[QUOTE=R.D. Silverman;334904]I have no sympathy for the bond holders. But the depositors got scrod....

......
A man jumps into a taxi in Boston and says:

"Take me to where I can get scrod".

The driver responds:

"That's the first time I ever heard it in the past pluperfect".[/QUOTE]:smile:

Not heard that one before. Thought I'd heard most grammatical jokes in English by now.

No penny was taken away from deposits of Cyprus people yet. Cyprus crisis revealed a real problem of existing banking system. Large countries are forced to keep low interest rates for deposits in their banks. Low interest rates cause cash flowing abroad to the countries like Cyprus. This is an unwritten law of economy. No crisis will avert it.
Now a clear message was issued. And this message is "Don't deposit your money in unreliable banks. Come to us." But this will work for a short period of time, since it is against the law of economy.

[QUOTE=literka;335058]No penny was taken away from deposits of Cyprus people yet...[/QUOTE]
And not a single penny [I]will[/I] be taken! Only euros and cents can be taken, or [I]lepta[/I] if you insist. :smile:

In Russian, there's an ancient borrowed expression: "[I]внести свою лепту[/I]". [I]Lepto (pl.lepta)[/I] = a Greek eurocent. In this particular case, leptas will not be "carried in", they will be "carried out".

[QUOTE]Do deposit guarantees inherently connote moral hazard in regard to risk-taking yield-chasing by banks?[/QUOTE]

This highlights regulatory failure more than anything else. Had the banks in Cyprus been regulated more effectively, then the risk, yield, implosion paradigm might have been averted. This brings on the question of the Too Big To Fail banks here in the U.S. Are regulators actually regulating them? Or are they a runaway train on a collision course that will put the U.S. taxpayer on the hook at some near term future date? Just how much does fractional reserve lending contribute to this pig sty?

I would also point out that there is a huge amount of finger pointing at Greece involved in this story. Greece contributed by destroying principal and interest sought by the bank, but the real problem was in the Cyprus banking system and by inference in the Eurozone structure as regards banking. There is no Eurozone wide banking regulator, ipso facto, there will be regulatory deficiencies until this is resolved.

I can just see Germany caterwauling over the loss of autonomy if they have to hand over bank regulation to a Eurozone wide authority.

DarJones

Thoughts on the EU's response to the Cypriot crisis, by Stratfor's founder and chairman:

"Europe's Disturbing Precedent in the Cyprus Bailout"
[URL="http://www.stratfor.com/weekly/europes-disturbing-precedent-cyprus-bailout"]
http://www.stratfor.com/weekly/europes-disturbing-precedent-cyprus-bailout[/URL]

(I intended to quote the entire article here, but I'm having difficulty getting it displayed in proper format.)

[QUOTE=ewmayer;335144]Eurozone-existential question: Given that Cyprus has implemented "temporary" capital controls [url=http://globaleconomicanalysis.blogspot.com/2013/03/you-have-to-destroy-maastricht-treaty.html]in violation of the Maastricht treaty[/url] and that a "Cyprus Euro" is thus quite different from a "Rest-of Euro", is Cyprus really still in the EMU?

Gold-rush-era mining camps and their "wildcat dollars" come to mind here: Sure that piece of scrip spends just like a real dollar ... as long as the gold is flowing and enough people believe it will continue to do so until they all have a chance to convert it into "real money". By the time most of the scripholders realize the jig is up and they've traded their hard-won gold (i.e. labor) for now-worthless paper and the scrip issuers are long gone with the gold, it's too late to do anything about it.[/QUOTE]One of the things that popped on my radar a day or so ago is a lot of smoke about opening a bitcoin ATM in Cyprus. A simple search can show a lot of chatter about it. It's below the level of things worthwhile to talk especially in keeping with perennial bitcoin linkspam but has surrealistically injected itself into the Cyprus money discussion.

[QUOTE=Batalov;335061]And not a single penny [I]will[/I] be taken! Only euros and cents can be taken, or [I]lepta[/I] if you insist. :smile:
[/QUOTE]


Be serious! It is obvious that "penny" in my post symbolizes any small amount.

