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The banking mess

So have you been watching the catastrophe in Cyprus? It would be funny if it weren’t so tragic.

The abuse of language surrounding it would also be amusing if it weren’t so Orwellian. The original plan was for even the smallest bank depositors to pay a “tax,” a “levy,” or a “fee,” or “take a haircut” on their deposits. Nobody in the MSM ever used the proper term: confiscation.

Now that Ma and Pa Cypriot have been “allowed” to keep their allegedly insured deposits and the EU is free to take all they want from the rich the moderately well-off Russian investors anyone with more than 100,000 euros in the bank, a few are beginning to call it what it is.

Oh, but it’s okay. Because those whose money is stolen will be given … um, bank shares. Yeah, really valuable bank shares in exchange.

Now nobody trusts the banks in Cyprus and currency controls are sure to follow, if they haven’t started already.

And all this, of course, we’ve been warned about for years. It’s just that nobody told us the trial run would be made in some obscure place most people couldn’t even find on a map.

Is this a harbinger? Can you doubt it?

That makes it an opportune time to talk about being unbanked. Or at least underbanked.

Excellent article at that link (thank you, G). I know from experience. I am no longer unbanked, but was “minimally banked” (with a checking account I got back in the days when, with some effort and knowhow, you could still get one without an SSN) for a long time. Even that was not easy; merely walking past a bank and knowing that the likes of me was not welcome there was constantly depressing.

Being an Outlaw is hard. Being unbanked is hard, getting harder all the time, and isn’t for everyone. If we don’t live in Cyprus, Greece, Italy, etc. our own bank runs may be a few years off. Perhaps we can afford to be complacent — for a while. Still, we shouldn’t make the mistake of thinking that what happened to Cyprus has nothing to do with us.

The world has just been given a cheap (for the rest of us) lesson in how our future is likely to unfold. It’s an ongoing lesson — still a lot to learn from what happens next to Cyprus, the PIIGS, the Eurozone, the euro, life, the universe, and everything.

It’s quite a show — as long as we have the comfort of watching from the sidelines. But are you willing to bet your hard-earned money that you and I will never become the show?


  1. Kent McManigal
    Kent McManigal March 25, 2013 1:07 pm

    I could lose every cent I have in a bank and it wouldn’t hurt me too much. Frequently, cents are all I have. I keep the bank account for shuffling money, but I don’t leave much in it for long.

  2. Water Lily
    Water Lily March 25, 2013 2:02 pm

    Ever since I worked in international foreign exchange at one of the top 3 banks in the 70’s, and saw firsthand what happened when they froze Iranian bank accounts after the hostage-taking, and then saw a lot of other “stuff,” I’ve been paranoid about banks. We do minimal basic business with a small regional bank. Anything more equates to Russian roulette.

  3. MamaLiberty
    MamaLiberty March 25, 2013 2:02 pm

    I deposit only what I need to cover the two things I have to pay via electronic transfer… And a tad left over to hold the account. That’s it.

  4. Matt, another
    Matt, another March 25, 2013 2:11 pm

    I see modern banking, at least in the U.S. as existing for convenience. Interst rates on personal accounts in the U.S. are bascially non-existant at this point. So, there is no reason to keep money in the bank except for the purpose of electronically moving money around. I would say keeping money in the bank for security is one reason, but that is gone. I beleived in the U.S. we well see a small run against savings accounts first. It won’t be a percentage, but just a small “fee” 5-10 dollars to the government, much like the “fees” we have on cell phone service. When that does not cause bank runs or riots we will probably see a one time small tax against the value in 401K and other investment portfolios. Just a small bit, to help the overall good, nothing major of course. When that is succesful we will see nationalization of retirement programs, 401K etc. The value will be returned with shares of treasuries, bonds or future promise to pay out money when you retire.

    I believe reducing ones financial vulnerability as much as possible would be advisable. Even if you have electronic deposit of pay (forced by many corporations and agencies) keep the excess in cash. Convert some of that cash to tangibles (gold, silver) and barterables. If you are investment minded put that investment in to tangibles as well. Physical gold and sliver or other precious metals and gems, real estate (retreats, small farmsteads)heavy equipment, livestock, manufacturing equipment etc.

