimsy facades of State sovereignty, democracy and free-market capitalism have collapsed, and we see the real machinery laid bare: the Eurozone's political-financial Aristocracy will stripmine every nation's citizenry to preserve their power and protect the banks and bondholders from absorbing losses.

The deposit-confiscation "bailout" of Cyprus confirms the Eurozone's fundamental neocolonial, neofeudal structure and the region's political surrender to financialization.

The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

Let's list what Cyprus reveals about the true state of financial-political power in Europe:

1. The Core-Periphery terminology masks the real structure: the E.U. operates on a neocolonial model. In the old Colonialism 1.0 model, the colonizing power conquered or co-opted the Power Elites of the periphery regions, and proceeded to exploit the new colonies' resources and labor to enrich the Imperial core.

Tuesday, March 19, 2013

Germany And IMF's Initial Deposit Haircut Demand: 40% Of Total

As the President of Cyprus proclaims  to his people that "we' should all take responsibility as his historic decision will "lead to the permanent rescue of the economy," it appears that the settled-upon 9.9% haircut is a 'good deal' compared to the stunning 40% of total deposits that Germany's FinMin Schaeuble and the IMF demanded. This action, his statement notes, enables the rescue of 8,000 banking sector jobs and ensuring the liquidity of the banks, "allowing the economy to proceed decisively to a new beginning." Ekathimerini reports," this is the first time in the eurozone that a levy has been imposed not on the interest of bank accounts but on the capital itself," and was the only way to bridge most of the the gap between the EUR17bn Nicosia needed and the EUR10bn the ESM was offering, though tax on interest in Cypriot banks will also rise to 20-25%. It is the 40% haircut requirement that concerns us the most as clearly going forward that means other nations, starting Monday (or Tuesday given national holidays) see deposit outflows surge, as the willingness to take such steps is now painfully clear.