Ron Paul Texas Straight Talk: The Great Cyprus Bank Robbery...

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[waltky]

Is it game over for Cyprus as the financial services sector crumbles?...

Cyprus: What does the future hold?
2 April 2013 - What is the future for the Cypriot economy following a 10bn-euro bailout deal with the European Union and the International Monetary Fund?

To ask about a country's long-term prospects in the middle of a financial crisis is something of a fool's errand. How the future pans out for Cyprus will depend crucially on what happens over the coming days, weeks and months. Will Cyprus be able to lift restrictions on bank accounts quickly? Will the banking system recover? Will the offshore banking business evaporate?

While we can only speculate at the answers to these questions, two conclusions stand out:

The short-term is looking very bleak and could involve a 20% shrinkage in gross domestic product (GDP) by some estimates
The longer-term is, at best, uncertain and largely outside the country's control

Bank malfunction

The immediate problem facing Cyprus is how to restore confidence in its banking system. The job of its banks is to keep the flow of money to the economy going. Disrupting that flow is akin to disrupting the flow of blood to the brain. Since the banks reopened - after closing for two weeks - there remain limits on how much access Cypriot people and companies have to their money. The continuing malfunction of the banks has two nasty consequences. First of all, capital controls - and a suspension of lending - prevent the normal functioning of the economy by starving businesses and households of the means of payment. There are potentially permanent consequences if these measures stay in place for too long. For example, Cypriot businesses face limits on their ability to pay suppliers, and may have to lay off staff and sell off valuable assets in order to survive.

Much of the cash they held at the two biggest banks - the defunct Laiki and the restructured Bank of Cyprus - has now been lost forever. As the weeks pass with restrictions still in place, the incentive will strengthen for Cypriots to hoard assets - such as euro banknotes, jewellery, even yachts - that can then be moved offshore, further disrupting economic activity. What the authorities hope is that, once hefty losses have been calculated and imposed on the trapped depositors at the two banks, the European Central Bank (ECB) will deem the Cypriot banks to be sufficiently healthy again. Then the controls can be quickly lifted because the ECB should be willing to lend the banks whatever cash they need to meet depositor withdrawals - as happened with Greece's bank run last summer. The ECB may also need to airlift a few million extra banknotes to Nicosia.

Feeling deflated

See also:

The pain of southern Europe's unemployed
2 April 2013 - When Europe's unemployment figures were published today, they once again underlined the north-south divide. Increasingly there are two Europes.

As Andrea Broughton from the Institute for Employment Studies points out: "At the lowest end are Austria, with an unemployment rate of just 4.8%, Germany (5.4%) and Luxembourg (5.5%). "This contrasts with Greece, where the rate is 26.2% (December 2012 figure), Spain, with a rate of 26.3%' and Portugal, with a rate of 17.5%." Perhaps the most disturbing figure is for youth unemployment. The average rate for the under 25s in the EU is 23.5%. Nearly a quarter of Europe's youth are not working. In Spain the figure is 55.7%.

For the moment the strategy for keeping the eurozone together is sharpening Europe's divide. The Germans believe that a combination of austerity and structural reforms will eventually spark growth in southern Europe and narrow the gap in competitiveness. There are a significant number of officials and economists, however, who doubt the policy is working. Indeed they believe that several countries are now trapped in a cycle of decline. Only this week the French President Francois Hollande said that "sticking with austerity would condemn Europe not just to recession but an explosion".

Lost generation

Some economists say Germany's austerity measures have trapped southern countries in a cycle of decline

So far Europe's young people have been remarkably tolerant of unemployment levels reminiscent of the Great Depression. There has been some burning of EU flags and anger with the Germans but Europe's so-called lost generation has not yet challenged the role of Europe and its institutions. Brussels and Europe's leaders have been able to blame the crisis on the financial crisis of 2008 and to insist it was "made in America". But the truth is somewhat different. The structure of the eurozone, with one interest rate for all, enabled countries like Spain to embark on a construction boom. Ireland had a similar story. Greece initially benefitted from unrestricted flows of outside capital and wages soared. What the financial crisis in America did was to bring the party to an end. A reckoning followed. The price is still being paid with wages and costs being slashed in an attempt for these mainly southern countries to regain competitiveness within a monetary union. The question remains: in the end were the economic differences between the countries which adopted the euro too great and are millions of young Europeans paying for that mis-judgment?

Whilst the official line is that the euro has been saved, privately there is far more anxiety. Increasingly the threats to the eurozone are seen as not so much the bond spreads, but the combination of deepening recession and rising unemployment in parts of Europe. As Nicholas Spiro of Spiro Sovereign Stategy said, "the surge in joblessness coupled with this morning's grim PMI surveys [manufacturing surveys] are a glaring example of the extent to which market sentiment towards the eurozone has become detached from economic fundamentals. The disconnect is most pronounced in Spain and Italy but is also manifest in France". Europe's leaders are in the fourth year of fighting this crisis and the reality is that the gap between some of those countries which share the common currency is only widening.

http://www.bbc.co.uk/news/world-europe-22006666

 

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Depositors gettin' a Cyprus 'haircut'...