    It is much easier for the government to steal electronically than it is for them to steal physically. That requires boots on the ground, much shouting and wailing and then having a certain percentage of the booty skimmed by the takers.

  5. just waiting
    just waiting March 25, 2013 2:13 pm

    I read someone, lost the link, that said since Americans are putting money into savings at a historically low pace, the American version of confiscation would be up to a 30% haircut on all stock holdings. Oh to have so much money that I had these worries.

    But I’ve been minimally banked for a while now. Every month, everything extra gets converted to physical assets or gold, silver and lead.

  6. Old Printer
    Old Printer March 25, 2013 2:15 pm

    A comment at zerohedge about the situation in Cyprus from someone who knows:


    On March 19 and Today, the western civilization is done the way knew it.
    A new era starts today.
    I grew up in communism and I never thought I’d live this day, when property is looted on live TV in a “civilized” city by “civilized” people wearing suit and tie.

    It’s over. THIS IS THE END.

    I am almost in tears.

  7. Matt, another
    Matt, another March 25, 2013 2:57 pm

    Old Printer, what is the disturbing part? The fact that people in suits are looting western civilization or because they are no longer hiding it?

    The financial looting started with the advent of nationilized central banks and not having to back up balance sheets with physical assets. It has been going on for a while. Lets not forget that slightly less civilized western civilizations of the near historical past had little problem with looting small, backward countries of resources for the good of the home country. Same song, different verse.

  8. IndividualAudienceMember
    IndividualAudienceMember March 25, 2013 6:13 pm

    I noticed the many euphemisms (“the substitution of an agreeable or inoffensive expression for one that may offend or suggest something unpleasant” – MW) used to describe the situation, too.

    I read a paragraph of Obama’s words, which were used to describe the Syrian conflict while he was over that way, so many euphemisms were used I almost couldn’t count them all there so many at one time.

    Strange stuff, propaganda and such. It seems like it’s been speeded up, doubled-down or something? Desperation?

    I noticed the weather map showed the latest Spring snow storm with a name attached to it, Virgil, I think it was.
    When did they start naming storms over the middle of the country?
    Or did the ‘experts’ always do that and the weather presenters are just now doing it too?

  9. Old Printer
    Old Printer March 25, 2013 8:03 pm

    Matt, another – The disturbing part is the lack of even a pretense of law. If you want a philosophical answer, it is that the irrationality of post modern philosophy has infiltrated into the economic realm, and the rules of commerce are being deconstructed before our eyes. Thuggery is replacing civilized behavior as bankers become little better than a flash mob robbing a convenience store.
    Rules, we don’t need no stinking rules!

  10. Jacques
    Jacques March 26, 2013 5:42 am

    A Pyrrhic Victory at best. Once the “banks” do reopen, why would any sane investor (large, small, corporate) place their funds in them? It would be like playing Russian Roulette – with all chambers loaded.

    Those banks will fail again. There’s no way it cannot happen. Then instead of haircuts, it will be entire heads that are taken.

    (It always warms my heart when I see the police – as in Cyprus – beat down angry citizens in response to the justifiable rage. Then at least their true colours are shown – gang-busting thugs doing their master’s bidding.)

  11. Matt, another
    Matt, another March 26, 2013 7:46 am

    I think the Russians might be done playing Roulette with Cyprus Banks. The wise once will be done playing with any Eurozone banks.

    I do agree we are seeing, regardless of euphemisms used to describe it, the open acknowledgement that the law only applies to the proletariat, not the elite, government or financiers.

    The Cypriots are finally seeing the outcome of putting their country under a governing body (EU) that is not answerable to the citizens of Cyprus (or anywhere else). I imagine that eventually they will take it out on their local politicians but the EU ministers will still be the fat cats sitting on top and taking what they want.

