OT: Cypriot govt taking money from private bank accts

[SPOKE]

Over the weekend it was reported that private bank accounts in Cyprus were raided by the government to the tune of up to 10% of the acct balance to help pay off the country's debt.
I find this a bit concerning....

[DfCas]

The US or Cyprus?

[AngryScientist]

huh?

[jmoore]

link?


I'm calling BS.

[xjoex]

It's in Cyprus as they lost a ton when there holdings in Greece were written off.

More info here:
http://www.npr.org/blogs/thetwo-way/2013/03/17/174575471/cyprus-president-tries-to-calm-public-after-anger-over-bailout-deal

-Joe

[SPOKE]

The US or Cyprus?

Sorry.....Cyprus is the country.

[shovelhd]

Not in America, yet.

Cyprus. Banks shut down to prevent a run.

[MattTuck]

Nothing was raided, yet. The IMF said to cyprus, "if you want a new bailout, we want your depositors' money."

The newly elected leader of Cyprus tacitly agreed, but the the legislature is still going to debate and vote on it, and indeed the debate has been delayed.

Confiscation of private property to fund government debt, yes, it sucks. The solution is for the government to maintain sound fiscal policy.


PS. Cyprus is used by Russian oligarchs and crime syndicates to keep their money safe, so this is really an attempt to confiscate those funds, not so much the people of Cyprus.

It's highly likely that Russia will now come in and pony up some bail out money for Cyprus, so that the oligarchs don't lose their cash.

Meanwhile, there'll be a massive run on Cypriot banks and general social unrest. Coming to a US town near you.

[1centaur]

This is the Cyprus bailout. The banks are not financed sufficiently by bonds to take the pain out of bondholders alone. Mostly deposit-based finance. So the Euro nabobs decided to tax a % of depositors' money - more for big accounts and less for small accounts. Russian oligarchs have a lot of money there (weak money laundering rules) and a political problem is that Cyprus is aiming for a big loan from Russia. The real problem is that the precedent might cause runs on banks elsewhere in Europe if those systems are perceived to be in trouble again. Risk assets traded down on this possibility.

Europe, feeling their way through the dark one policy mistake at a time. Overpromising to win votes and not having the economic growth to pay for those promises is a bad way to go.

[MadRocketSci]

how much of a haircut are the bondholders taking? Is it actually > than 0???

[saab2000]

Europe, feeling their way through the dark one policy mistake at a time. Overpromising to win votes and not having the economic growth to pay for those promises is a bad way to go.

This is true regardless of one's political leanings. We expect too much from our political leaders.

[dekindy]

We expect too much from our political leaders.

No, we expect things that defy: economic sense, logic, rational thought, any semblence of common sense or regard for actual human behavior! Did I leave anything out?

[54ny77]

they'll be given sailboat iou's, argentina-style!

how much of a haircut are the bondholders taking?

[slidey]

No BS, its true! http://www.youtube.com/watch?v=Qmq__xO30Dk

link?


I'm calling BS.

[saab2000]

No, we expect things that defy: economic sense, logic, rational thought, any semblence of common sense or regard for actual human behavior! Did I leave anything out?

Well, this is true, but both parties seem to be in the business of promising unicorns and rainbows and peace and prosperity and an end to energy shortages and love and happiness.

You're right!

We must control our own destinies a bit more. That is as far as I will go politically.

As to the Cyprus thing... When you do business with the mob it's hard to imagine it won't have consequences.

[1centaur]

how much of a haircut are the bondholders taking? Is it actually > than 0???

Having a tough time tracking this down. So many articles are on the deposit side and not on the whole story. I read one analysis that the sub bondholders - E2B - were getting "bailed in" which means taking pain. I have read senior bondholders are not taking any pain. Guessing this has to do with precedent for other bailouts to come - Euro governments need private markets to lend money so governments are not on the hook for everything. Culturally, I think it was easier for Northern Europeans to demand a pound of flesh from a bloated Southern European banking system with possible dirty money floating around than it would have been from a Northern European system. As I write this, the debate about how to split the depositor tax up between rich and poor is continuing.

[MattTuck]

Culturally, I think it was easier for Northern Europeans to demand a pound of flesh from a bloated Southern European banking system with possible dirty money floating around than it would have been from a Northern European system.

Yeah, but Northern European countries are in much better shape than their southern counterparts... so there is less need of a bailout. I think it has a lot to do with the German public's appetite for bailing out their profligate southern neighbors... Germans want other people to feel the pain, and want to avoid the moral hazard potential.

[MadRocketSci]

Having a tough time tracking this down. So many articles are on the deposit side and not on the whole story. I read one analysis that the sub bondholders - E2B - were getting "bailed in" which means taking pain. I have read senior bondholders are not taking any pain. Guessing this has to do with precedent for other bailouts to come - Euro governments need private markets to lend money so governments are not on the hook for everything. Culturally, I think it was easier for Northern Europeans to demand a pound of flesh from a bloated Southern European banking system with possible dirty money floating around than it would have been from a Northern European system. As I write this, the debate about how to split the depositor tax up between rich and poor is continuing.

thanks for the info, I have been interested in this as well and had the impression that not much pain, if any, was being borne by the bondholders AGAIN *cough Goldman Sachs cough*. Would have been a refreshing change, but alas, it appears that once again the burden is placed on the little guy, though they are currently trying to structure things to minimize the amount of freaking out that is happening. Good luck with that.

edit: missed the part about "sub" bondholders...i have to go look up *** that is about...

[goonster]

they'll be given sailboat iou's, argentina-style!
Cyprus can't do what Argentina did, because they're in the Eurozone.

Having a tough time tracking this down.
Can't be tracked down because the Cypriot parliament hasn't voted yet, and because they are continually crunching numbers to see if the various proposed rate schemes will raise the required sum.

[verticaldoug]

Nothing was raided, yet. The IMF said to cyprus, "if you want a new bailout, we want your depositors' money."

The newly elected leader of Cyprus tacitly agreed, but the the legislature is still going to debate and vote on it, and indeed the debate has been delayed.

Confiscation of private property to fund government debt, yes, it sucks. The solution is for the government to maintain sound fiscal policy.

Meanwhile, there'll be a massive run on Cypriot banks and general social unrest. Coming to a US town near you.

This is how it happened. The banking industry in Cyprus offered higher returns and lax kyc/money laundering laws. It attracted a large amount of deposits. The Cypriot bankers needing to deliver higher EURO yields bought the riskier EURO debts. Of course, being near Greece, the Cypriot bankers thought Greek Debt fit the bill. They bought and bought. 22 Billion worth to be exact. When the troika decided to restructure the Greek debt and give bond holders a haircut, the Cypriot Banks took the hit. The greek holes left on banks' balance sheets were too large for Cyprus to stabilize on their own. Enter the troika to fix a second problem caused by their solution to the first problem. (You following) A typical bank generally can raise capital one of two ways - issue new shares if someone is willing to buy (the bailout) or restructure and swap debt to equity (bail-in). The troika refused to finance 100% of the bailout so someone had to finance a portion of the bail-in. The outstanding debt issuance of the banks was not enough for a tradition bail-in, enter the nifty deposit levy. However, in this instance, the deposit levy is actually a worse result. In a typical bail-in, you will receive equity in the surviving entity. It may not be worth much, but at least if it is an on-going concern, you have an opportunity to make some money back. In this levy, you get nothing.

Why is this important- because if you are Irish, Portugal, Italy, Spain, Hungary, and someone shows up at your door to discuss a bailout of your banks, depositors should immediately head for the exits for good old fashioned bank runs. . .

[1centaur]

I think it's off the path to talk Goldman here. Other banks holding bank bonds is a big issue. You smack bank bondholders anywhere and may be smacking 20-1 (optimistic?) levered banks somewhere else. Depositors are not 20-1 levered and too big to fail, when push comes to shove. The stories say that if the Cyprus banks failed the bailout size would have been much larger and all depositors wiped out. I'm not close enough to the accounting to have an intuitive feel for that assertion. I also believe sovereigns (countries) hold a lot of senior bank bonds, so giving haircuts would have ripples. Calling a spade a spade, banks and governments buy and hold a lot of each others' paper. Much of the anti-bank rhetoric is Kabuki theater for the masses. Like blaming US banks for not lending when they are instead buying Treasuries with low cost government money and keeping the cost of government down...for a while.

