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This solution makes a lot of sense.

The most important element of this solution is that the rules of the game are not change. 100K EUR were guaranteed. And this solution honors that guarantee.

After 100K, it is fair game for a haircut.

I wonder why all the drama over the last week - to finally come to this logical solution?

Where do depositors stand vs bond holders in the pecking order?

ThomasPaine said:   I just want to say I really have enjoyed reading your analysis, dshibb, on this and other topics.

Thank you. I appreciate you saying that.

I think it'll be interesting to see what happens. I agree with prior analysis here that any "heavy hitters" (Russian or otherwise) likely had plenty of notice that things were going to go south and the mass exodus has already happened. I expect what will happen is that the levy, as reported by the BBC above, will hit a few people and raise far less capital than expected. At this point, there will be a flight of cash out of Cyprus that will never return, but where it will go is the question. I think that it will be out of the Euro and probably into something USD in the Caymans or otherwise.

I think the only other alternative is that those who are using Cyprus for...dubious purposes...consider it a minor loss and a cost of doing business for the anonymity and security they get in the region. If this happens, then really, I doubt there will be significant impact on the state.

mwa423 said:   I think it'll be interesting to see what happens. I agree with prior analysis here that any "heavy hitters" (Russian or otherwise) likely had plenty of notice that things were going to go south and the mass exodus has already happened. I expect what will happen is that the levy, as reported by the BBC above, will hit a few people and raise far less capital than expected. At this point, there will be a flight of cash out of Cyprus that will never return, but where it will go is the question. I think that it will be out of the Euro and probably into something USD in the Caymans or otherwise.

I think the only other alternative is that those who are using Cyprus for...dubious purposes...consider it a minor loss and a cost of doing business for the anonymity and security they get in the region. If this happens, then really, I doubt there will be significant impact on the state.


No actually it's been going on all week. It's just been reported that even while the banks have been closed substantial quantities of liquidity have managed to find their way off the island. Cash outflows out of the island with the banks 'closed' are more than double the quantities out of outflows the prior week with the banks open.

Should that really surprise anyone? Why do you think they had to increase the bailout total by another billion? Because cash is leaving anyway and it's going to continue to leave. The island has to do business internationally and that means that cash will continue to leave the country.

Guess many of those Russians got the better of the Cypriots on that one.

Should anyone really give a shit that the government is doing this when depositers in cyprus were getting interest rates of 18% APY? I mean so they're losing a year or two worth of interest, yeah it sucks but in a way it's worse here as we've had 0% interest for several years now. I mean yes it's quite disturbing having the government set a precedent like this but it only appears bad on the face of it. Remember, high interest rates means high risk and in most credit situations, they would have lost a much larger chunk of their money or even all of it.

goku2 said:   Should anyone really give a shit that the government is doing this when depositers in cyprus were getting interest rates of 18% APY? I mean so they're losing a year or two worth of interest, yeah it sucks but in a way it's worse here as we've had 0% interest for several years now. I mean yes it's quite disturbing having the government set a precedent like this but it only appears bad on the face of it. Remember, high interest rates means high risk and in most credit situations, they would have lost a much larger chunk of their money or even all of it.

Depositors in Cyprus are not getting interest rates of 18%. I get 4.2% on a one-year fixed deposit and when the interest is posted 15% of that interest is immediately sent to the government. If you are not in the country for more than 183 days, you do not have to pay Cyprus any tax on that interest.

http://www.reuters.com/article/2013/03/25/eurozone-cyprus-muddle...

"The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals."

Powza said:   http://www.reuters.com/article/2013/03/25/eurozone-cyprus-muddle...

"The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals."


For the Russians that would be well worth their time to fly there and withdraw or wire the money to a UK bank

ChumChurum said:   This solution makes a lot of sense.

The most important element of this solution is that the rules of the game are not change. 100K EUR were guaranteed. And this solution honors that guarantee.

After 100K, it is fair game for a haircut.


Can someone clue me in on the sense of it? I thought guarantee refers to bank failures. Is the bank in question insolvent to the extend that they need to take 40% of all deposits beyond 100K? It sounded more like someone stolen money from the bank causing the bank to go bankrupt.

kickerstarter said:   ChumChurum said:   This solution makes a lot of sense.

The most important element of this solution is that the rules of the game are not change. 100K EUR were guaranteed. And this solution honors that guarantee.

After 100K, it is fair game for a haircut.


Can someone clue me in on the sense of it? I thought guarantee refers to bank failures. Is the bank in question insolvent to the extend that they need to take 40% of all deposits beyond 100K? It sounded more like someone stolen money from the bank causing the bank to go bankrupt.