  12. Laird
    Laird March 26, 2013 8:26 am

    I don’t claim to be intimately familiar with all the details of the Cyprus bailout, but from what I know it seems that (after several false starts) they more or less got it right. Only the two big insolvent* banks were affected (the other banks and their depositors were unharmed); their stockholders and bondholders were wiped out; insured deposits were protected to the limit of the insurance (100,000 euros); deposits in excess of that limit took a partial loss; and to the extent depositors took losses they received equity in the bank, which gives them some hope of eventually recouping some of the loss. That’s generally how a bankruptcy works: equity holders get wiped out, secured creditors get paid to the extent of the security; unsecured creditors get pennies on the dollar and often receive some equity in the surviving institution.

    The only thing unusual (here in comparison to the ordinary insolvency) is the existence of deposit insurance. That is issued by the government, and here the government honored its commitment but nothing more than that (i.e., it did not protect deposits over the insurance limit). That’s as it should be. Remember, depositors in a bank are creditors of that bank, nothing more. You may think that the bank is holding your money in its vault, to be withdrawn at any time, but you would be wrong.

    There is lots to criticize in modern banking systems, but within those systems this event appears to have been handled properly.

    * Yes, I know that the other banks are probably “insolvent” too by certain measures, but only those two were insolvent as regulators define it.

  13. MamaLiberty
    MamaLiberty March 26, 2013 8:31 am

    Matt, another… can you name ANY “governing body” that has EVER been truly “answerable to the citizens.” The “citizens” are subject to the state, they are not the sovereigns.

    “A citizen is by way of the Oxford Dictionary: “a legally recognized subject or national of a state or commonwealth, either native or naturalized”; a subject or one may say an object in society to be steered by the state in the way that pleases the rulers. So to me it is a contradiction in terms much like a literal interpretation of a text or rigid flexibility in a fixed variable. These things cannot stand together.

    You either is or you ain’t.”

    From Zero Gov

  14. Old Printer
    Old Printer March 26, 2013 1:01 pm

    @Laird – The settlement bypassed a vote of the Cypriot government. It was imposed by diktat from an unelected governing body made up of IMF, EU, & ECB officials, the Troika. They stole depositor’s money calling it a haircut because a tax would require a vote. The people who capitalized the two largest banks, Laiki and Bank of Cyprus, as well as all those entities that were loaned money by the two banks including the government of Greece, were given a free ride at depositor’s expense.
    Greece is broke, their economy in shambles, 25% unemployment or worse, people rummaging in trash cans for food, and their government is unable to pay even interest on their bonds without fresh injections from the ECB.
    So the Troika simply stole 6-8 Billion Euros from bank accounts in Cyprus to help cover the losses in a last ditch effort to paper over the bankruptcy of Greece. Why not just brake into peoples houses and steal their possessions to cover it? NO DIFFERENCE.
    Cyprus was a tax haven, a place where businesses and people trying to avoid the burden of socialist Europe could set up offshore shop or retire to.
    Now their economy is ruined, banks closed, capital waiting to flee, while Madame Lagarde of the IMF plans another raid on assets of the unsuspecting, most probably in Spain.
    As to the Germans who have been pumping billions into a sink hole to prop up the Euro, their true and centuries old real character is once again asserting itself. This article from Spiegle Online
    Bailout Insights: What Cyprus Tells Us about Germany’s Character
    is worth the read. The first few sentences tell the story behind the story of Cyprus.
    The Cypriot government was willing to do anything to save its banking industry. Yet Berlin, driven by a deep-seated fear of tax havens, sought the opposite. The resulting deal may have driven a stake through the heart of the euro-zone’s much ballyhooed banking union.

  15. IndividualAudienceMember
    IndividualAudienceMember March 26, 2013 3:20 pm

    I like this idea:

    “… here is a possible opportunity for entrepreneurs: set up 100% reserve institutions that have no connection to the central bank. Don’t call them banks; call them trust companies.” …

    The Backwoods Home Trust?

    The Living Freedom Trust?

    The Freedomista Trust! ?

  16. Jim Klein
    Jim Klein March 26, 2013 6:24 pm

    Hey, at least give them some credit for humor. Originally it wasn’t just a “levy,” but a “STABILITY levy”! I’ve seen comedians who weren’t half that funny.