[goonster]

Someone please correct me if I'm wrong:

This scenario could have easily happened in Ireland, but:

1. The Irish state was able to guarantee the banks' deposits and bondholder equity before anyone was fully aware of the size of their losses
2. The EZB did not require depositor bail-in when it issued its loans
3. The EZB did not threaten to withdraw liquidity guarantees, as the lender of last resort
4. Depositors and bondholder in Irish banks where not non-Euro entities to the extent the Russians sank their cash into Cyprus

Yes?

A major German paper is reporting widespread belief that a big chunk of Putin's personal stash is in Cypriot banks, so that should be interesting . . .

[Rueda Tropical]

This is how it happened. The banking industry in Cyprus offered higher returns and lax kyc/money laundering laws. It attracted a large amount of deposits.

Sounds a lot like Iceland. The citizens of Iceland decided they were not picking up the tab for the irresponsible actions of a tiny coterie of financiers. Argentina and Iceland provide an alternate path for Southern European countries. It would meaning leaving the Euro. What they are doing now is just central bank assisted suicide.

The resulting social backlash of the current "solutions" will wind up upending the Euro enforced draconian measures anyway. Better to consider the alternative.

[palincss]

Over the weekend it was reported that private bank accounts in Cyprus were raided by the government to the tune of up to 10% of the acct balance to help pay off the country's debt.
I find this a bit concerning....

Are you a Cypriot?

[MattTuck]

If those poor cypriots had only been members of the Paceline....

http://forums.thepaceline.net/showthread.php?t=122986&highlight=physical+bullion

[MadRocketSci]

Depositors are not 20-1 levered and too big to fail, when push comes to shove.

that is the key, which is why this all sucks for those not in the biz. People who are not purposefully taking the risks still wind up taking the pain.

[verticaldoug]

If those poor cypriots had only been members of the Paceline....

http://forums.thepaceline.net/showthread.php?t=122986&highlight=physical+bullion

January 21 Gold 1690.05
March 19 1604.70

Only down 5.05% so slightly better than losing 6.75% levy for a small account at a cypriotic bank. But factor in the mark up for holding physical coins and probably a push. Who says markets aren't efficient?

[MattTuck]

January 21 Gold 1690.05
March 19 1604.70

Only down 5.05% so slightly better than losing 6.75% levy for a small account at a cypriotic bank. But factor in the mark up for holding physical coins and probably a push. Who says markets aren't efficient?



From that earlier thread...

I look forward to hearing why some would like to hold physical other than something that sounds like survivalist thinking/paranoia about government actions or just the desire to touch something tangible.

I have to say, that is one of the more prescient comments I've read on this board. And I recognize that if you lived in Cyprus, your paranoia level of the government seizing your savings might have been higher than a person living in the US. Then again, if you were an average citizen in Cyprus just making a living as a teacher or something, and believing that your government was making sound decisions for the future of the country, you might not be too paranoid either.

[54ny77]

The difference is Cyprus takes it outright and calls a spade a spade.

Here the gub'mint does the same thing, effectively, but instead calls it "common sense legislation."

Or even better, "usage fees."

From that earlier thread...



I have to say, that is one of the more prescient comments I've read on this board. And I recognize that if you lived in Cyprus, your paranoia level of the government seizing your savings might have been higher than a person living in the US. Then again, if you were an average citizen in Cyprus just making a living as a teacher or something, and believing that your government was making sound decisions for the future of the country, you might not be too paranoid either.

[MadRocketSci]

January 21 Gold 1690.05
March 19 1604.70

Only down 5.05% so slightly better than losing 6.75% levy for a small account at a cypriotic bank. But factor in the mark up for holding physical coins and probably a push. Who says markets aren't efficient?

when you buy gold you are taking a risk that it might depreciate in terms of some currency. Any reward you take is compensation for that risk. People don't consciously accept risk when they put their money in a savings account, and they aren't being compensated for whatever risks they are unknowingly taking.

Backyard holes and mattresses are out-performing both :)

[verticaldoug]

The Michael Lewis articles in Vanity Fair are still some of the most entertaining reads on the subject:

http://www.vanityfair.com/politics/features/2009/04/iceland200904-2
Iceland
http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010
Greece
http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103
Ireland

[verticaldoug]

I might as well add Arnie and the California pot of gold.
http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111

[cfox]

This is a monumentally bad, politically convenient policy. I hope for everyone's sake they find some way around this unbelievably stupid idea. It's just Cyprus, right?? A lot of people said the same thing about letting Lehman go...another politically motivated decision. The Fed is freaking out about this behind closed doors. At the moment things are going swimmingly for the Fed; a stupid Euro tail event is not what they are looking for. QE is driving every investor under the sun into risk assets making the Fed look pretty good at the moment. I think the market is taking this WAY too lightly. I'm buying more volatility.

[54ny77]

For (hopefully unnecessary) posterity I'll put this here in the interweb, to look back upon in a year or two:

"Cyprus. Wow, who knew?"

:rolleyes:

[cfox]

The Michael Lewis articles in Vanity Fair are still some of the most entertaining reads on the subject:

http://www.vanityfair.com/politics/features/2009/04/iceland200904-2
Iceland
http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010
Greece
http://www.vanityfair.com/business/features/2011/03/michael-lewis-ireland-201103
Ireland
Those are pretty good. Greece is quite the place. I remember years ago my former boss was in Athens. He had just bought a large chunk of Greek T-Bills only to wake up to find the streets filled with soldiers with machine guns, protesters and burning cars. He barely made it to the airport. He was a little concerned with his new position...

[SPOKE]

Are you a Cypriot?

No.....and I don't want to be in their shoes.

I just think our federal & some state governments here in the good old USA are heading in a similar direction as what's happening in Cyprus. I just hope I'm just a Chicken Little and completely wrong in my belief.

[Anarchist]

For all of you fretting, you do realize that the largest depositors in Cyprus' banks are the Russian Mob, right?

The average Cypriot, though rioting, because, after all why not ... Is not going to notice anything beyond what we would pay for monthly service fees.

The Russian mob?

Why do you think that Russia has stepped forward with an "offer" to solve the problem, which of course happens to be tied to Natural Gas pricing?

[Ahneida Ride]

Banks are already doing far far FAR worse.

Banks practice the Bernie Madoff Ponzi Scheme they call
"fractional" reserve.

Banks overbook 10 to 1 (or more). You deposit 100 frns and 900 frns
are created outa thin air + Banks collect interest on nothing
which is in reality infinite interest. It's legalized Keyboard Counterfeiting.

No one should be allowed to charge interest on nothing which is
infinite interest. Money is now Debt and Debt is now Money ...
Those frns in you wallet and some one else's debt.

We now have 100 years of a central bank / fractional reserve system.
It's results are self evident.

The taciturn complicity and silence of our politicians is truly amazing.

Here is two videos ... ( I love the first one !)

http://www.youtube.com/watch?v=d1IgiNnOZV4

http://www.youtube.com/watch?v=G9IH-XKQpOI

fractional reserve chart is below ....

http://upload.wikimedia.org/wikipedia/commons/0/01/Fractional-reserve_banking_with_varying_reserve_requirements. gif

[cfox]

For all of you fretting, you do realize that the largest depositors in Cyprus' banks are the Russian Mob, right?

The average Cypriot, though rioting, because, after all why not ... Is not going to notice anything beyond what we would pay for monthly service fees.

The Russian mob?

Why do you think that Russia has stepped forward with an "offer" to solve the problem, which of course happens to be tied to Natural Gas pricing?

It is irrelevant who the biggest depositors are. The point isn't who is affected in Cyprus, it's the precedent that wealth (NOT income) can be grabbed explicitly in a reserve currency country. This is not a fee, not an implicit wealth tax. What if the US treasury decided that everyone who owns non-mortgaged property would be subject to a one time "wealth" tax on the market value of said property? The ramifications are huge if this goes through. Bank runs aren't pretty. It pays well to get out in front of this stuff.