Key data missing at troubled Bank of Cyprus - inquiry
5 April 2013 - Some key data about bond purchases by Bank of Cyprus - now the focus of a controversial EU-IMF bailout - is missing, investigators have found.

The gaps were found in computer records studied by a financial consultancy, Alvarez and Marsal, Cypriot media say. Bank of Cyprus - the island's biggest bank - bought Greek bonds which turned into some 1.9bn euros (£1.6bn; $2.4bn) of losses in the Greek debt crisis. Depositors with more than 100,000 euros in the bank are now facing a big loss. The "haircut" for such deposits in Bank of Cyprus is expected to be about 60%.

The money taken from those accounts, and from deposits above 100,000 euros at Laiki (Popular) Bank, will be used by the government to contribute billions towards the bailout. Strict capital controls - unprecedented for the eurozone - are in force in Cyprus, limiting cash withdrawals to prevent a run on the banks. The "haircut" - hugely unpopular in Cyprus - is a condition for the EU and IMF to grant a 10bn-euro bailout to rescue the Cypriot economy.

'Mass deletion'

The Cyprus Mail website says information provided by Bank of Cyprus was incomplete and data-deleting software was found on some computers there. There were significant gaps in computer records for the period 2007-2010. It is not yet clear whether the wiping of records was accidental or deliberate. There were signs of mass deletion of data. The Central Bank of Cyprus says that Alvarez and Marsal are now investigating Laiki too - Cyprus's second largest bank, which is being wound up and folded into Bank of Cyprus. "The investigation will continue and cover: the purchase of Greek government bonds by Laiki Bank; the expansion of Laiki Bank outside Cyprus; the role and responsibilities of all parties involved," the central bank said on Friday.

The consultancy's report on Bank of Cyprus has been leaked to Cypriot media, but not yet published. Besides the Greek bond purchases the consultancy also scrutinised Bank of Cyprus operations in Romania and Russia. The consultancy's findings have been handed over to the Cypriot parliament and the attorney-general, Petros Clerides. The Cypriot government has appointed a special judicial panel to clarify what happened in the country's financial crash and pinpoint any wrongdoing.

BBC News - Key data missing at troubled Bank of Cyprus - inquiry

See also:

Tax haven data leak names names, raises questions
Apr 5,`13 -- It's a data leak involving tens of thousands of offshore bank accounts, naming dozens of prominent figures around the world. And new details are being released by the day - raising the prospect that accounts based on promises of secrecy and tax shelter could someday offer neither.

Among those named include a top campaign official in France, the ex-wife of pardoned oil trader Marc Rich, Azerbaijan's ruling family, the daughter of Imelda Marcos and the late Baron Elie de Rothschild. The widespread use of offshore accounts among the wealthy is widely known - even Mitt Romney acknowledged stashing some of his millions in investments in the Cayman Islands. But this week's leak, orchestrated by a Washington-based group called the International Consortium of Investigative Journalists, appeared to be the broadest in what has been a steady stream of information emerging about hidden money in recent years amid a wave of anger targeting the super-rich in an age of austerity.

The leak allegedly involved records from 10 tax havens, where the world's wealthy have long stashed funds. It uncovered a shadow network of empty holding companies and names essentially rented out to fill out boards of non-existent corporations, including a British couple listed as active in more than 2,000 entities, according to The Guardian newspaper, which participated in the global undertaking. The project started with the receipt of a hard drive by an Australian journalist, Gerard Ryle, who took the data with him when he joined the consortium, according to the project's website. The group, a project of the Washington-based Center for Public Integrity, has said the hard drive arrived in the mail. "We know the data is valid. We know who originally produced the data and we've done massive crosschecks to make sure what we're getting is accurate and isn't corrupted," said Michael Hudson, a senior editor on the project.

Rudolf Elmer, who once ran the Caribbean operations of the Swiss bank Julius Baer and turned whistleblower after he was dismissed in 2002, told The Associated Press that he considers the data to be authentic. "This comprehensive information is like a torch that will probably set off a wildfire and bring to light a lot more about secretive tax havens," he said. The secret bank accounts of the rich and powerful have recently come under a crush of whistle-blowing scrutiny. France's former budget minister, Jerome Cahuzac, was forced to resign last month after a French investigative website unrelated to the latest leak revealed that he held offshore accounts - a particularly damaging scandal because he was spearheading a campaign against tax evasion. In 2010, a Greek journalist published a list of about 2,000 people holding undeclared Swiss bank accounts, disclosures that triggered a firestorm of outrage as Greeks were forced to swallow brutal austerity measures.

In November, an HSBC insider leaked a list of more than 8,000 customers with accounts based in Britain's tiny Jersey Island, drawing an immediate tax investigation from Britain's revenue and customs service. Two years before that, a former HSBC employee stole account details for 24,000 clients. Germany, eager to learn about its own tax cheats, promptly offered to buy the information. "This just shows what we all know, which is that for decades we have seen the emergence of globalization on the one hand and governments that were unable to coordinate and cooperate on the other hand," Pascal Saint-Amans, head of tax policy for the Organization for Economic Cooperation and Development, said Friday.

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