  17. Iwoots
    Iwoots March 26, 2013 8:07 pm

    “As for the deposits under E-100,000… you’re welcome to them, the catch being that the banks aren’t open for business..” in the James Kunstler linked article is the closest I’ve seen to how this is affecting the common people.

    Otherwise I have been wondering: If the banks are shut down, does this include the ATMs? If so, how are people getting by without cash? Does the gas station reject your debit card? If someone writes a check for their rent but the banks are shut down, does the check bounce or will it be honored “at some future point in time to be determined by the proper authorities” {the same authorities who will charge interest if the check for income/property taxes does not clear by the due date}?

    Anyone know for certain?

  18. IndividualAudienceMember
    IndividualAudienceMember March 26, 2013 8:51 pm

    Who would get that joke, Jim Klein?

    /Sarc on:

    A levy is like a dam, so it must be holding back chaos. Right?
    Its GOT to be a good thing!
    Our overlords and their accomplices, er I mean, friends, have only the best of intentions for everyone.

    Besides, don’t you read or watch the reliable trusty news sources like the TV family of Matt Lauer and co., along with the loving MSCNBC team?! The economy is just getting ready to take off! All economies are blooming green stalks everywhere. … Except for the ones that don’t count.

    There’s a housing shortage in California for crying out loud. Things are definitely picking up!

    With a STABILITY levy, things will soon be double-plus-ungood-good.
    It’s like having sandbags. …

    /Sarcasm off.

    Thank goodness I spent some of my youth reading Backwoods Home Magazine cover to cover. That which sunk in just might come in handy.

  19. IndividualAudienceMember
    IndividualAudienceMember March 26, 2013 8:55 pm

    oops, hit the Submit Comment button too soon. Not that it matters though.

    Thank goodness I spent some of my youth reading Backwoods Home Magazine cover to cover. That which sunk in just might come in handy. I’ve applied a lot of that info already in my life, I thought at the time; the rest of it was never going to be needed. So much for that thought.

  20. Claire
    Claire March 27, 2013 6:46 am

    lwoots —

    “Otherwise I have been wondering: If the banks are shut down, does this include the ATMs? If so, how are people getting by without cash? Does the gas station reject your debit card? If someone writes a check for their rent but the banks are shut down, does the check bounce or will it be honored “at some future point in time to be determined by the proper authorities” {the same authorities who will charge interest if the check for income/property taxes does not clear by the due date}?”

    Last I heard, the ATMs have been open throughout the crisis, but withdrawals have been limited to 100 euros/day.

    I don’t know about checks, but I have heard that credit is collapsing — to the point where it doesn’t matter whether a gas station will accept an individual’s cc or not, because the suppliers won’t accept the gas station’s credit and will only deliver fuel to the tanks for cash, which nobody has.

    I wish we were hearing more “on the ground” details.

  21. Laird
    Laird March 27, 2013 6:59 am

    Old Printer, when a US bank fails (and there have been several hundred in the last 5 years) the government doesn’t “vote” on the liquidation mechanism; the regulators just do it, and sometimes there are losses for uninsured depositors. In Cyprus, Laiki Bank failed and its worthwhile assets were folded into Bank of Cyprus (which basically “failed”, too; this was essentially the combination of two failing banks into a single, somewhat better capitalized one). Shareholders and bondholders of both were wiped out; insured deposits were fully protected, and uninsured depositors took a significant loss. That’s precisely as it should be. The “haircut” taken by uninsured depositors wasn’t a “tax”, it was simply a loss on a loan that went bad (remember, deposits to banks are actually loans to that bank, not assets held in trust).

    Whatever the politics behind this (and I certainly won’t dispute the Germans’ antipathy toward tax havens), the end result was correct. (Admittedly, the Cyprus government tried at first to do everything wrong but couldn’t get away with it, so they were essentially forced into doing the right thing). The only flaw in the whole thing was that somehow they apparently “forgot” to close foreign branches of those two banks and the Russian oligarchs managed to sneak some of their money out anyway. (Someone will undoubtedly pay the price for that.) Which only means that BofC is still undercapitalized and will probably require a future bailout (if not outright failure). I’d be taking my money out of that one as quickly as I could.