[Ahneida Ride]

There is a story told about the Wiemar Republic.

A Lady pushes a wheel barrow filled with 1 Million Deutschmarks to the
store to purchase a loaf of bread.

She briefly enters the bakery to see what is available.

She returns to find here wheel barrow stolen and the 1 Million Marks
neatly placed in one big pile.

-----------------

http://www.kungfufinance.com/wp-content/uploads/2011/12/german-hyperinflation.gif

[cfox]

Banks are already doing far far FAR worse.

Banks practice the Bernie Madoff Ponzi Scheme they call
"fractional" reserve.

Banks overbook 10 to 1 (or more). You deposit 100 frns and 900 frns
are created outa thin air + Banks collect interest on nothing
which is in reality infinite interest. It's legalized Keyboard Counterfeiting.

No one should be allowed to charge interest on nothing which is
infinite interest. Money is now Debt and Debt is now Money ...
Those frns in you wallet and some one else's debt.

We now have 100 years of a central bank / fractional reserve system.
It's results are self evident.

The taciturn complicity and silence of our politicians is truly amazing.
[/IMG]

oh lord...if banks were simply warehouses of hard currency we'd be fighting for scraps of meat in the street. Sorry, the illuminati made me post that...

[verticaldoug]

SOCIALISM
You have 2 cows.
You give one to your neighbour.

COMMUNISM
You have 2 cows.
The State takes both and gives you some milk.

FASCISM
You have 2 cows.
The government takes both, hires you to take care of them, and sells you the milk.

NAZISM/DICTATORSHIP
You have 2 cows.
The State takes both and shoots you.

TOTALITARIANISM
You have two cows. The government takes them and denies they ever existed. Milk is banned.

BUREAUCRATISM
You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away.

CAPITALISM
You have two cows. You sell one and buy a bull.

TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

ROYAL BANK OF SCOTLAND (VENTURE) CAPITALISM
You have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States , leaving you with nine cows. No balance sheet provided with the release. The public then buys your bull.

ANARCHISM
You have two cows. Either you sell the milk at a fair price or your neighbours try to kill you and take the cows.

SURREALISM
You have two giraffes.
The government requires you to take harmonica lessons.

AN AMERICAN CORPORATION
You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyse why the cow has dropped dead.

A GREEK CORPORATION
You have two cows.
You borrow lots of euros to build barns, milking sheds, hay stores, feed sheds, dairies, cold stores, abattoir, cheese unit and packing sheds.
You still only have two cows.

A FRENCH CORPORATION
You have two cows.
You go on strike, organise a riot, and block the roads, because you want three cows.

A JAPANESE CORPORATION
You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk.
You then create a clever cow cartoon image called a Cowkimona and market it worldwide.

AN ITALIAN CORPORATION
You have two cows, but you don't know where they are.
You decide to have lunch.

A SWISS CORPORATION
You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

A CHINESE CORPORATION
You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

AN INDIAN CORPORATION
You have two cows.
You worship them.

A BRITISH CORPORATION
You have two cows.
Both are mad.

AN IRAQI CORPORATION
Everyone thinks you have lots of cows.
You tell them that you have none. No one believes you, so they invade your country and bomb the poo out of you.
You still have no cows, but at least you are now a Democracy.

AN AUSTRALIAN CORPORATION
You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

A NEW ZEALAND CORPORATION
You have two cows.
The one on the left looks very attractive.

[Climb01742]

I have a hard time putting much faith in bankers knowing what's what. JPmorgan chase, supposedly one of the best run banks, at least according to Jamie, couldn't even keep track of what was happening in its own London office. There are many instances where even bankers don't understand the world they have wrought.

[verticaldoug]

I have a hard time putting much faith in bankers knowing what's what. JPmorgan chase, supposedly one of the best run banks, at least according to Jamie, couldn't even keep track of what was happening in its own London office. There are many instances where even bankers don't understand the world they have wrought.

If you read the transcripts of the conversations and emails, you realize they absolutely understood how it would/could impact bonuses. Everything else was managed to protect that.

[jds108]

Cyprus is quite the crazy situation. Today's news is that their parliament voted against the taxes. So it's like a game of "chicken", and the stakes just went even higher.

There is a story on zerohedge reporting on how the decision regarding the tax percentages initially came to be. The PM (or president???) of Cyprus didn't want to tax the big accounts >100k at over 10%. So somebody said they'd tax the big accounts at 9.9% and then did the math to figure out that the little accounts needed to be taxed at 6%. Crazy....

I bet those politicians voted down the deal out of fear of the russian mob. I would. That seems like the last group of people to piss off.

[Anarchist]

It is irrelevant who the biggest depositors are. The point isn't who is affected in Cyprus, it's the precedent that wealth (NOT income) can be grabbed explicitly in a reserve currency country. This is not a fee, not an implicit wealth tax. What if the US treasury decided that everyone who owns non-mortgaged property would be subject to a one time "wealth" tax on the market value of said property? The ramifications are huge if this goes through. Bank runs aren't pretty. It pays well to get out in front of this stuff.

Put your thinking cap on.

It doesn't hurt.

[slidey]

This is brilliant! Thanks for sharing it :p

SOCIALISM
You have 2 cows.
You give one to your neighbour.

COMMUNISM
You have 2 cows.
The State takes both and gives you some milk.

FASCISM
You have 2 cows.
The government takes both, hires you to take care of them, and sells you the milk.

NAZISM/DICTATORSHIP
You have 2 cows.
The State takes both and shoots you.

TOTALITARIANISM
You have two cows. The government takes them and denies they ever existed. Milk is banned.

BUREAUCRATISM
You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away.

CAPITALISM
You have two cows. You sell one and buy a bull.

TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

ROYAL BANK OF SCOTLAND (VENTURE) CAPITALISM
You have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States , leaving you with nine cows. No balance sheet provided with the release. The public then buys your bull.

ANARCHISM
You have two cows. Either you sell the milk at a fair price or your neighbours try to kill you and take the cows.

SURREALISM
You have two giraffes.
The government requires you to take harmonica lessons.

AN AMERICAN CORPORATION
You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyse why the cow has dropped dead.

A GREEK CORPORATION
You have two cows.
You borrow lots of euros to build barns, milking sheds, hay stores, feed sheds, dairies, cold stores, abattoir, cheese unit and packing sheds.
You still only have two cows.

A FRENCH CORPORATION
You have two cows.
You go on strike, organise a riot, and block the roads, because you want three cows.

A JAPANESE CORPORATION
You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk.
You then create a clever cow cartoon image called a Cowkimona and market it worldwide.

AN ITALIAN CORPORATION
You have two cows, but you don't know where they are.
You decide to have lunch.

A SWISS CORPORATION
You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

A CHINESE CORPORATION
You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

AN INDIAN CORPORATION
You have two cows.
You worship them.

A BRITISH CORPORATION
You have two cows.
Both are mad.

AN IRAQI CORPORATION
Everyone thinks you have lots of cows.
You tell them that you have none. No one believes you, so they invade your country and bomb the poo out of you.
You still have no cows, but at least you are now a Democracy.

AN AUSTRALIAN CORPORATION
You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

A NEW ZEALAND CORPORATION
You have two cows.
The one on the left looks very attractive.

[Climb01742]

If you read the transcripts of the conversations and emails, you realize they absolutely understood how it would/could impact bonuses. Everything else was managed to protect that.

You also have the chief risk compliance officer in NYC who was basically told by the London office to piss off. Complex systems meant to control complex bets don't work if half of the equation have no interest in being controlled or overseen.

[cfox]

Put your thinking cap on.

It doesn't hurt.

thanks, champ. I've been at this stuff for a while. If you're looking for a clue, I'd wait a little while and buy one in euros.

[slidey]

A discussion (http://youtu.be/SXROU3-k71w) of the Cyprus fiasco.

[lukasz]

thanks, champ. I've been at this stuff for a while. If you're looking for a clue, I'd wait a little while and buy one in euros.

Getting ready to buy some new Campy bits!

Doug, that was brilliant.

