Cyprus Archives - the patient investor

March 24, 2013

Cyprus: The Operation Was a Success. Shame the Patient Died. | Some of it was true…

Pawelmorski (pseudonym for a london-based fund manager) gives this opinion of the EU ‘rescue’ of Cyprus :

How bad is the damage?

Bloody appalling…… Take a moment to realise the scale of what’s been done here. No human agency has achieved so much economic destruction in such a short time without the use of weapons. The combination of laying waste to the financial sector and tearing up the savings of thousands of residents means that Cyprus won’t return to current levels of output for a decade, a funeral pyre which bears comparison only with Greece. There are four shocks happening at once; the bog-standard austerity shock; the trauma of bank withdrawal controls; the wealth shock; and the structural shock of wiping out the financial sector. The bailout bill is certainly going to get a lot higher too, as a larger amount of debt is piled onto a smaller economy.

March 19, 2013

Big trouble from little Cyprus – FT.com

I always enjoy Martin Wolf’s objectivity:

Many insist that any tax on deposits is theft. This is nonsense. Banks are not vaults. They are thinly capitalised asset managers that make a promise – to return depositors’ money on demand and at par – that cannot always be kept without the assistance of a solvent state. Anybody who lends to banks has to understand that. It is inconceivable that banking – a risk-taking financial business – can operate without exposure to loss of at least some classes of lenders. Otherwise, bank debt is government debt. No private business can be allowed to gamble with taxpayers’ money in this way. That is evident.

March 18, 2013

Cyprus Deposit Levy: No Panic Yet But Scary Long-Term Consequences – Forbes

Karl Whelan, Professor of Economics at University College, Dublin reminds us:

….the fact that we don’t see lines at ATMs in Spain and Italy doesn’t mean there isn’t a bank run going on. The Northern Rock episode was a complete anomaly. Modern bank runs stem from people pushing buttons to execute electronic withdrawals of large amounts of funds. For example, I was living in Ireland in 2010 when non-residents pulled €186 billion out of Irish banks between the end of July and the end of December. This was over 100% of Irish GDP and yet there wasn’t a single sign of panic among retail depositors.

March 17, 2013

ZERVOS: 'This Is A Nuclear War On Savings And Wealth' – Business Insider

Joe Weisenthal reports on Jefferies strategist David Zervos’ latest note:

What happened to Cyprus on Friday evening was one of the most significant developments in the Eurozone since the Greek election last summer. To tax the bank deposits of savers sends an ominous message to the entire global investment community. All of us should really take a moment to consider what the governments of Europe have done. To be clear, they initiated a surprise assault on the precautionary savings of their own people. Such a move should send shock waves across the entire population of the developed world.