I don't know the exact details of the banks finances, but here's an example for you. Lets assume that there is a $6 billion shortfall (the difference between the value of bank assets and bank deposits), and $100 billion total in deposits with $15 billion of the $100 billion for deposits above $100,000 (dollars $100,001 and more in accounts). It would require 40% of that $15 billion to close the $6 billion shortfall.

In this case either everyone could take a 6% haircut to reach $6 billion, or you'd have to take 40% of the deposits over $100,000.

kickerstarter said:   ChumChurum said:   This solution makes a lot of sense.

The most important element of this solution is that the rules of the game are not change. 100K EUR were guaranteed. And this solution honors that guarantee.

After 100K, it is fair game for a haircut.


Can someone clue me in on the sense of it? I thought guarantee refers to bank failures. Is the bank in question insolvent to the extend that they need to take 40% of all deposits beyond 100K? It sounded more like someone stolen money from the bank causing the bank to go bankrupt.

There were two main causes of the banks losing money - when Greek bank bondholders were required to take a 50-75% reduction in the value of their bonds, the two main Cypriot banks lost billions each. In addition, they lost money on bad loans during Cyprus' real estate bubble deflation.

ChumChurum said:   This solution makes a lot of sense.

The most important element of this solution is that the rules of the game are not change. 100K EUR were guaranteed. And this solution honors that guarantee.

After 100K, it is fair game for a haircut.


It is only fair game if bank is COMPLETELY liquidated. Then, depositors are compensated first, if anything is left - bondholders, then stockholders - in that order. Everything should be on the table. You cannot split the bank on "good" and "bad" and take assets from the depositors this way - it's pure robbery. But that's basically been a policy all along. That's what FED is doing, directly or indirectly, it always saves WS at the expense of the savers.

Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)

HumDoHamaraDo said:   Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)
I understand anything *can* happen, but if #3 does we will have (IMHO) a SHTF moment. I could see them back-door-ing a tax on them via a VAT tax, or perhaps changing the rules on inheritance to make them less tax advatageous, or even removing the ability to contribute to a Roth-like vehicle. But having a means-tested tax would (again IMHO) hit the middle class harder than the others, so its not something I worry about happening.

PhrugalPhan said:   HumDoHamaraDo said:   Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)
I understand anything *can* happen, but if #3 does we will have (IMHO) a SHTF moment. I could see them back-door-ing a tax on them via a VAT tax, or perhaps changing the rules on inheritance to make them less tax advatageous, or even removing the ability to contribute to a Roth-like vehicle. But having a means-tested tax would (again IMHO) hit the middle class harder than the others, so its not something I worry about happening.

It could easily happen, simply because the number of people affected will not have any significant impact on any election. The spenders would love to stick to someone who has a lot of money in Roth IRA that will be withdrawn tax-free. The rest of the arguments will be academic.

HumDoHamaraDo said:   Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)


Isn't #2 essentially already here, between income-based pricing on Medicare, phase-outs on the tax treatment of SS benefits, and the non-linear relationship of SS benefits with amounts paid in?

HumDoHamaraDo said:   Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)


They may also start targeting individuals on a case by case basis. It is easier to avoid public backlash this way.
So, instead of doing across the board robbery like in Cyprus, they can say: hey, you had some big deposits or moved some money around lately. Is it all legit ?
Let's look into your 1040s for the last a few years more closely and compare them to your bank transactions. And, while we are looking, your account will be frozen, etc.

DrDubious said:   HumDoHamaraDo said:   Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)


Isn't #2 essentially already here, between income-based pricing on Medicare, phase-outs on the tax treatment of SS benefits, and the non-linear relationship of SS benefits with amounts paid in?


That is only a very small amount of means testing. At least 80% of these programs are not means tested and the things you speak of really only account for maybe 20% savings in the Federal budget for those that would be means tested out.

HumDoHamaraDo said:   PhrugalPhan said:   HumDoHamaraDo said:   Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)
I understand anything *can* happen, but if #3 does we will have (IMHO) a SHTF moment. I could see them back-door-ing a tax on them via a VAT tax, or perhaps changing the rules on inheritance to make them less tax advatageous, or even removing the ability to contribute to a Roth-like vehicle. But having a means-tested tax would (again IMHO) hit the middle class harder than the others, so its not something I worry about happening.

It could easily happen, simply because the number of people affected will not have any significant impact on any election. The spenders would love to stick to someone who has a lot of money in Roth IRA that will be withdrawn tax-free. The rest of the arguments will be academic.