[verticaldoug]

Anarchist

You may need to change your screen handle. Anarchy essentially thinks the State is immoral and has no right to impose its will on citizens. Since this is exactly what the State is doing in this case, you should be opposed to it on principle.

Additionally, I will point out the wisdom of proverbs. In this case, 'two wrongs don't make a right' seems applicable.

Douglas

[93legendti]

I am sure the decision by DHS to buy billions of dollars in ammo, guns and armored vehicles for use in America, rather than secure our borders, is unrelated to any run on banks, confiscation of deposits, post-facto taxing of deposits, et al. (If its to defend us against unsecured borders, the Wise Men of Chelm would be proud...)

http://www.forbes.com/sites/larrybell/2013/03/10/why-the-heck-is-dhs-buying-more-than-a-billion-bullets-plus-thousands-of-guns-and-mine-resistant-armored-vehicles/

[54ny77]

In effect, many cities, states & Fed's already do the one time only "wealth tax" on non-mortgaged property...except, they do it one time every year!

:bike:

What if the US treasury decided that everyone who owns non-mortgaged property would be subject to a one time "wealth" tax on the market value of said property? The ramifications are huge if this goes through. Bank runs aren't pretty. It pays well to get out in front of this stuff.

[FlashUNC]

I am sure the decision by DHS to buy billions of dollars in ammo, guns and armored vehicles for use in America, rather than secure our borders, is unrelated to any run on banks, confiscation of deposits, post-facto taxing of deposits, et al. (If its to defend us against unsecured borders, the Wise Men of Chelm would be proud...)

http://www.forbes.com/sites/larrybell/2013/03/10/why-the-heck-is-dhs-buying-more-than-a-billion-bullets-plus-thousands-of-guns-and-mine-resistant-armored-vehicles/

Ah yes, all that ammo bought for law enforcement training and ICE use over the next half-decade. Clearly a nefarious purpose there.

http://www.huffingtonpost.com/2013/02/14/homeland-security-bullets_n_2688402.html

If the government didn't buy in bulk, some would criticize for spending our tax dollars foolishly. Its a win/win. Either its a New World Order conspiracy to take over the country, or they're profligate spenders wasting our tax dollars.

[MattTuck]

Either its a New World Order conspiracy to take over the country, or they're profligate spenders wasting our tax dollars.

Those are not necessarily mutually exclusive.

[FlashUNC]

Those are not necessarily mutually exclusive.

No, but the more mundane reality that DHS now does procurement for a variety of federal law enforcement agencies surely can't be the answer for this large order. It must be the secret, nefarious intent to take over the country.

Gov't conspiracy omg!

[Elefantino]

Major thread drift, but here are more cows.

Religious cows

APATHYOLOGISM
You have 2 cows. You do not care.

FATALISM
You have 2 doomed cows ...

ATHEISM
You have 2 cows. There is no God.

HINDUISM
You have two cows. They are your sacred masters. Obey them.

OLD TESTAMENT
In the beginning you had two cows. Now you have none because you failed to obey the farming regulations. But don't worry, you'll get two more sometime. Noah gets to have seven.

NEW TESTAMENT
You have two cows. One bucket of their milk would feed five thousand people, but because it was turned into wine, it just gets them drunk. You tell everyone about it.

ZEN
A monk had two cows. He asked the master Joshu, "Do cows have the Buddha-nature?" Joshu replied, "Moo."

PYTHONISM
Your mother was a cow and your father smelt of elderberries.

Film cows

DAVID LYNCH
A strange-looking man walks up to you and tells you that you will receive two cows. The cows arrive, only one of them appears to be a hideously deformed chicken. Upon attempting to milk the deformed chicken/cow, you find yourself in a parallel reality where you're not a farmer at all, but instead a failed actor who's making ends meet by doing dwarf porn. After a series of downright bizarre occurrences, the strange-looking man reappears, knowing who you really are, and shoots you.

GEORGE LUCAS
You once had two interesting and beloved cows. You have milked them to death.

MICHAEL BAY
You have two cows. They are a hundred feet tall and fight each other, destroying a major city.

ROLAND EMMERICH
You have two cows. They are a hundred feet tall and fight each other, destroying a major city.

STEPHEN SPIELBERG
You have two cows. They are a hundred feet tall and fight each other, destroying a major city. Eventually, one of them learns the true meaning of love.

Literary cows

J.R.R. TOLKIEN
You have two cows. One of them is descended from Turgon, son of Fingolfin, son of Finwë, and dwelt in the hidden city of Gondolin, that in Quenya is called Ondolindë, which is The Rock of the Music of the Water. The other is the daughter of.... etc

STEPHEN KING
You have two cows, in Maine. They develop mad cow disease and try to kill you... after at least 200 pages of flashbacks and tangents.

CHARLES DICKENS
In the village of Gower-upon-Frome, a nearly unknown hamlet in the midst of Dorset, you had two cows - and no common cows, but cows of such merit and breeding that the very sight of such beasts would cause a mere passer-by to acclaim their quality without prompt nor inquiry to any man, be he of strict consequence or not, stating that without a doubt, this pair of cows was amongst the finest ever to trod the grim pastures of southern Albion. As a verification of this seemingly remarkable claim, one need only approach the man known to his compatriots simply as 'Old Frimm', the farrier of Gower-upon-Frome, who from his youth was so acquainted with cows that one might remark that husbandry of these creatures ran through his blood, having been reared among them during his formative years in the farmlands of Northumbria, whence he learnt of their most intimate nature, and would attest to their superlative status not merely of his own testimony, but would swear that even the most docile of men would affirm this claim: the sort of man who, upon finding himself lost in the dismal alleys of Knightbridge in the dreary evenings following Michaelmass when the fog settled heavily upon the city, would not ask the kindly old man in the tobacconist to point him in the proper direction, but rather from a meek disposition would wander the streets of London until he happened upon that familiar lamp-post or cobblestone way that would point him toward Charing Cross, and from there back to his native abode wherein his meager bowl of porridge awaited him (by now long since cold) - yes even such longanimous man as this would, given the opportunity, proudly and with prestigious spirit proclaim before the House of Lords that these two cows were the paragon of virtue and indeed amongst the most beneficent in all the land.

ERNEST HEMINGWAY
For Sale: Two Cows, Never Milked.

Musical cows

ALTERNATIVE
You have two cows. They're cool because no one else has ever tasted their milk before. When they do, your cows are sell outs.

BLUES
I woke up this morning! (♫ dee-do dee-do ♫) And my cows were gone! (♫ dee-do dee-do ♫) They gone and done away with my milk (♫ dee-do dee-do ♫)...

CLASSICAL
Like alternative music's cows but with longer words and more bitchiness.

COUNTRY
No matter what you do, your cows keep leaving you and breaking your heart. It's your fault.

PUNK
*** you, you corporate sheep, we don't have any cows! Cows are tools of corporate America! Fight the system!

RAP
You have two cows. One is socially conscious, the other has a sweet ******* booty and smokin' hot ************* bling milk.

DAVID BOWIE
This is Ground Control to Major Cow, you've really made the grade. And the papers want to know whose grass you eat. Cows! Make a man take things over. Cows! Make grass loose, hard to swallow.

GUNS N ROSES
You have two cows. One wears a hat, one wears short shorts. Disheartened, you turn to a bottle of Jack Daniels for answers.

KANYE WEST
You have two c... YO, HOMES, I'M REAL HAPPY FOR YOU, I'MA LET YOU FINISH, BUT DOUG HAD THE BEST "YOU HAVE TWO COWS" LIST OF ALL TIME! OF ALL TIME!

METALLICA
You have two cows that engage in a pissing contest about when their milk sold out. Disheartened, you turn to a bottle of Jack Daniels for answers.

MOTORHEAD
Your cow has alarmingly awesome facial hair. Disheartened, you turn to a bottle of Jack Daniels for answers.

OZZY OSBOURNE
You had two cows but ye bit the 'ead off one of them. Disheartened, you turn to a bottle of Jack Daniels for answers.

JUSTIN BIEBER
You don't even deserve cows.

[bicycletricycle]

i might support a one time citizen tax to help pay the debt here. why not? we are the government after all, the countries debt is our debt.

