Cyprus - devil in the detail


S

Stewart

Understand from the news that deposits > 100K Euro will be looted by
up to 40%.

I'm think I also heared this applies to businesses as well as
individuals.

BUT, it is perfectly normal for a decent size business (eg a hotel) to
have a million + in the bank just before bill pay time.

To loot that money would wipe out the business.

Any comments / corrections / more detail ?
 
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A

Anthony R. Gold

Understand from the news that deposits > 100K Euro will be looted by
up to 40%.

I'm think I also heared this applies to businesses as well as
individuals.

BUT, it is perfectly normal for a decent size business (eg a hotel) to
have a million + in the bank just before bill pay time.

To loot that money would wipe out the business.

Any comments / corrections / more detail ?
Those depositors were the uninsured creditors of insolvent banks that did
not have sufficient capital to make good on their liabilities, even after
their shareholders and their bond holders had been wiped out. Calling that
"looting" does not add any light to the situation. Maybe (and hopefully)
depositors will now start to pay more attention to the creditworthiness of
the institutions with whom they do business.

IMO the manner of treatment of those Cypriot banks was a better method than
the taxpayer bail-outs of Northern Rock, RBS, etc.

Stewart, who do you believe should have paid off the debts of those banks
and why?
 
G

Gordon H

Anthony R. Gold said:
Those depositors were the uninsured creditors of insolvent banks that did
not have sufficient capital to make good on their liabilities, even after
their shareholders and their bond holders had been wiped out. Calling that
"looting" does not add any light to the situation. Maybe (and hopefully)
depositors will now start to pay more attention to the creditworthiness of
the institutions with whom they do business.

IMO the manner of treatment of those Cypriot banks was a better method than
the taxpayer bail-outs of Northern Rock, RBS, etc.

Stewart, who do you believe should have paid off the debts of those banks
and why?
What pisses me off is the way our Guv seems eager to promise
compensation to people who stash their loot in risky overseas
investments.

We must remember that the only real money is in deposits, and someone
has to pay for the bankers'obscene salaries and bonuses. :-(
 
S

Stewart

Those depositors were the uninsured creditors of insolvent banks that did
not have sufficient capital to make good on their liabilities, even after
their shareholders and their bond holders had been wiped out. Calling that
"looting" does not add any light to the situation. Maybe (and hopefully)
depositors will now start to pay more attention to the creditworthiness of
the institutions with whom they do business.

IMO the manner of treatment of those Cypriot banks was a better method than
the taxpayer bail-outs of Northern Rock, RBS, etc.

Stewart, who do you believe should have paid off the debts of those banks
and why?
Well, seeing as you ask, my opinion is:
Germany should have paid off the debt as a cash gift. (It was not a
huge amount of money - and Germany has benefited enormously over the
past 10 years in sales of BMWs, Mercs, etc.)
BUT, then said: Effective tomorrow you are out of the Euro. Go get De
La Rue to print you some bank notes; and quick. That way, nobody is
wiped out and situation sorted, with a prospect of Cyprus recovering,
which there is currently little hope of.
My concern and posting was about businesses and people in the middle
of a transaction, for example a company about to pay payroll and
suppliers.

I agree that people need to be much more careful about choosing who
they deposit money with. Hence a run on Spanish, Greek banks can now
be expected. Banking can only work with trust.

I also agree that the taxpayer bailout of RBS, Lloyds was wrong. And
if it did have to happen, why didn't the government have caretaker
control over the boardroom bringing about a slashing of salaries and
an end to bonuses ?

If you don't like the term looting, how about expropriate ?
 
A

Anthony R. Gold

Well, seeing as you ask, my opinion is:
Germany should have paid off the debt as a cash gift. (It was not a
huge amount of money - and Germany has benefited enormously over the
past 10 years in sales of BMWs, Mercs, etc.)
BUT, then said: Effective tomorrow you are out of the Euro. Go get De
La Rue to print you some bank notes; and quick. That way, nobody is
wiped out and situation sorted, with a prospect of Cyprus recovering,
which there is currently little hope of.
My concern and posting was about businesses and people in the middle
of a transaction, for example a company about to pay payroll and
suppliers.

I agree that people need to be much more careful about choosing who
they deposit money with. Hence a run on Spanish, Greek banks can now
be expected. Banking can only work with trust.

I also agree that the taxpayer bailout of RBS, Lloyds was wrong. And
if it did have to happen, why didn't the government have caretaker
control over the boardroom bringing about a slashing of salaries and
an end to bonuses ?