  22. IndividualAudienceMember
    IndividualAudienceMember March 27, 2013 7:40 am

    “If someone writes a check for their rent but the banks are shut down, does the check bounce or will it be honored”

    I’ve often wondered the same thing myself. Perhaps more importantly, if the bank were closed down, can the eviction process begin immediately upon the renter?

    Also, I saw this very short article and thought of this thread, specifically, the quotes in bold, while thinking: Nothing is official until its been officially denied.

  23. Matt, another
    Matt, another March 27, 2013 7:54 am

    I don’t think we will see anything from the street view in the MSM. They really don’t want to many people to understand how this really affects the people, it could cause a run on banks you know. It is very much the same way that the problems in Greece hav disappeared of the MSM.

    If I had bank holdings in any of the eurozone countries and especially Spain or Italy, I’d pull it out. Might have to send it to some other country not under their sway, or keep it buried in a chest in the back yard.

    I find humor in the generic acceptance that “Russian oligarchs” who seem to have a lot of deposits exceeding the guarnteed amount are getting what they deserve. It is as if they are somehow villians while the European, English and American Oligarchs that are driving the banking debacles are somehow superior.

  24. Laird
    Laird March 27, 2013 8:03 am

    IAM, I can’t speak to how Cyprus handles things, but in the US when a bank fails one of two things happens: either the deposits and (some of) the assets are transferred to an acquiring bank (this is almost always the case) or the bank is liquidated. In the first scenario ATMs can continue to be used and checks are honored (up to the account balance, or course) in the normal course by the acquiring institution. In the case of a liquidation (these are relatively rare; only 25 in the last 10 years), accounts are frozen and neither ATMs nor checks can be used. The FDIC promptly mails a check for the insured amount of the deposits to the depositors, who then have to open new accounts with some other bank. Amounts over the insurance limit are handled separately, depending upon the state of the law at the time, and in recent years most have been paid, too. ]

    Hope this is helpful.

  25. Kevin 3%
    Kevin 3% March 27, 2013 8:27 am

    I have to take issue with this quote from a MSM source offered by Old Printer;
    ” Berlin, driven by a deep-seated fear of tax havens, sought the opposite. The resulting deal may have driven a stake through the heart of the euro-zone’s much ballyhooed banking union.” If I understand your position correctly, you are making a case that Germany is somehow evil for wanting to stop being bled dry by lesser nations of Southern Europe.

    It is important to keep in mind that this entire Euro concept was a machination of the global elite whose aim is to centralize power. The people of the many European countries have had little say in how that central power does business. What these crooks have been doing is redistributing the wealth from powerful producer nations of Northern Europe and giving it to crappy little non-producers like the PIIGS. It is folly to put a powerhouse economy like Germany on a par with Greece or Spain. Germans throughout history have been disciplined and produce economies of tremendous value; automobiles, precision equipment, science and technology. By contrast, the low countries produce, grapes, olives and shoes. They are not equals!

    The entire Euro scheme is a flawed premise that posits a goal of equality among such disparate nations and their economies. These lesser economies have been living far beyond their means and begging for the producer nations to carry them. It is bullshit. Furthermore, the notion that a central power in Brussels or the Hague should have the power to dictate every aspect of life, like regulate how the French will make cheese, is ludicrous nanny-statism.

    There are a lot of globalists who have invested 30+ years in the Euro concept and it is a failure. What is happening now is evidence of it being in its death throws.

    I have much sympathy for anyone who has had money stolen from a private bank account, but there are risks when dealing with an international banking cartel who will perpetually change the rules of play to suit their own profit motivations. Let the buyer beware, if you will. Don’t get in bed with criminals ie; banksters and provide for your own is the lesson. The Euro is going to die just like the crooked system throughout the rest of the developed world. Don’t try and blame it on people who work for a living. Blame it on the international elites who, in the insatiable greed, will destroy everything and everyone who opposes them.