[1centaur]

First, it will take a real forum memory in years to come to recall that those great cow posts are in a Cypriot thread.

Second, the little people don't really understand that they put the government in power so they're responsible when things are screwed up. Taking some of their meager savings won't change that.

Third, I wonder what would happen if the Cyprus banking system completely failed and was recapitalized with Euro money just to a level that supported the local economy and not outside parties? Not saying I have an answer to that question, but it might flesh out whose ox is being gored at the expense of others with little knowledge of economics or politics.

[1centaur]

i might support a one time citizen tax to help pay the debt here. why not? we are the government after all, the countries debt is our debt.

This will thread drift badly, but here's why not:

Whether left or right, the other side has spent a lot of money wastefully that you did not want spent to favor people you don't favor and in spite of your votes. That they did so in excess of what a reasonable tax on the people based on economic activity could support is what created the debt. To now tell those citizens that whatever government over spent should result in an extra tax to close the deficit seems unfair and won't help much because the dollars required are too large. Take some from everybody and the little people are paying for "Bush's lies," take from the rich some huge amount and you change a vast component of the engine that drives this economy for everybody (because the rich, most of whom are not retirement rich, will change their activity in ways that cost government a lot), which costs everybody for years and years. Frankly, we'll pay as a country for spending and promising too much one way or another, but spread over time rather than a "one-time" symbolic gesture will be more effective and easier to swallow in all sorts of ways. Remember, the vast majority of savings are in fact savings, not ill-gotten lucre, and designed for retirement, college educations, nursing homes, catastrophic costs, our kids, etc. Taking a chunk of a lifetime's careful decisions to pay for the excesses of others - would be offensive and so, so tempting to repeat.

[MattTuck]

PS. Cyprus is used by Russian oligarchs and crime syndicates to keep their money safe, so this is really an attempt to confiscate those funds, not so much the people of Cyprus.

It's highly likely that Russia will now come in and pony up some bail out money for Cyprus, so that the oligarchs don't lose their cash.


and...... Action! (http://www.nytimes.com/2013/03/20/business/global/protecting-their-own-russians-offer-an-alternative-to-the-cypriot-bank-tax.html?pagewanted=all&_r=0)

[Louis]

Other than grandma and grandpa, who keeps a significant % of their net worth as cash in a bank?

[cfox]

Other than grandma and grandpa, who keeps a significant % of their net worth as cash in a bank?

lots of people. returns on riskless (ha!) assets are low enough that keeping your money as an insured deposit is attractive to many people.

[zap]

Other than grandma and grandpa, who keeps a significant % of their net worth as cash in a bank?

That's not the point.

[oldpotatoe]

Other than grandma and grandpa, who keeps a significant % of their net worth as cash in a bank?

One nice thing is that it can't go below the initial amount you put in. 'May' not grow much but it won't disappear. I know there are other forms that do this but the bank is one of the simplest.

[verticaldoug]

One nice thing is that it can't go below the initial amount you put in. 'May' not grow much but it won't disappear. I know there are other forms that do this but the bank is one of the simplest.

This is why the Fed panicked when a couple money market funds broke the buck in 2009. When 'safe' investments start posting negative returns, people panic.

Cypriotic Banks were paying between 4 - 5% on deposits. Pretty nice return for something you thought was insured.

[54ny77]

that was a very squirrely moment in time. i remember it well. i am involved in an organization and help manage an operating account. good chunk of liquidity is short term, mostly mmkt account. the morning when the reserve fund broke the buck, i called the account mgr to give me a list of the underlying assets of their in-house fund, and they couldn't answer the question. asset composition (let alone quality) and duration...uhh, it's helpful to know the answer when a client calls asking. long story short, couple hours later i moved it to 100% cash. ironically, they did eventually provide an answer, and based on what i saw, am happy i did. in other words, nsro ratings mean diddly, and i didn't want to have to answer to potentially hostile stakeholders that their heretofore safe dollar of cash was now worth 95 cents...


This is why the Fed panicked when a couple money market funds broke the buck in 2009. When 'safe' investments start posting negative returns, people panic.

Cypriotic Banks were paying between 4 - 5% on deposits. Pretty nice return for something you thought was insured.

[verticaldoug]

OpEd from the region

http://ekathimerini.com/4dcgi/_w_articles_wsite3_1_19/03/2013_488453

[54ny77]

question for the intelligentsia: has the euro been a success?

i'm just a caveman, and don't know the answer other than it sure costs a lot more today to travel abroad than it used to....

maybe a better question is, had the euro not been implemented, would things have been worse?

oh, and what is the best chain lube?

OpEd from the region

http://ekathimerini.com/4dcgi/_w_articles_wsite3_1_19/03/2013_488453

[MattTuck]

question for the intelligentsia: has the euro been a success?

i'm just a caveman, and don't know the answer other than it sure costs a lot more today to travel abroad than it used to....

maybe a better question is, had the euro not been implemented, would things have been worse?

oh, and what is the best chain lube?

Let Nigel Farage answer your question. Video. (http://www.zerohedge.com/news/2013-03-19/nigel-farage-message-europeans-get-your-money-out-while-you-can)

The cost to travel abroad has more to do with weakness in the dollar.

[54ny77]

You see, that's why I'm just a caveman....

http://www.jimhillmedia.com/mb/images/upload/Cavemen-Unfrozen-Lawyer-web.jpg



The cost to travel abroad has more to do with weakness in the dollar.

[Ahneida Ride]

The "bailout" money is just like the "money" that got em in trouble in the first
place.

Money = interest bearing shopping Coupons created outa thin air by typing
numbers into a computer spreadsheet.

And that is just the Principle, the "money" to pay the interest has not been
counterfeited yet.... ( and must be so all debts are paid off)

This interest is some else's principle .... and so the insanity repeats
again and again.

We (the people) have allowed the Politicians to transfer the power to
create money to private corporations (we call banks).

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)

[Ahneida Ride]

The real problem is not that $ is created outa thin air ...

It's we are compelled via vis et armis (force of arms) to accept this $
for our work and services. There is no competition.

The $ supply has to grow as the economy grows else the $ becomes too
precious.

Sooooo... who gets to control the $ supply?
And who monitors that supreme power to the benefit of the vast majority
and not special interests.

We now have a 100 year track record of a how a private central bank /
fractional non reserve system deals with the issue.

[redir]

The "bailout" money is just like the "money" that got em in trouble in the first
place.

Money = interest bearing shopping Coupons created outa thin air by typing
numbers into a computer spreadsheet.

And that is just the Principle, the "money" to pay the interest has not been
counterfeited yet.... ( and must be so all debts are paid off)

This interest is some else's principle .... and so the insanity repeats
again and again.

We (the people) have allowed the Politicians to transfer the power to
create money to private corporations (we call banks).

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)

As much as a disdain Jefferson had for banks and paper money this is not an actual quote from him. It's a retro-quote commonly found in Tea Party propaganda emails.

I do however agree the banks are still too big to fail and out of control. If we keep putting the same old people in office then it's just gonna continue down the road. You can thank the Supremes in large part for corporate interest political corruption.

[fuzzalow]

The real problem is not that $ is created outa thin air ...

It's we are compelled via vis et armis (force of arms) to accept this $
for our work and services. There is no competition.

The $ supply has to grow as the economy grows else the $ becomes too
precious.

Sooooo... who gets to control the $ supply?
And who monitors that supreme power to the benefit of the vast majority
and not special interests.

We now have a 100 year track record of a how a private central bank /
fractional non reserve system deals with the issue.

At the recommendation of a family member, who looks at the Fed the same way you do, I read The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin.

IMO it was a well crafted for quotes, happenstance and innuendo in support of the writer's premise. My conclusion was that it was contrived and unconvincing towards those same purposes. IMO it read more as a political opinion than as a scholarly work forwarding a serious, empirical hypothesis.

If this book is not representative of the crux of what the central critique to the Fed is then I'd be open to reading another authoritative tome on the subject.

Agree that Supreme Court ruling on Citizens United is potentially corrosive to the underpinnings of the democratic process although the inattentiveness of the average voter is by far the greater threat.

