(I began publishing my monthly newsletter The Bob Livingston Letter™ in 1969. The following is an excerpt from the July 2013 issue in which I warned of the coming euro meltdown now being seen in Greece. Greek banks are shuttered and depositors stand to lose most or all of their deposits to the banksters. I have long warned my readers to get their money out of banks, advising them to keep only that which is needed to cover a couple months’ worth of bills and keep cash on hand, and the experiences of the Cypriots and Greeks are precisely why.)
The Ides of March struck a crippling blow to large bank depositors in Cyprus. It won’t matter much to most people in the world that a bunch of rich Russians lost a bundle of cash. What should matter is that the event could well mark the beginning of the end for the euro. It should also serve as a very large bright red flag to savers of the world that the cash they have entrusted to the care of banks is in grave danger — if not now then on some unexpected day in the non-distant future.
You already know the details inside and out, but since that was three months ago, I’ll briefly recap the story to refresh your memory. Banks in Cyprus got into trouble making too many high-risk loans and loading up on “iffy” Greek sovereign debt. Struggling to stand up on this financial quicksand foundation, Cyprus’ government was in imminent danger of defaulting on its debt and leaving the eurozone.
So in March, the Cypriot bigwigs followed SOP (standard operating procedure) these days for freeloader countries — they asked their European neighbors to bail them out. The “troika” — the International Monetary Fund, the European Commission, and the European Central Bank — said, “Sure, we’ll help out” but with some draconian strings attached. For ponying up €10 billion ($13 billion) to save the Cypriots’ bacon, they demanded that instead of their own taxpayers having to dole out money to the ne’er-do-wells, people with money in the bank in Cyprus should foot the bill.
The first proposal from the troika was that all depositors in Cypriot banks pay a tax on their assets. That’s a deeply chilling proposition in itself, that it was even considered. But it didn’t happen. The Cypriot parliament rejected the idea, even if it meant financial meltdown in the country. More high-level jibber-jabber followed.
After a tense and often bitter 11th hour session of negotiations, a Robin Hood deal was struck to steal from the rich depositors to give to the poor bankers. Depositors with more than €100,000 ($130,000) would be forced to bite the bullet, outright losing at least 40 percent of their money, according to official estimates, and more likely all of their uninsured deposits, according to some analysts and even some sources within the government. It’s been dubbed “Plunderball” and “The Great Cypriot Train Robbery” — and those are the nicer things it’s being called.
The funds confiscated/expropriated/stolen from the bank depositors will prop up the Cypriot government and banks for awhile. But like all the other band-aid solutions the Europeans have applied to their hemorrhaging euro system, the Cyprus “fix” only kicks the can down the road to be tripped over again later. As with the earlier bailouts of Greece, Spain, Portugal and Ireland, as well as banks and brokerages in the U.S., the handout did nothing to cleanse the social and economic rot that caused the crisis in the first place.
Cyprus kept its banks closed for two weeks as the crisis unfolded, fearing a run on deposits. When the banks reopened at the end of March, tight capital controls were in place, limiting withdrawal amounts, banning check cashing and severely restricting capital flows out of the country.
So another weak southern European country gets rescued from the jaws of disaster. So what’s new? Big bailouts of too-big-to-fail financial institutions have become common since the asylum escapees in Washington started it all after the 2007 banking blowup in the U.S. What’s different about the Cyprus deal, what’s so disturbingly scary about it is not so much the bailout itself, but the strings that came with it.
The puppet-masters in Europe shattered a fundamental foundation of the entire banking concept — trust. Since the Assyrians and Babylonians first started experimenting with the idea of banking around 2000 B.C., it has been a core article of faith for people to trust their wealth to the care of bankers. When that trust has been violated — as it has many times over the millennia — confidence in the institution of banking has had its knees kicked out from under it. People who have suffered the loss of their assets through banking malfeasance, greed, stupidity or outright theft can never again fully trust a bank.
The Cyprus financial crisis on its own was not that big a deal. Cyprus is a minor player on the world economic stage with an annual GDP of only about €17 billion ($22 billion). The economy is built mainly on tourism and a bloated banking system engorged with expatriate offshore cash from rich foreigners, mainly Russians (including the Russian mafia) who don’t trust their own banks at home (Boy, did THEY get a surprise in Cyprus!). Even if Cyprus had defaulted on its debt and exited the eurozone, there would have been some isolated and temporary pain in the global financial system, but it would not have brought the world to its knees.
