Comments on: Cyprus must avoid capital controls Mon, 18 Apr 2016 14:55:08 +0000 hourly 1 By: PseudoTurtle Tue, 26 Mar 2013 08:00:16 +0000 I don’t think the reality of what just happened in Cyprus has sunk in yet. It should be interesting to see how this plays out over the near future.

I think this comment from the Prudent Bear sums it up quite nicely:

“Not a Decent Banker Among Them”

by Martin Hutchinson
March 25, 2013

“Legality seems to have been utterly irrelevant to those arranging the bailout. Instead, by arranging a “tax” that fell so heavily on small depositors, they blew a hole in deposit insurance schemes worldwide. Depositors in banks elsewhere in the EU, or indeed the U.S., can no longer believe that the first $100,000 (or whatever figure is “insured”) of their savings is secure. Inevitably, calls upon the deposit insurance scheme will be made in times of financial stress, and at those times governments can use the depositors’ funds to recapitalize the banks or indeed themselves. In 2008, depositors in Western Europe and the U.S. could be reasonably confident that their governments were in decent financial shape, so would have no need to raid their citizens’ piggy banks. In the next financial crisis, thanks to years of foolish, indeed evil monetary and fiscal “stimulus” there will be no such assurance.”

The entire article can be read at this website: bearslairview?art_id=10777

By: PseudoTurtle Tue, 26 Mar 2013 07:28:48 +0000 What was done in Cyprus should have been the model used in Ireland, Greece and Spain as well.

Why should taxpayers be liable for bank losses? THAT is “crass” in the extreme.

Depositors knew, or should have known, that uninsured deposits over $100k would be lost if the banks foundered.

In fact, the same is true in the US, but the American taxpayers were not only forced to bail out greedy bankers, but they are still on the “dole” from Bernanke.

The banks that were “too big to fail” in 2008 are now larger and more unstable than they were then.

How is that a solution?

This nightmare will only end when the wealthy are taken off of “welfare” and forced to act responsibly again, which means taking their losses as well as gains.

It is NOT too late to claw back those welfare payments, providing we first establish capital controls over their assets — no matter where they are located.

By: lisandro Mon, 25 Mar 2013 09:17:26 +0000 A good agreement. No capital controls. We needed a first stop to offshore funding. We need to get away from money of quastionable origin. We need to get balanced economies. We need to concentrate on a sustainable and honest value added chain and earned and developed competitive advantages.

Russians will pay for their opportunism and reclessness and Cyprus president will pay for his recklessness of wanting to save his Russsian cronies and the business model of an offshore center for Cyprus. He should have negotiated today’s agreement from his own accord and from the start. Once again Cyprus shows that what is rotten at the core is our democratic governance model and I mean the governance in most EU countries. It is a model built on debt, easy money and easy promises.

Cyprus will go through deflation but it is so small that a sprinkle of EU funds can restart growth with infrastructure programs. Cyprus has two huge military bases which are a source of Euros/GBPs and it has natural gas. Get a move on and do not invite Russian companies…I wish Portugal or Spain had natural gas….

By: scythe Mon, 25 Mar 2013 09:08:13 +0000 better to annihilate the speculators and profiteers

like hanging an admiral, it sets an example for the others

By: RafaelMtz Mon, 25 Mar 2013 09:02:43 +0000 I do not see reasons for panic in Spain, Portugal or Greece.

In Cyprus the majority of the bank deposits where over 100,000€.

Spain, Portugal and Greece are not offshore laundries. The majority of bank deposits are below 100,000€.

P.D: the case of Cyprus banks is a singular one, because there was no significant equity or bonds in their balances.

By: lisandro Sun, 24 Mar 2013 23:41:45 +0000 Cypriot banks have reinvested their deposits into Russian assets? Is there documentary evidence for this? I would have thought Russians would use their Cypriot deposits to buy or leverage into EU assets out of reach from the Kremlin…The whole point of Russian deposits in Cyprus is to diversify away from mother Russia.

The whole Cyprus fight is about getting rid of an offshore inside the Euro family and force Cyprus into a different business model such as tourism and the like.

Why does the Cypriot government agree after all on a 20+% tax on deposits over €100th as long as they are with the Bank of Cyprus and a 4% tax on all other deposits over €100th at other banks? Because only 4% of BofC deposits are from Russia. Bingo, as long as the Cypriot president wants to save the tiniest bit of possible future as an offshore, Brussles will shoot him down. That is why all his counteroffers to the original proposal from Brussels are shot down.

By: Maunsell Sun, 24 Mar 2013 22:29:39 +0000 Hugh – Sorry but I am not sure if I agree with you on this for the following reasons

1. Malaysia imposed capital controls during the Asian
crisis and thus it did not experience the huge
currency depreciation that hit Indonesia and Thailand
as all the hot money ran for cover. While things were
tough in Malaysia at that time their downturn was
not nearly as brutal as that in Thailand or Indonesia
and were able to ultimatley lift them when things
calmed down without material adverse onsequences.

2. Iceland would have been much worse off if they had
not imposed capital controls.

3. All the hot money from Russia that is currently in
Cyprus will run out the door in an instant if given a
chance and will NOT return.

4. Given that most of the hot money has been reinvested
back into Russia, if the ECB were to provide
liquidity using these loans as collateral then it is
highly questionable whether it would be able to
collect on these assets if it had to.

5. The history of financial crises is very similar –
fast hot money flows to take advantage of a perceived
opportunity (or the latest hot fad) but then when the
preverbial hits the fan, these so called “investors”
push the case for a compliant central banker to take
over their dud assets while they run away without any

Making them take their losses sends a strong signal
that they will not be bailed out in the future, helps
prevent moral hazard and will make them think about
imposing some financial disipline on the people they
lend to in the future (i.e would someone lend to a
bank with 35+ times leverage unless they thought a
central banker would bail them out.)

6. The Cyprus scenario has actually demonstrated how
restritions on a tax havens activities could be
curtailed in the future (i) if the country uses the
same currency as the EU then by restricting the ECB
backstop to its banking system the hot money
will be less likely to go there as it cannot be
assured of being bailed out.
(ii) Applying capital controls/witholding taxes to
cash flowing to or from the tax haven is a good
first step in reducing the extent of such

I understand your concern about runs on Spain and Ireland etc but the couter argument is that the fear of such a run will act as a strong incentive for all involved to get the bank systems properly recapitalised much faster than would otherwise be the case.

By: lisandro Sun, 24 Mar 2013 19:58:16 +0000 congrats for this post. Hopefully somebody in Brussles will read it….