[flydhest]

One nice thing is that it can't go below the initial amount you put in. 'May' not grow much but it won't disappear. I know there are other forms that do this but the bank is one of the simplest.

minor quibble, there have been fees on bank accounts (especially checking account) since time immemorial. As a result, especially if the interest rate is zero (as it had been statutorily on demand deposit accounts until very recently) you could end up with less than you started with.

[Louis]

As much as a disdain Jefferson had for banks and paper money this is not an actual quote from him. It's a retro-quote commonly found in Tea Party propaganda emails.

I do however agree the banks are still too big to fail and out of control. If we keep putting the same old people in office then it's just gonna continue down the road. You can thank the Supremes in large part for corporate interest political corruption.

Good luck reasoning with Ray on this.

There is one and only one reason he has been allowed to continue spouting this crackpot anti-Fed nonsense over the years, and it isn't because it's correct.

[1centaur]

Other than grandma and grandpa, who keeps a significant % of their net worth as cash in a bank?

There are a lot of grandmas and grandpas in this country, and more every day.

One thing we saw in the global financial crisis was that a lot of people had bank balances WAY higher than the deposit insurance limit. The Feds fixed that VERY quickly. Guarantees cost a lot less than bank runs. I recall that people involved in the markets every day were shocked by those bank balances, though I suppose commercial bankers had a clue. Whether it's the Depression or bursting the Internet bubble or an unwillingness to do the work to have a real investment plan or a distrust of mutual funds, lots of people find comfort in the sentiment old potato mentioned - at least it can't go down. It would be somewhat ironic to extract wealth from those most conservative of savers to pay for.......

[fuzzalow]

^ I am not of the opinion that retail bank depositors balances were overly large as much as the FDIC insurance limit, then only $100K, was small. Don't know when the last time the insurance limit was raised, it could have been a while.

What was attempted to happen in Cyprus won't happen here, heck it isn't even gonna happen there.

[MattTuck]

^ I am not of the opinion that retail bank depositors balances were overly large as much as the FDIC insurance limit, then only $100K, was small. Don't know when the last time the insurance limit was raised, it could have been a while.

What was attempted to happen in Cyprus won't happen here, heck it isn't even gonna happen there.

fuzz, I'll gently disagree with you. An FDIC limit of $100K is probably in the right ball-park for protecting the wealth for the vast majority of Americans. Note, I did not say the vast majority of Americans' wealth.

Increasing the limit encourages lazy decision making about where people put their money. At the extreme, let's say that deposits weren't insured at all. Every person would have to think really hard about which bank to put their money, and chances are people would go with the bank with the strongest balance sheet. When virtually all of a person's savings are insured, the moral hazard, (specifically, not having to consider a bank's financial strength when deciding where to deposit) will lead to people misallocating wealth into weak banks that will (ironically) be the ones that need the insurance money from the FDIC that was paid in as premiums from all banks (including the strong ones.)

That has to be in the calculation of what an appropriate FDIC limit would be.

[Louis]

When virtually all of a person's savings are insured, the moral hazard, (specifically, not having to consider a bank's financial strength when deciding where to deposit) will lead to people misallocating wealth into weak banks that will (ironically) be the ones that need the insurance money from the FDIC that was paid in as premiums from all banks (including the strong ones).

Same type of story for govt-sponsored home/flood insurance + Sandy leading to poor choices of home location.

[fuzzalow]

fuzz, I'll gently disagree with you. An FDIC limit of $100K is probably in the right ball-park for protecting the wealth for the vast majority of Americans. Note, I did not say the vast majority of Americans' wealth.

Increasing the limit encourages lazy decision making about where people put their money. At the extreme, let's say that deposits weren't insured at all. Every person would have to think really hard about which bank to put their money, and chances are people would go with the bank with the strongest balance sheet. When virtually all of a person's savings are insured, the moral hazard, (specifically, not having to consider a bank's financial strength when deciding where to deposit) will lead to people misallocating wealth into weak banks that will (ironically) be the ones that need the insurance money from the FDIC that was paid in as premiums from all banks (including the strong ones.)

That has to be in the calculation of what an appropriate FDIC limit would be.

Hey Matt, you could vociferously disagree with me and that's perfectly cool - jus' 2 guys talkin' and maybe some folks listening in...

$250K FDIC sounds about right to me because the FDIC correctly should account for not the average bank balances, of during which even $100K is adequate, but for extraordinary circumstances where $250K is likely a more than adequate buffer. During times of volatility, the average bank customer might logically retreat to increased cash holdings for reason of both liquidity and conservatism. So the FDIC must account for that plus some extra $$ as reinforcement and reassurance of stability - it degrades the perception of safety if the FDIC ceiling isn't high enough.

Don't agree with the premise of moral hazard - the average retail bank client banks locally where there is presence and proximity to the institution. Sure, big city & urban clients of means get to pick 'n' choose banks but not true for the average America. Also not realistic to expect an average banking customer to read or comprehend a balance sheet to ascertain risk. Nor should they have to. As you already know, the banks can hide enormous exposure off balance sheet anyway. In that sense, enacting laws in the vein of the Volker Rule should be the minimum any voter should insist on from the Feds to try to protect themselves from banks too big to fail.

Don't intend to be boring...now back to our regularly scheduled programming.

[CunegoFan]

fuzz, I'll gently disagree with you. An FDIC limit of $100K is probably in the right ball-park for protecting the wealth for the vast majority of Americans. Note, I did not say the vast majority of Americans' wealth.

Increasing the limit encourages lazy decision making about where people put their money. At the extreme, let's say that deposits weren't insured at all. Every person would have to think really hard about which bank to put their money, and chances are people would go with the bank with the strongest balance sheet.

Slight problem with that John Galt paradise. How many of the people are capable of figuring out which bank has the strongest balance sheet?

[Louis]

Slight problem with that John Galt paradise. How many of the people are capable of figuring out which bank has the strongest balance sheet?

The govt has to be involved, one way or the other - to either regulate them in the first place (what we have now) or to force them to disclose the relevant information. However, even if the data were available, how many would truly be inclined to figure it all out? Not many. So you would then have to rely on the ratings agencies, and we all know how well they've been doing recently...

[MattTuck]

$250K FDIC sounds about right to me because the FDIC correctly should account for not the average bank balances, of during which even $100K is adequate, but for extraordinary circumstances where $250K is likely a more than adequate buffer. During times of volatility, the average bank customer might logically retreat to increased cash holdings for reason of both liquidity and conservatism. So the FDIC must account for that plus some extra $$ as reinforcement and reassurance of stability - it degrades the perception of safety if the FDIC ceiling isn't high enough.


Fuzz, I hear what you're saying. From some quick googling, "Nationwide, average balances for consumer bank checking accounts grew 5.2 percent to $3,100 last year." (citation (http://www.daytondailynews.com/news/news/ohioans-among-the-lowest-for-checking-account-bala/nTDnF/)) Granted, this is probably an average and not a median, but I can't imagine the median balance would be more than $20-40K. In that context, we should remember what the FDIC insurance is for. It is to keep people from losing everything and becoming destitute, but more than that, it is to keep people from a starting a run on a bank. People with 250K in the bank, are probably at low risk of becoming destitute if only the first 100K was protected.... they may, however withdraw funds in excess of 100K and put it at another bank... I don't have a good idea of how that would play out.

But, I think we should be clear that the average American bank balance is WAY below 100K. Also, let's not ignore the fact that the insurance costs money. I'm not sure of the exact, but I think it is near 2% of deposits to maintain the reserve fund.

here's the history of raising the amount of the FDIC Limit

1934 - $2,500
1935 - $5,000
1950 - $10,000
1966 - $15,000
1969 - $20,000
1974 - $40,000
1980 - $100,000
2008 - $250,000




Slight problem with that John Galt paradise. How many of the people are capable of figuring out which bank has the strongest balance sheet?

Well, in theory you don't need EVERYONE to be able to figure it out, just a big enough subset such that the information diffuses and results in people making good decisions. As a matter of debate, though, policy makers have to find the sweet spot between protecting people from their own stupidity and and letting them fend entirely for themselves. I, philosophically, do not like policies that are justified by "people are stupid" and need to be protected from their own bad decisions. You can read my comments on the Bloomberg big soda ban thread also.