If you don't like the term looting, how about expropriate ?
It's not that I don't like the term, I don't believe it is accurate. Who did
this looting? And who looted Comet or HMV or any other business that became
insolvent because of poor trading decisions? The Cypriot banks became
insolvent because of poor investments in Greek bank and sovereign debt and
not because anyone stole their capital.

Leaving the Euro just begs the problem of what would then happen to Cyprus
sovereign debt that is denominated in Euros. Care to explain? Does Mercedes
and BMW pay that because of all those Cypriot farmers, hotel workers and
shop keepers that you believe drive around in fleets of German limousines?
 
S

Stewart

It's not that I don't like the term, I don't believe it is accurate. Who did
this looting? And who looted Comet or HMV or any other business that became
insolvent because of poor trading decisions? The Cypriot banks became
insolvent because of poor investments in Greek bank and sovereign debt and
not because anyone stole their capital.

Leaving the Euro just begs the problem of what would then happen to Cyprus
sovereign debt that is denominated in Euros. Care to explain? Does Mercedes
and BMW pay that because of all those Cypriot farmers, hotel workers and
shop keepers that you believe drive around in fleets of German limousines?
I agree with everything you say - but let's have consistency here.
How about the rubbish investement decisions of Irish, Greek, Spanish
banks who also thought that any Euro sovereign debt was safe,
similarly AAA rated US sub-prime mortgages, also home-grown rubbish
mortgages? (BTW isn't AAA and sub-prime an oxymoron?)

Regarding Cypriot sovereign debt from Greece, etc, I would suggest
they demand payment as soon as maturity, or put on the market NOW at
knock down prices. And when Greece, etc can't pay, force insolvency.
Wouldn't that make bond rates from Spain, Portugal, Greece, Italy 40%
? I think Cyprus played a poor poker game.

Why do you want Cyprus treated differently ?

Let's throw everything in the air, and see how the chips fall.

Regarding Comet and HMV, their business model had long passed its
sell-by date.
 
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A

Anthony R. Gold

I agree with everything you say - but let's have consistency here.
How about the rubbish investement decisions of Irish, Greek, Spanish
banks who also thought that any Euro sovereign debt was safe,
similarly AAA rated US sub-prime mortgages, also home-grown rubbish
mortgages? (BTW isn't AAA and sub-prime an oxymoron?)

Regarding Cypriot sovereign debt from Greece, etc, I would suggest
they demand payment as soon as maturity, or put on the market NOW at
knock down prices. And when Greece, etc can't pay, force insolvency.
Wouldn't that make bond rates from Spain, Portugal, Greece, Italy 40%
? I think Cyprus played a poor poker game.

Why do you want Cyprus treated differently ?
That's quite a mixture of very different issues from Ireland and Spain with
good governance and balance of payments but where their domestic industries
and banks were hit by housing bubbles on one side and Greece and Italy with
chronic deficits and which used fraudulent financial reports to enter into a
monetary union they were never qualified to join. Cyprus was much like
Iceland but are locked out of an Icelandic solution by not having their own
currency they can devalue. So now they must rely on "internal devaluation"
which requires a long period of stagnation and suffering or else bail out of
the Euro and then maybe look for growth in agriculture and tourism.
Let's throw everything in the air, and see how the chips fall.

Regarding Comet and HMV, their business model had long passed its
sell-by date.
But does the suffering of losses by creditors prove there was looting?
 
C

Cliff Frisby

Well, seeing as you ask, my opinion is:
Germany should have paid off the debt as a cash gift. (It was not a
huge amount of money - and Germany has benefited enormously over the
past 10 years in sales of BMWs, Mercs, etc.)
The point of bargains is that both sides consider them fair at the time. The
price can always be fine-tuned to ensure it is so.

I'm sure if you struck a bargain with someone to sell something to them at a
price you and they both agreed as fair, you'd be a bit hacked off at having
to give a proportion of the money back later, on the grounds that you
over-benefitted.
 
S

Stewart

That's quite a mixture of very different issues from Ireland and Spain with
good governance and balance of payments but where their domestic industries
and banks were hit by housing bubbles on one side and Greece and Italy with
chronic deficits and which used fraudulent financial reports to enter into a
monetary union they were never qualified to join. Cyprus was much like
Iceland but are locked out of an Icelandic solution by not having their own
currency they can devalue. So now they must rely on "internal devaluation"
which requires a long period of stagnation and suffering or else bail out of
the Euro and then maybe look for growth in agriculture and tourism.


But does the suffering of losses by creditors prove there was looting?
I agree that Greece, Cyprus, and to a slightly lesser extent the
Southern countries and Ireland were never qualified to join the Euro.
But Germany and their Eu friends welcomed them in, knowing the books
were cooked and eventually there would be tears. You can only live
high on borrowed money for so long. Why were they allowed to borrow so
much ?

