Saturday, 30 March 2013

08:35 – The situation in Cyprus is rapidly turning worse, a lot worse. On Thursday, the government was saying that capital controls would be in effect for a week; on Friday, they were saying capital controls would be in effect for a month. In reality, they’re likely to be in effect forever. I’m trying to think of even one example where capital controls were removed once implemented. The most recent close example is Iceland, which announced “temporary” capital controls at the start of its banking crisis. Five years later, they’re still in effect. And the knock-on effects of Cyprus imposing capital controls is already being felt in Malta, which also has an out-sized banking sector. Even Luxembourg, which has the highest GDP in the world, is extremely concerned, and rightly so since its banking system is more highly leveraged than any other in the world. And capital flight from southern-tier banks continues to accelerate. No sane person wants to keep their assets in southern-tier banks, so they’re moving them to German, Dutch, and other northern-tier banks as fast as they can, making the imbalance steadily worse.

And the situation in Cyprus itself continues to deteriorate quickly. The second-largest bank, Popular Bank, is in the process of being shut down. Accounts of €100,000 and under are being transferred to Bank of Cyprus, the largest bank. Equity and bond holders in Popular Bank lose 100% of their investment, except the ECB, which holds about €9 billion of Popular Bank debt. That debt is also being transferred to Bank of Cyprus, and is sufficient to doom that bank. Meanwhile, Cyprus announced yesterday that the “haircut” to be suffered by unsecured Bank of Cyprus creditors (other than the ECB) will be a nominal 62.5%. It’s actually much worse than that, because the remaining 37.5% will be converted to shares in the Bank of Cyprus at an inflated valuation, which shares are already nearly worthless and will quickly become entirely so. So, excepting of course the ECB, unsecured creditors in Popular Bank will suffer a 100% haircut, while unsecured creditors in Bank of Cyprus will suffer a nominal 62.5% haircut, which in reality is a 100% haircut, or so close to that as not to matter.


9 thoughts on “Saturday, 30 March 2013”

  1. Cyprus is busy warming up the presses to print whatever currency they used to use. They just walked the plank off the Euro ship and learned a very expensive lesson. One wonders if the other southern tier countries are watching and putting plans in place. Just wait until Spain and Italy walk the plank!

    I think that Greece walked the plank already already, they are just in denial about it. I’ll bet those drachma notes are already printed in government storage somewhere.

    This is like peeling a nasty band-aid at one inch per hour. The pain must be horrendous to these people. The watchers, you and I, keep on yelling, “look out for the tree” and they hit it every time. I still think that the USA is 20+ years away from this horrendous drama because we have our currency. And we are funding our own tbills to the tune of two trillion dollars now and rapidly increasing.
    http://cnsnews.com/news/article/fed-s-holdings-us-govt-debt-hit-record-1696691000000-257-under-obama

  2. You say twenty and I say ten; this situation is likely to accelerate as it goes downhill. And when it hits us it will of such a nature as to never have occurred in human history before. 320-million people with half a billion to a billion guns. Think about that in relation to other historical examples of revolutions and civil wars.

    Low fifties this weekend here on the Bay, and gorgeous today, with sun and blue skies. The whole neighborhood is out doing spring cleaning and yahd work stuff. Mrs. OFD is refreshing the studio out back from its winter status as a semi-toxic waste dump and rubbish pile. I drove 150 miles all over the place today pretty much for nothing, as it turned out. Managed to get groceries and paper for the printer, my huge accomplishment for today; I am, however, firming up our home IT security bit by byte.

  3. My son is no longer a member of the US Marine Corps as of today. He is happy about it but it is a bittersweet happiness for him.

    My thanks to all the veterans everywhere. Lonely is the warrior who stands on the wall looking into the wild.

  4. And my thanks also to your son and all the other decent veterans who tried/try to do the right thing.

    “Lament of the Frontier Guard

    By the North Gate, the wind blows full of sand,
    Lonely from the beginning of time until now!
    Trees fall, the grass goes yellow with autumn.
    I climb the towers and towers
    to watch out the barbarous land:
    Desolate castle, the sky, the wide desert.
    There is no wall left to this village.
    Bones white with a thousand frosts,
    High heaps, covered with trees and grass;
    Who brought this to pass?
    Who has brought the flaming imperial anger?
    Who has brought the army with drums and with kettle-drums?
    Barbarous kings.
    A gracious spring, turned to blood-ravenous autumn,
    A turmoil of wars – men, spread over the middle kingdom,
    Three hundred and sixty thousand,
    And sorrow, sorrow like rain.
    Sorrow to go, and sorrow, sorrow returning,
    Desolate, desolate fields,
    And no children of warfare upon them,
    No longer the men for offence and defence.
    Ah, how shall you know the dreary sorrow at the North Gate,
    With Rihoku’s name forgotten,
    And we guardsmen fed to the tigers.

    By Rihaku. [Li Po?]
    Ezra Pound

  5. Lynn – my thanks to your son. And to your family – there probably have been a few sleepless nights while he was deployed.

  6. Yes, he was part of the Marine Corps surge to Iraq in 2006 and 2007 (two tours with eight months between). He turned down a free all expense paid trip to Afghanistan in 2008 from Uncle (volunteers only). He was active duty for four years, then inactive reserves for four years and is now a free man.

  7. “…. and is now a free man.”

    Me too! Congrats to him!

    OFD: four years active and two years inactive Reserve and then two years active Reserve. Two all-expenses-paid trips to SEA! A year-and-a-half in northern Kalifornia! Six months in north-central Maine in the dead of winter! Many months in east Texas! In at 17 and out of active duty by 21! Sergeant at 19!

    Life is so boring now.

    May have to gin up a revolution and civil war….

  8. UK lifted capital controls in the late 1950’s (?’57?) . I doubt there is much information to be applied to the current circumstance – save perhaps that Germany (then West Germany) went more strongly capitalist earlier and so prospered more. Still the UK did well enough – FREX with a tighter process control the tested original design window frames might have been used in production for the Comet and other exports might have done wonders for the UK.

  9. What is the use of having capital controls on the bank deposits when there is no capital left to control?

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