[PaMtbRider]

Good luck reasoning with Ray on this.

There is one and only one reason he has been allowed to continue spouting this crackpot anti-Fed nonsense over the years, and it isn't because it's correct.

+ 10 billion. I enjoy these threads but am so tired of hearing Ray spew on about FRN's in these and any other thread he can fit them in.

[fuzzalow]

I also do not understand the steadfast and overarching antipathy for the Federal Reserve. Especially evident among political groups with truculent, misinformed and anti-intellectual proclivities. IMO and just sayin'.

Near as I can tell, the gripe is centric to aversion to concentration of power, central authority and practices seen as inflationary to the currency. But what I see are all these supposed manipulations operating freely within the construct of a open, global, interdependent and interrelational currency market. Yes a candy bar costs $1 now when during the time of Leave It to Beaver it cost 10 cents. Salaries didn't stay the same either.

How did the Fed conspiracists react when Nixon ended the gold standard for the US currency?

[CNY rider]

Slight problem with that John Galt paradise. How many of the people are capable of figuring out which bank has the strongest balance sheet?

Seriously.
I don't think anyone can be confident about the balance sheet at the major banks because they are impenetrable and because banks have a tendency to take stuff that they don't like on their balance sheet and just move it off!
Have we already for gotten what Citi, Bear, Lehman, et al were up to in the last decade?

[fuzzalow]

I don't think anyone can be confident about the balance sheet at the major banks because they are impenetrable and because banks have a tendency to take stuff that they don't like on their balance sheet and just move it off!

Not sure that is correct, it is not so arbitrary as making a balance sheet a work of fiction - there's gotta be a FASB in there somewhere!

When I said "the banks can hide enormous exposure off balance sheet" I was referring to something more subtle than an just moving stuff off. Derivative contracts and all the financial engineering products on the bank's books will be contained in the balance sheet as mark-to-market assets and yet have inherent obligations & exposure inherent to the instrument in the zillions (!) as far as notional value.

My point is not to bore with accounting arcana but rather to say that asking anyone, least of all an average person who is just looking for banking services, to "take responsibility" in choosing a bank is folly. To ask this is neither right nor correct. That customer has no idea what they are up against and they wouldn't stand a chance if they did. Vetting banks is not their job.

[oldpotatoe]

minor quibble, there have been fees on bank accounts (especially checking account) since time immemorial. As a result, especially if the interest rate is zero (as it had been statutorily on demand deposit accounts until very recently) you could end up with less than you started with.

Simple savings, where I keep my shop savings and checking account, fees are zero. Due to the amount in both. Interest rate is about 1% I think..but I hear ya.

My annuity is just now where it was when I started it in 2005. It WAS down about 20% from the initial amount.

[CNY rider]

My point is not to bore with accounting arcana but rather to say that asking anyone, least of all an average person who is just looking for banking services, to "take responsibility" in choosing a bank is folly. To ask this is neither right nor correct. That customer has no idea what they are up against and they wouldn't stand a chance if they did. Vetting banks is not their job.


Could not agree more.
And when you're up for some good arcana take a look at what Citi did with SIV's. Their auditors and regulators said nada.
Regulatory capture at its finest.

[54ny77]

regulators couldn't figure out siv's if their lives depended on it. the last bastion of hope is chief risk officer/dep't within banks, and banks are so complex and so much going on that there's no conceivable way that they're getting an accurate picture of var if dealing with highly structured product in the underlying.

citi and many other banks unwound them in a massive deleveraging in '09 or thereabouts, and consolidated all or most all of 'em. not defending 'em, but siv's are just an arbitrage vehicle. they were legal. were they smart? they were when/if buying high grade relatively risk free assets (ig corporates, for example, not structured products) and set up to be big & dumb & as safe as possible. but as we all know when the credit quality of the underlying deteriorated, or was masked, and the thirst for yield kept pushing the boundaries, that's when trouble arose.

of course all of that begs the question why run a business line that requires off balance sheet treatment or reg cap arbitrage in order to make it work well in the first place.

by the way, which is the best chain lube?

:)

Could not agree more.
And when you're up for some good arcana take a look at what Citi did with SIV's. Their auditors and regulators said nada.
Regulatory capture at its finest.

[MattTuck]

My point is not to bore with accounting arcana but rather to say that asking anyone, least of all an average person who is just looking for banking services, to "take responsibility" in choosing a bank is folly. To ask this is neither right nor correct. That customer has no idea what they are up against and they wouldn't stand a chance if they did. Vetting banks is not their job.

fuzz,

That logic can be extended to any industry. Why should people 'take responsibility' with what they eat? with what cars the decide to buy? with the debts they incur? With which stocks they buy?

So far as I can tell, we (as a society) are perfectly happy to watch people make horrible choices with regards to the food they eat and lifestyle they live. If we decide that the government needs to protect us from every potentially bad decision, it is a slippery slope.

Again, I'm not advocating total elimination of FDIC insurance (I think it is important and has a role), I'm talking about the difference between a limit of 100K and 250K. Which I still think would only affect a very small number of people. And regulators do have a role, I'm not suggesting total deregulation. I'm merely saying that by keeping the limit at 100K, the marginal saver with more than 100K in assets will have an incentive to spread their money around to other institutions (hopefully those that have better capital position). Whether or not they do the 'homework' of figuring out which banks are better, it makes the system safer because less of their capital is held at a single institution, it's diversification.

If you ever come up to Hanover, let's go for a ride, grab a drink and discuss further :)

[cloudguy]

I don't think this logic can be extended to any industry: there is a distinction between "luxury" items (e.g., cars, bikes, stocks, etc.) and "basic-needs" items (e.g., food, medical care, a safe place to put your money, like banks, etc.).


That logic can be extended to any industry. Why should people 'take responsibility' with what they eat? with what cars the decide to buy? with the debts they incur? With which stocks they buy?

[Louis]

Some products / services are easier to evaluate than others. There's a whole industry out there to provide info on automotive reliability, and in my experience (did I ever mention my '97 Integra?) they do a pretty good job. I'm not sure how accurate "Angie's List" is for roofers and plumbers, but that's probably better than nothing. However, when it comes to high-powered financial derivatives, "Who you gonna call?" Good luck.

[Climb01742]

banks, credit card companies, and most brokerage/financial services firms structure their entire businesses around obfuscation.

[flydhest]

Simple savings, where I keep my shop savings and checking account, fees are zero. Due to the amount in both. Interest rate is about 1% I think..but I hear ya.


Yep, in those cases, you are right, however, I might throw in that inflation is around 1.6 percent . . . so in inflation adjusted terms, it could be going down, as well.

Oh, I am likely to be out your way in a couple months. Do you rent bikes? I have one at my mother-in-law's, but a buddy might be coming with me.

[goonster]

(did I ever mention my '97 Integra?)
Why?

Do you like it?

[Louis]

Why?

Do you like it?

:banana:

[oldpotatoe]

Yep, in those cases, you are right, however, I might throw in that inflation is around 1.6 percent . . . so in inflation adjusted terms, it could be going down, as well.

Oh, I am likely to be out your way in a couple months. Do you rent bikes? I have one at my mother-in-law's, but a buddy might be coming with me.

No rentals, sorry.

[redir]

BTW one could argue that the policies of the FED in the last 30 years of so to push interest rates so low is actually a tax on saving in America. Especially on seniors who have a lot of money in savings, CD's and other fixed accounts that are getting a fraction of one percent return. And to add salt to the wound those measly payouts are taxable.

[Rueda Tropical]

fuzz,

That logic can be extended to any industry. Why should people 'take responsibility' with what they eat? with what cars the decide to buy? with the debts they incur? With which stocks they buy?


When it comes to the basics. Medicine, food, the bank you trust your savings to, the car you drive or train/bus you commute in you should not be responsible to know that they are safe.

Should we let the market determine safety of cold medicines or the safety of banks? Well, I see online 50 kids died taking this cold formula so know I know to avoid it. Need to visit the plant where they bottle this water to make sure its not next to a toxic waste dump. I'll need to go through the books, loan portfolios, swaps and various credit instruments the bank is holding to see if its safe to put my 500 bucks in a checking or savings account.