Crew-cut
 

A pretty severe hair cut for the Bank of Cyprus depositors: [URL="http://www.bbc.co.uk/news/business-21982652"]up to 60%[/URL]

As for Laiki depositors, it could be closer to a shave than a cut. No details out yet but it's almost certainly going to be more impressive.

Now that the Cyprus crisis is "solved", on to the next stop: Slovenia !
Stay tuned !

"And the beat goes on; and the beat goes on..." -- Sonny & Cher
or how about:

"Who'll be the next in line? Who'll be the next in line for heartache ?"
-- the Kinks

Would anyone be surprised to find that there were some HUGE transfers of funds from Cyprus banks to other European banks in the 15 days prior to the shutdown and haricut? (I spelled that right, think Hari Kari)

[url]http://translate.google.com/translate?sl=el&tl=en&js=n&prev=_t&hl=el&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.protothema.gr%2Fpolitics%2Farticle%2F%3Faid%3D267996&act=url[/url]

A partial summary is that there were 132 major funds transfers and at least one of them was a business with direct family links to the president of Cyprus. I can see a field day coming with this. There will have to be a token sacrifice, lets say some elderly grandmother whose son works in the banking industry. She pulled out her life savings of 1 Million euros just 3 days before the haricut. Now she will be tried and convicted of some crime. Meanwhile, the 3/4 of a billion dollars that was removed by businesses will be ignored.

DarJones

A Stratfor piece:

"Beyond the Post-Cold War World"
[URL="http://www.stratfor.com/weekly/beyond-post-cold-war-world?utm_source=freelist-f&utm_medium=email&utm_campaign=20130402&utm_term=gweekly&utm_content=readmore&elq=0cb651aa74124f8f84c922b140282b36"]http://www.stratfor.com/weekly/beyond-post-cold-war-world?[/URL]

[quote=George Friedman]... There were, of course, many other aspects and phases of the confrontation, but in the end, the Cold War was a struggle built on Europe's decline.

. . .

Three things defined the post-Cold War world. The first was U.S. power. The second was the rise of China as the center of global industrial growth based on low wages. The third was the re-emergence of Europe as a massive, integrated economic power. Meanwhile, Russia, the main remnant of the Soviet Union, reeled while Japan shifted to a dramatically different economic mode.

. . .

[B]The Three Pillars of the International System[/B]

In this new era, Europe is reeling economically and is divided politically. The idea of Europe codified in Maastricht no longer defines Europe. Like the Japanese economic miracle before it, the Chinese economic miracle is drawing to a close and Beijing is beginning to examine its military options. The United States is withdrawing from Afghanistan and reconsidering the relationship between global pre-eminence and global omnipotence. Nothing is as it was in 1991.

Europe primarily defined itself as an economic power, with sovereignty largely retained by its members but shaped by the rule of the European Union. Europe tried to have it all: economic integration and individual states. But now this untenable idea has reached its end and Europe is fragmenting. ...

. . .

I have already said much about China, having argued for several years that China's economy couldn't possibly continue to expand at the same rate. Leaving aside all the specific arguments, extraordinarily rapid growth in an export-oriented economy requires economic health among its customers. It is nice to imagine expanded domestic demand, but in a country as impoverished as China, increasing demand requires revolutionizing life in the interior. China has tried this many times. It has never worked, and in any case China certainly couldn't make it work in the time needed. Instead, Beijing is maintaining growth by slashing profit margins on exports. What growth exists is neither what it used to be nor anywhere near as profitable. That sort of growth in Japan undermined financial viability as money was lent to companies to continue exporting and employing people -- money that would never be repaid.

It is interesting to recall the extravagant claims about the future of Japan in the 1980s. Awestruck by growth rates, Westerners did not see the hollowing out of the financial system as growth rates were sustained by cutting prices and profits. Japan's miracle seemed to be eternal. It wasn't, and neither is China's. And China has a problem that Japan didn't: a billion impoverished people. Japan exists, but behaves differently than it did before; the same is happening to China.