Yet, the far-reaching consequences of the Cyprus bailout are profound. By opening the Pandora’s box of bank deposit taxation and expropriation, the Europeans made it clear that nobody’s money is safe in a bank, now or ever again.
Brien Lundin, editor of “Gold Newsletter,” wrote, “Make no mistake: When Cypriot authorities attempted to pilfer the accounts of its citizen savers, they cracked the foundation of not only their banking system, but that of the entire Eurozone and perhaps much of the world. Because the unthinkable became thinkable in flash.”
Neil Irwin commented in The Washington Post, “If you are a depositor in a European bank, you now have every incentive in the world to move your money somewhere safer, or even to keep it in cash, the minute you detect any hint that your nation could end up in the same place Cyprus did. The next time there is a banking panic in Europe, it will move much faster, and be much harder to control, than those of the recent past, as depositors try to get ahead of future losses and capital controls.
And that’s a scary proposition indeed.” Bob Pisani, CNBC “On-Air Stocks” Editor, noted that “Three points seemed especially relevant: 1) Bank creditors face greater risks than taxpayers; 2) Depositors are unsecured creditors; 3) The free movement of capital is in doubt.”
Andrew W. Sutton, chief market strategist for Sutton & Associates, issued a stark warning to all bank depositors: “When the chips are down, hold onto your wallet. If the rest of the world has learned nothing else from this ordeal, it should be that nothing in the economic/financial world is sacrosanct, especially when it comes to assets…The bottom line is there is no such thing as a depositor guarantee. Not anymore. You’re on your own.”
The global fallout from the Cyprus deal has so far been muted. Yet, there are serious rumblings that contagion from it could spell the end of the European Union because it has set a precedent that may be repeated in future financial crises.
Jeroen Dijsselbloem, the Dutch chairman of the Eurozone, said shortly after the deal was announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe. “If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?’” Dijsselbloem said. “If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.”
I added the emphasis to draw your attention to this critical point: Now that the genie is out of the lamp, they plan to use official theft of savers’ deposits in the future.
Dijsselbloem crawfished on the statement within hours and other EU officials chimed in with denials that Cyprus was a “template.”
Too late. The world got the message. The Cyprus event by itself will not destroy the euro. But the fact is that more bank depositor “haircuts” in other beleaguered countries (think Italy, for example) are not only possible but probable in the future. You can see the seeds of destruction for the euro as it dawns on people that their money is not safe in European banks, and by extension, not safe in the form of the euros those banks use.
It won’t happen tomorrow or the day after tomorrow. These things take time. But the fuse on the bomb is lit. How long the fuse is nobody really knows.
But it couldn’t happen here in the good ole U.S. of A, you say? Well, hold onto your hat — the U.S. and the U.K. have plans in place to take your money if they want to. Attorney Ellen Brown, president of the Public Banking Institute, writing for Counterpunch.org, said, “Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone ‘troika’ officials scrambling to salvage their balance sheets. A joint paper by the U.S. Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland and that the result will be to deliver clear title to the banks of depositor funds.”
Brown explains, “Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay.” The government paper, called “Resolving Globally Active, Systemically Important, Financial Institutions,” describes the process for “exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities.”
Says Brown, “If our IOUs are converted to bank stock, they will no longer be subject to insurance protection but will be ‘at risk’ and vulnerable to being wiped out, just as the Lehman Brothers shareholders were in 2008.”
So, let’s say you want to protect your wealth from confiscation by withdrawing your cash and converting it into hard assets like gold and silver, which you might choose to keep in your safety deposit box. Is your wealth safe?
“Apparently not — if it’s stored in a safety deposit box in the bank,” says Brown. “Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it’s a matter of ‘national security,’ which a major bank crisis no doubt will be.”
The day when bankers were respected as pillars of the community is long gone. On the public credibility scale, they rank somewhere between lawyers and used car salesmen.
Trust a banker at your own risk. And that includes central bankers of the world.
I suggest investing in a heavy fireproof safe in your home and installing a robust security system. And buy a big bad dog.
But remember that the thieves you have to worry most about are not the ones casing your house for a break-in. They’re the ones sitting behind desks in Washington.
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