As I suggested, I feel Cyprus has the power to send the bond rates of
those countries sky-high. Hence my comment re poor poker game.

As for the UK taxpayer bailing out savers in IceSave, etc, I too
question how much IceSave had paid the FSA/FSCS to get their saver
guarantees. We were too easy on those foreign banks. I wonder if the
same applies to the Indian banks which seem to have the best saver
rates.

This thread has digressed from my initial point about businesses and
people being expropriated in the middle of a transaction.
 
T

tim.....

Anthony R. Gold said:
Those depositors were the uninsured creditors of insolvent banks that did
not have sufficient capital to make good on their liabilities, even after
their shareholders and their bond holders had been wiped out. Calling that
"looting" does not add any light to the situation. Maybe (and hopefully)
depositors will now start to pay more attention to the creditworthiness of
the institutions with whom they do business.
and how do they do that - please?

I'm a (reasonably) sophisticated investor and I wouldn't know where to start

How is the normal MITS supposed to tell?

It's not like I get a choice about how the bank invests its money after I
have lent mine to it.

It's all well and good to say that the money in the Cyprus banks was dirty
Russian money, but that wasn't why the bank took poor investment decisions.
Whilst I don't know the full story of the Cyprus bank it appears that a
large chunk of the money was lost by investing the the (local) unsustainable
housing boom (hasn't almost every bank, and almost every government, in the
EU, done this?) and by investing money in the "home" county of Greece which
the EU forced them to take a hair-cut on when Greece was bailed out.

Why are the Cypriots being punished because their banks (a) did the same
stupid thing that ever other bank was doing (and that OUR government is
still doing) and (b) lost money because of an EU bail out of a previous
indebted country's bank's which was structured in a way that didn't steal
their customer's money?

I really don't get it. As a disinterested party this doesn't seem to be the
slightest bit "fair" and is punishing completely the wrong people

tim
 
A

Anthony R. Gold

and how do they do that - please?

I'm a (reasonably) sophisticated investor and I wouldn't know where to start
If you are unable to judge the creditworthiness of a bank then keep your
deposits within the level that is insured by the state.
How is the normal MITS supposed to tell?

It's not like I get a choice about how the bank invests its money after I
have lent mine to it.
But you do get a choice of whether to exceed the levels covered by deposit
insurance. If you have more money than you can find insured deposits to
accommodate then use gilts or your own mattress.
It's all well and good to say that the money in the Cyprus banks was dirty
Russian money, but that wasn't why the bank took poor investment decisions.
Whilst I don't know the full story of the Cyprus bank it appears that a
large chunk of the money was lost by investing the the (local) unsustainable
housing boom (hasn't almost every bank, and almost every government, in the
EU, done this?) and by investing money in the "home" county of Greece which
the EU forced them to take a hair-cut on when Greece was bailed out.

Why are the Cypriots being punished because their banks (a) did the same
stupid thing that ever other bank was doing (and that OUR government is
still doing) and (b) lost money because of an EU bail out of a previous
indebted country's bank's which was structured in a way that didn't steal
their customer's money?

I really don't get it. As a disinterested party this doesn't seem to be the
slightest bit "fair" and is punishing completely the wrong people
Calling a default a punishment does not make it so. The creditors of
Jessops, HMV and Comet were not punished or victimised, they engaged in
potentially profitable transactions that subsequently failed. Same with bank
depositors. Turning failed business dealings into morality tales in IMO not
useful in helping to understand what happened and how to avoid it in future.
 
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T

tim.....

Anthony R. Gold said:
If you are unable to judge the creditworthiness of a bank then keep your
deposits within the level that is insured by the state.
1) The original proposal was that even that would not be honoured. And it
was also reported to be based upon aggregated (cash) wealth not deposits per
bank.

2) AIUI the actual rule is that everyone has the first XX protected not that
only deposits below XX are 100% protected. I don't know whether there is a
reporting error here but they don't seem to be honouring that. If you have
a sum considerably in excess of XX it is hard enough splitting it into
portions less than XX without having to split it into portions below XX
after n years of interest have been added. I see no reason (under the
current protection scheme) why and investor should lose 40% of the fits XX
just because you are over XX by tuppence-ha'penny