Both Europe and China thought about the world in the post-Cold War period similarly. Each believed that geopolitical questions and even questions of domestic politics could be suppressed and sometimes even ignored. They believed this because they both thought they had entered a period of permanent prosperity. 1991-2008 was in fact a period of extraordinary prosperity, one that both Europe and China simply assumed would never end and one whose prosperity would moot geopolitics and politics.

Periods of prosperity, of course, always alternate with periods of austerity, and now history has caught up with Europe and China. ...

And the United States has emerged from the post-Cold War period with one towering lesson: However attractive military intervention is, it always looks easier at the beginning than at the end. The greatest military power in the world has the ability to defeat armies. But it is far more difficult to reshape societies in America's image. A Great Power manages the routine matters of the world not through military intervention, but through manipulating the balance of power. The issue is not that America is in decline. Rather, it is that even with the power the United States had in 2001, it could not impose its political will -- even though it had the power to disrupt and destroy regimes -- unless it was prepared to commit all of its power and treasure to transforming a country like Afghanistan. And that is a high price to pay for Afghan democracy.

The United States has emerged into the new period with what is still the largest economy in the world with the fewest economic problems of the three pillars of the post-Cold War world. It has also emerged with the greatest military power. But it has emerged far more mature and cautious than it entered the period. There are new phases in history, but not new world orders. Economies rise and fall, there are limits to the greatest military power and a Great Power needs prudence in both lending and invading.

[B]A New Era Begins[/B]

Eras unfold in strange ways until you suddenly realize they are over. For example, the Cold War era meandered for decades, during which U.S.-Soviet detentes or the end of the Vietnam War could have seemed to signal the end of the era itself. Now, we are at a point where the post-Cold War model no longer explains the behavior of the world. We are thus entering a new era. I don't have a good buzzword for the phase we're entering, since most periods are given a label in hindsight. (The interwar period, for example, got a name only after there was another war to bracket it.) But already there are several defining characteristics to this era we can identify.

First, the United States remains the world's dominant power in all dimensions. It will act with caution, however, recognizing the crucial difference between pre-eminence and omnipotence.

Second, Europe is returning to its normal condition of multiple competing nation-states. While Germany will dream of a Europe in which it can write the budgets of lesser states, the EU nation-states will look at Cyprus and choose default before losing sovereignty.

Third, Russia is re-emerging. As the European Peninsula fragments, the Russians will do what they always do: fish in muddy waters. Russia is giving preferential terms for natural gas imports to some countries, buying metallurgical facilities in Hungary and Poland, and buying rail terminals in Slovakia. Russia has always been economically dysfunctional yet wielded outsized influence -- recall the Cold War. The deals they are making, of which this is a small sample, are not in their economic interests, but they increase Moscow's political influence substantially.

Fourth, China is becoming self-absorbed in trying to manage its new economic realities. Aligning the Communist Party with lower growth rates is not easy. The Party's reason for being is prosperity. Without prosperity, it has little to offer beyond a much more authoritarian state.

And fifth, a host of new countries will emerge to supplement China as the world's low-wage, high-growth epicenter. Latin America, Africa and less-developed parts of Southeast Asia are all emerging as contenders.

[B]Relativity in the Balance of Power[/B]

There is a paradox in all of this. While the United States has committed many errors, the fragmentation of Europe and the weakening of China mean the United States emerges more powerful, since power is relative. It was said that the post-Cold War world was America's time of dominance. I would argue that it was the preface of U.S. dominance. Its two great counterbalances are losing their ability to counter U.S. power because they mistakenly believed that real power was economic power. The United States had combined power -- economic, political and military -- and that allowed it to maintain its overall power when economic power faltered.

A fragmented Europe has no chance at balancing the United States. And while China is reaching for military power, it will take many years to produce the kind of power that is global, and it can do so only if its economy allows it to. The United States defeated the Soviet Union in the Cold War because of its balanced power. Europe and China defeated themselves because they placed all their chips on economics. And now we enter the new era.[/quote]