If it were to be done it would first be implemented as a way to target people 'exploiting loopholes' and they would quickly pull the examples of people investing their Roth IRA's in their start up and having several million dollar Roth's(discounting the fact that if 100 people did that 90 of them would see the few thousand dollar investment disappear, 9 of them wouldn't benefit much, and 1 start up founder would have extremely valuable shares in it). So they would just say something like "If anybody in the United States has a Roth with more than $1 million that means they only could have gotten it to that size through loopholes and we're going to tax those people". They would then forget to mention that people could also roll funds over from places like a 401k and get sizable amounts or if they were particularly prudent investor in their Roth.

Once you had a tax on people that 'abused their Roth' it would be open season. Do I think this is all is going to happen? I would put 98% odds on it not happening, but that still means it's possible.

dshibb said:   DrDubious said:   HumDoHamaraDo said:   Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)


Isn't #2 essentially already here, between income-based pricing on Medicare, phase-outs on the tax treatment of SS benefits, and the non-linear relationship of SS benefits with amounts paid in?


That is only a very small amount of means testing. At least 80% of these programs are not means tested and the things you speak of really only account for maybe 20% savings in the Federal budget for those that would be means tested out.


Understood on the systemic level, but I was just looking at it from the perspective of an individual who knows he is going to get screwed in the ways I listed as things currently stand and expects to get screwed in new ways as time passes. {insert punchline here}

dshibb said:   HumDoHamaraDo said:   PhrugalPhan said:   HumDoHamaraDo said:   Things to come in the US in the future? Revenue is required and can only be gotten from earners and savers, because the spenders have no money left to take. So what can we expect in the future:
1. Transaction tax on trading (that seems to be inevitable)
2. Means-tested Social Security and Medicare
3. Means-tested tax on Roth Withdrawls
4. Limit on Mortgage deduction (I think it's $1MM now, can see it going lower)
I understand anything *can* happen, but if #3 does we will have (IMHO) a SHTF moment. I could see them back-door-ing a tax on them via a VAT tax, or perhaps changing the rules on inheritance to make them less tax advatageous, or even removing the ability to contribute to a Roth-like vehicle. But having a means-tested tax would (again IMHO) hit the middle class harder than the others, so its not something I worry about happening.

It could easily happen, simply because the number of people affected will not have any significant impact on any election. The spenders would love to stick to someone who has a lot of money in Roth IRA that will be withdrawn tax-free. The rest of the arguments will be academic.



If it were to be done it would first be implemented as a way to target people 'exploiting loopholes' and they would quickly pull the examples of people investing their Roth IRA's in their start up and having several million dollar Roth's(discounting the fact that if 100 people did that 90 of them would see the few thousand dollar investment disappear, 9 of them wouldn't benefit much, and 1 start up founder would have extremely valuable shares in it). So they would just say something like "If anybody in the United States has a Roth with more than $1 million that means they only could have gotten it to that size through loopholes and we're going to tax those people". They would then forget to mention that people could also roll funds over from places like a 401k and get sizable amounts or if they were particularly prudent investor in their Roth.

Once you had a tax on people that 'abused their Roth' it would be open season. Do I think this is all is going to happen? I would put 98% odds on it not happening, but that still means it's possible.


I am less worried about the Roth thing than I am by the model where Medicare (or other socialized health insurance/govenrment service) gets an insanely expensive sticker price, and everyone gets a fat discount except for the Evil-Rich-People-Who-Must-Have-Gotten-That-Way-Through-Misdeed. You know, the college tuition model.

dshibb said:   BostonOne said:   dshibb said:   I love how a couple posters thought this was no big deal because Cyprus is just some podunk country and this is the biggest news today all over the world.

So much for the notion that this was unimportant.

Thinking it's not a big deal in the long run is different than whether the story will make headlines or roil markets for a few days.


Do you want to bet on Italian sovereign bond yield compression after this?

For this to be true you would have to believe that the moves in the peripheral sovereign debt markets that started with the Italian elections and are now accelerating on the news out of Cyprus represent only a temporary occurrence that prudent investors should just capitalize on by buying up 10 year BTPs right now. I think you would be hard pressed to find investors that are more inclined to buy peripheral sovereign debt today all because Italian debt now represents a slightly better value.

Same goes for European bank stocks or European bank debt.

Looks like Italian bond yields continue to fall despite the shenanigans in Cyprus.

http://www.businessinsider.com/italian-10-year-falls-below-4-per...

goku2 said:   Should anyone really give a shit that the government is doing this when depositers in cyprus were getting interest rates of 18% APY? I mean so they're losing a year or two worth of interest, yeah it sucks but in a way it's worse here as we've had 0% interest for several years now. I mean yes it's quite disturbing having the government set a precedent like this but it only appears bad on the face of it. Remember, high interest rates means high risk and in most credit situations, they would have lost a much larger chunk of their money or even all of it.