[Tony T]

NYT (http://www.nytimes.com/2013/03/23/business/global/cyprus-bailout-vote.html?hp):
NICOSIA, Cyprus — Cyprus’s parliament on Friday partly approved a revised formula for obtaining an international bailout to avert a default, amid strong signals that the plan would not pass muster with international lenders.

But they put off voting on a crucial new proposal until later this weekend — one that would confiscate a stunning 22 percent to 25 percent of uninsured deposits over 100,000 euros through a new tax to be placed on account holders in one of the nation’s most troubled banks.

And so, going into the weekend ahead of a Monday deadline imposed by the European Central Bank, it appeared there was still no immediate path to a lifeline of 10 billion euros, or $13 billion, that Cyprus needs to keep its banks from collapsing.

[SPOKE]

NYT (http://www.nytimes.com/2013/03/23/business/global/cyprus-bailout-vote.html?hp):
NICOSIA, Cyprus — Cyprus’s parliament on Friday partly approved a revised formula for obtaining an international bailout to avert a default, amid strong signals that the plan would not pass muster with international lenders.

But they put off voting on a crucial new proposal until later this weekend — one that would confiscate a stunning 22 percent to 25 percent of uninsured deposits over 100,000 euros through a new tax to be placed on account holders in one of the nation’s most troubled banks.

And so, going into the weekend ahead of a Monday deadline imposed by the European Central Bank, it appeared there was still no immediate path to a lifeline of 10 billion euros, or $13 billion, that Cyprus needs to keep its banks from collapsing.

120 euro/day limit at ATM's too.

Question:
When you have the majority of your savings in IRA's & 401k's how do you protect this wealth from potential government grabs like what's happening in Cyprus??

[MattTuck]

120 euro/day limit at ATM's too.

Question:
When you have the majority of your savings in IRA's & 401k's how do you protect this wealth from potential government grabs like what's happening in Cyprus??

Well, based on what I'm reading, the Russian's with big money in Cyprus have withdrawn it from the Cypriot banks that have branches in London. These branches were not subject to the same closures, limits and capital flow controls that have been in place in Cyprus.

It's good to be rich.


To answer your question, there's little you can do. SIPC is the relevant insurance for investment accounts, and while investment accounts are fundamentally different than deposit accounts at banks, they're probably all up for grabs by governments that want your money.

[SPOKE]

Well, based on what I'm reading, the Russian's with big money in Cyprus have withdrawn it from the Cypriot banks that have branches in London. These branches were not subject to the same closures, limits and capital flow controls that have been in place in Cyprus.

It's good to be rich.


To answer your question, there's little you can do. SIPC is the relevant insurance for investment accounts, and while investment accounts are fundamentally different than deposit accounts at banks, they're probably all up for grabs by governments that want your money.


That's sorta what I was thinking. If the govt wants it not much that I can do.
Maybe I should just spend it all on more bikes, cars and motorcycles....:)

[1centaur]

While in the end governments have guns and legal systems, in a vaguely reasonable circumstance the differences between bank accounts and investment accounts are meaningful. Banks are in the business of lending out money at huge leverage (10-20 to 1) so they sometimes do dumb things like load up on Greek bonds. Investment accounts make money from fees mostly, and so have less chance to mess something up. SIPC insurance is aimed at crooked behavior like absconding with your stuff; deposit insurance is aimed at business failure. Banks are systemically vital so governments have a vested interest in recapitalizing them and may decide to pay for that in various ways, including taking/not repaying uninsured deposits. Investment accounts are not systemically important (not withstanding US legislation around really big financial companies) so it's OK if they go bankrupt and the trustee will try to match up securities with owners, including cash, as with MF Global (where bad bets on Europe led to bankruptcy; that's a combo story in that MF took risk with the "house" money in a way that, I hope, Fidelity does not). If the government just stole people's stocks, their trading value would plummet (who would buy, knowing they could be confiscated?) whereas cash is cash and is fungible across markets.

A lot of mumbo jumbo, but my bottom line is that I'd be more complacent with my big reputable brokerage account than with uninsured deposits at a troubled bank. During the global financial crisis I wired money from my bank to my brokerage account, where the insurance was much higher (they pay for private insurance) and the systemic threat much lower.

BTW, senior bondholders did get nailed in Cyprus, but that bank used bonds for a tiny % of its capital (why pay bond interest when so much depositor cash was available?).

[MattTuck]

I'll just add one thing to my earlier comments, Spoke. Regardless of where your money is, the government can steal purchasing power from you via monetizing debt. In other words, the central bank buys government debt with new money. This results in inflation and is a form of confiscation of your purchasing power.

[verticaldoug]

While in the end governments have guns and legal systems, in a vaguely reasonable circumstance the differences between bank accounts and investment accounts are meaningful. Banks are in the business of lending out money at huge leverage (10-20 to 1) so they sometimes do dumb things like load up on Greek bonds. Investment accounts make money from fees mostly, and so have less chance to mess something up. SIPC insurance is aimed at crooked behavior like absconding with your stuff; deposit insurance is aimed at business failure. Banks are systemically vital so governments have a vested interest in recapitalizing them and may decide to pay for that in various ways, including taking/not repaying uninsured deposits. Investment accounts are not systemically important (not withstanding US legislation around really big financial companies) so it's OK if they go bankrupt and the trustee will try to match up securities with owners, including cash, as with MF Global (where bad bets on Europe led to bankruptcy; that's a combo story in that MF took risk with the "house" money in a way that, I hope, Fidelity does not). If the government just stole people's stocks, their trading value would plummet (who would buy, knowing they could be confiscated?) whereas cash is cash and is fungible across markets.

A lot of mumbo jumbo, but my bottom line is that I'd be more complacent with my big reputable brokerage account than with uninsured deposits at a troubled bank. During the global financial crisis I wired money from my bank to my brokerage account, where the insurance was much higher (they pay for private insurance) and the systemic threat much lower.

BTW, senior bondholders did get nailed in Cyprus, but that bank used bonds for a tiny % of its capital (why pay bond interest when so much depositor cash was available?).


The devil is in the details. A regular brokerage account with a U.S. regulated entity, you own the assets in the account and it is fully segregated.
For more sophisticated investors who may have a margin account (Reg T) or even more sophisticated who have prime brokerage, you can get different degrees of exposure. In the prime brokerage case, you end up being an unsecured creditor to the firm. For Reg T, you get liquidated and get the difference after the margin loan is repaid.

For deposits, as long as you are below the max, you are fine. (if the government guaranteeing the deposits is not solvent, this is the least of your worries). Banks are unique in wind down because in addition to debt and equity, they have deposits. In the U.S. and EU, a deposit above the guarantee should be treated pari passu with senior debt. However, as you see with Laiki Bank in Cyprus. the government treated both deposits as super senior with regards to debt. (They wiped out the debt first) This is one of the things driving market participants crazy. Governments are making up the rules as they go along. The U.S. violated several bankruptcy tenants with the GM bailout. You expect this with a banana republic like Argentina or Cuba(ask Paul Singer) but not the US or EU block.

[SPOKE]

Thanks guys for the great insite and analysis. Really helps improve my understanding.
Well, while I'm far from financially wealthy I do have a decent amount of savings that will some day be used for retirement. When govt's start doing these bailouts and money grabs it really causes me great concern. I really hope we get some calmer "financial" waters.

[54ny77]

The seemingly blatantly obvious maxim of diversifying risk applies to banks.

In other words, spread it around.

An organization i'm involved with can't afford to lose one penny of its operating account, so we spread it amongst several banks so as to have FDIC insurance coverage if one goes belly up.

This story reminds me of an acquaintance who worked at one of the big banks that went BK. Had a 25+ year career there, worked tail off, raised family, etc. Another year or two and was ready to retire. One day during a certain week, worth mid 7 figures. About 3-4 days later, the rug got pulled out and now worth a hundred grand or so, maybe--based solely on checking & savings and a couple of other scattered accounts.

Industry done, which meant career as he knew it basically done, savings & retirement: gone.

[slidey]

An update (http://youtu.be/c1Y52m4xHrU) on this.