But in any case I wasn't answering the point about how people can avoid
having their money stolen because they haven't invested in "protected"
accounts. The point I was answering was one about the "morality" of people
lending to banks that are going to misuse their funds and the implication
that if they are (stupid) enough to do that then they shouldn't complain if
that legal protection is ignored when the time comes...
But you do get a choice of whether to exceed the levels covered by deposit
insurance. If you have more money than you can find insured deposits to
accommodate then use gilts or your own mattress.
I know, but that wasn't the point that was made
Calling a default a punishment does not make it so.
It is when banks in other countries, in exactly the same position, have been
"rescued" and you alone have been singled out not to be rescued, for reasons
which have nothing at all to do with your choice to invests in this bank
rather rather that one.
The creditors of
Jessops, HMV and Comet were not punished or victimised, they engaged in
potentially profitable transactions that subsequently failed. Same with
bank
depositors. Turning failed business dealings into morality tales in IMO
not
useful in helping to understand what happened and how to avoid it in
future.
It would be if previous failed companies had been rescued by government but
this one hadn't

tim
 
N

Norman Wells

If you are unable to judge the extent of the state's guarantee, perhaps
you shouldn't comment here either.
1) The original proposal was that even that would not be honoured. And
it was also reported to be based upon aggregated (cash) wealth
not deposits per bank.

2) AIUI the actual rule is that everyone has the first XX protected
not that only deposits below XX are 100% protected. I don't know
whether there is a reporting error here but they don't seem to be
honouring that. If you have a sum considerably in excess of XX it is
hard enough splitting it into portions less than XX without having to
split it into portions below XX after n years of interest have been
added. I see no reason (under the current protection scheme) why and
investor should lose 40% of the fits XX just because you are over XX
by tuppence-ha'penny
The 'guarantee' is only a guarantee if the bank defaults. There is no
'guarantee' at all against the imposition of a tax by the government,
which is what it was in Cyprus. If it wants to take your money, you are
not protected in the slightest, and you can do nothing about it.

Similarly in Britain under the Financial Services Compensation Scheme.
 
T

tim.....

Anthony R. Gold said:
This is a simple case of bank insolvency
So

the point is that:

OT1H the MITS cannot (usually) tell whether a bank might be conducting
itself in such a way as to be heading for bankruptcy.

and

OTOH having (individual) people lend money to banks so that it can use that
money for the benefit of society as a whole is what a government want to
encourage.

So, in order for that to happen it (the government) undertakes the risk of
keeping a bank solvent when it gets into difficulties so that the innocent
savers don't have to take the hit. And in order to make this a bit easier
on itself it monitors banks so that it can tell in advance that there might
be a problem and take early action to resolve it.

And that's the deal.

Reneging on that deal and then turning around and saying "tough titties
perhaps this will teach savers to do DD on a bank before they invest" (which
is, more or less, what the person I replied to said) is simply not fair on
the people who you have encouraged to lend to your economy (via your banking
system) because, in reality, savers have absolutely no way of telling a good
bank from a bad one (excepting at the very margins).

tim
 
W

Windmill

Calling a default a punishment does not make it so. The creditors of
Jessops, HMV and Comet were not punished or victimised, they engaged in
potentially profitable transactions that subsequently failed. Same with bank
depositors. Turning failed business dealings into morality tales in IMO not
useful in helping to understand what happened and how to avoid it in future.
Avoiding a repetition is highly desirable, but IMO one has to also
understand the consequences for society, and attempt to minimise the
damage.
The scenario mentioned before, where a medium-sized enterprise
suddenly finds that it can't pay its wage bill because most of the
money has been seized from its account, is a recipe for a widespread
disaster.
And if that happens it's a chain reaction.

I don't think it's useful to insist on the one hand that business
rules, business morality if you like, must prevail, but on the other
hand to say in effect 'tough luck, but you should have known better' to
those left unable to support themselves.

Social upheaval can lead to revolution, which is seldom good for the
ordinary man. (Why did 100,000 Americans move to what became Canada in
and around 1776?)
 
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A

anonymous

Stewart said:
I also agree that the taxpayer bailout of RBS, Lloyds was wrong.
Since the government strongarmed a 'good' bank (LLoyds) into taking over
a bottomless pit (HBOS), they didn't have much choice in that instance.

Now it's been unveiled that Lloyds didn't do 'due diligence' and their
accountants told them what they wanted to hear rather than anything
resembling economic reality, it's a mega-cesspit.

And the losers are the taxpayers and the Lloyds shareholders.

Adrian
 
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A

anonymous

The underlying businesses at Comet and HMV were profitable. However
previous owners loaded them with unsupportable amounts of debt. Plenty
of bad managers and vulture capitalists made money as Comet and HMV were
sinking.
Regarding Comet and HMV, their business model had long passed its
sell-by date.
How was Comet different from Dixons and other white goods sheds, many of
which are still trading successfully? HMV was trading profitably when it
went into receivership, and the demise of its principal competitors
should have given it a fillip.

Adrian
 

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