You can avoid 0% APY by keeping your wealth in other things. Nobody forces you to put your money in the bank and leave it there.

BostonOne said:   dshibb said:   BostonOne said:   dshibb said:   I love how a couple posters thought this was no big deal because Cyprus is just some podunk country and this is the biggest news today all over the world.

So much for the notion that this was unimportant.

Thinking it's not a big deal in the long run is different than whether the story will make headlines or roil markets for a few days.


Do you want to bet on Italian sovereign bond yield compression after this?

For this to be true you would have to believe that the moves in the peripheral sovereign debt markets that started with the Italian elections and are now accelerating on the news out of Cyprus represent only a temporary occurrence that prudent investors should just capitalize on by buying up 10 year BTPs right now. I think you would be hard pressed to find investors that are more inclined to buy peripheral sovereign debt today all because Italian debt now represents a slightly better value.

Same goes for European bank stocks or European bank debt.

Looks like Italian bond yields continue to fall despite the shenanigans in Cyprus.

http://www.businessinsider.com/italian-10-year-falls-below-4-per...


What's your point? Do you want to own it?

Look at some of the subordinated debt of some of these banks once and you'll see something else.

dshibb said:   BostonOne said:   dshibb said:   BostonOne said:   dshibb said:   I love how a couple posters thought this was no big deal because Cyprus is just some podunk country and this is the biggest news today all over the world.

So much for the notion that this was unimportant.

Thinking it's not a big deal in the long run is different than whether the story will make headlines or roil markets for a few days.


Do you want to bet on Italian sovereign bond yield compression after this?

For this to be true you would have to believe that the moves in the peripheral sovereign debt markets that started with the Italian elections and are now accelerating on the news out of Cyprus represent only a temporary occurrence that prudent investors should just capitalize on by buying up 10 year BTPs right now. I think you would be hard pressed to find investors that are more inclined to buy peripheral sovereign debt today all because Italian debt now represents a slightly better value.

Same goes for European bank stocks or European bank debt.

Looks like Italian bond yields continue to fall despite the shenanigans in Cyprus.

http://www.businessinsider.com/italian-10-year-falls-below-4-per...


What's your point? Do you want to own it?

Look at some of the subordinated debt of some of these banks once and you'll see something else.

My point is that the sky is not falling because of what happened in Cyprus, and that the price of Italian bonds increased right after the incident. Investors obviously did not have a problem buying the sovereign debt post-Cyprus.

BostonOne said:   dshibb said:   BostonOne said:   dshibb said:   BostonOne said:   dshibb said:   I love how a couple posters thought this was no big deal because Cyprus is just some podunk country and this is the biggest news today all over the world.

So much for the notion that this was unimportant.

Thinking it's not a big deal in the long run is different than whether the story will make headlines or roil markets for a few days.


Do you want to bet on Italian sovereign bond yield compression after this?

For this to be true you would have to believe that the moves in the peripheral sovereign debt markets that started with the Italian elections and are now accelerating on the news out of Cyprus represent only a temporary occurrence that prudent investors should just capitalize on by buying up 10 year BTPs right now. I think you would be hard pressed to find investors that are more inclined to buy peripheral sovereign debt today all because Italian debt now represents a slightly better value.

Same goes for European bank stocks or European bank debt.

Looks like Italian bond yields continue to fall despite the shenanigans in Cyprus.

http://www.businessinsider.com/italian-10-year-falls-below-4-per...


What's your point? Do you want to own it?

Look at some of the subordinated debt of some of these banks once and you'll see something else.

My point is that the sky is not falling because of what happened in Cyprus, and that the price of Italian bonds increased right after the incident. Investors obviously did not have a problem buying the sovereign debt post-Cyprus.


Did I say the sky was falling? I said that the problems aren't solved and going to get worse. The balance sheets of banks in Europe continue to deteriorate and you'll see this crisis get worse when those institutions need to be bailed out and have their bad debt put on the public balance sheet. It's all a function of 2 things A) When a bank runs out of eligible collateral for the ECB and B) When the ECB will cut off the ELA. For all we know a few European banks already should have been cut off the ELA and the ECB is just waiting for the right time to do it.

So again if your comfortable investing money in Eurozone banks and sovereign credit be my guest. But I'm not that crazy. And maybe this thing get's kicked out another year or 2. It still doesn't change that they haven't dealt with it yet and each time something like Cyprus happens it's gets much harder on them because haircuts at once place affect other players, liquidity flight in response hampers other players, etc.



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