    This is all about power. Power that is being acquired by bunch of money changers and paper shufflers. They produce nothing of value and exist parasitically off the back of producers. Here in the U.S. we would do well to start cleaning our own house by booting out every single member of the congress and executive unless they vote to audit the Federal Reserve Banking Cartel! Until then, we deserve whatever happens to us…and make no mistake it is coming our way soon.

  26. Old Printer
    Old Printer March 28, 2013 12:03 am

    I give up. Yes, the Germans, the IMF, and the apparatchiks of the European Union followed legal precedent in destroying the economy of a small tax haven, Cyprus. They did the right thing. After all, what right does a retiree from socialist England have in avoiding taxes, or a Russian businessman have in avoiding the payoffs and bribes in “capitalist” Russia?
    Thanks for clearing this up for me. Now I will know it’s all legal when they give my savings account a haircut at USB or B of A.
    As for the Cypriots, they can damn well join other Greeks rummaging through garbage cans for food. Serves them right.

  27. IndividualAudienceMember
    IndividualAudienceMember March 28, 2013 7:15 pm

    A, ‘from the ground view’ of the big bank heist:

    So, What’s It Like To Have a Business in Cyprus Right Now?

    … “I’m not Russian oligarch, but just European medium size IT business. Thousands of other companies around Cyprus have the same situation.

    The business is definitely ruined, all Cypriot workers to be fired.” …

    There’s a screen shot of a bank account.
    I could soo see that happening here someday not too far away from now.

  28. Paul Bonneau
    Paul Bonneau March 30, 2013 4:02 pm

    “The abuse of language surrounding it would also be amusing if it weren’t so Orwellian.”

    Government could not exist without recourse to liberal amounts of euphemism.

    Don’t bring any more money into either a bank or a casino, than you are prepared to lose.

  29. puptent
    puptent March 31, 2013 7:50 am

    A couple of things: First, Berlin is worried about hyper-inflation, something they had to deal with after the treaty of Versailles. Second, hyper-inflation seems to be the goal of every “Central Bank” on the planet. Our Beloved Leader and his team seem to think it’s a clever idea to pay off trillions in debt with inflated money (a trillion dollar coin? Really?). Inflation is also an invisible tax on the population that has to function under the dictates of a central bank.

    But on to Cyprus, which until a few weeks ago, had two major industries. One being tourism, and the other, banking (there is a slight presence in shipping). Well, I think we can assume that they’re down to one, now. If Cyprus had problems before, what will happen with one of their major industries destroyed? Sure, some banks will survive, but who will keep their money there? In order to attract the big accounts Cyprus had some very liberal banking, and tax laws. After the crisis you could use your ATM but were limited to the amount of withdrawl. And your money, the bits and bytes that are floating around in digital purgatory have no tangible value; there’s no “actual” money, no “worth” other than what people like George Sorros assign to it. And you bet your bottom dollar (lol) that Mr. Sorros has his fingers on the pulse of the national banks in Spain, Italy, Ireland, Portugal… Oh, did I say, “finger on the pulse”? I meant to say, “Boot on the neck”. Pay attention to what’s happening in the EU! What we see happening in the Euro Zone is a preview for us. The National Socialists like OBL, Ms. Pelosi and Harry Reed are paving the way for our own horror show.

  30. puptent
    puptent March 31, 2013 7:58 am

    BTW, the Euro is very low right now. It’s a good time to buy that Euro Bauble you’ve been wanting… Don’t be fooled into thinking the dollar is strong, it’s only that the euro is weak. It isn’t a healthy economy driving the NYSE to record levels, it’s the Washington Printing Press pumping money into the market. It’s a bubble, people! At least Cyprus banks had something deposited. We’ve got nothing, literally nothing. You can’t eat smoke and mirrors.

  31. tweell
    tweell March 31, 2013 2:39 pm

    Although it doesn’t make much sense to have a large bank account anymore, few Americans are keeping much in the bank these days anyways. Why have a savings account when you get no interest and inflation shrinks what you have?

    401k accounts, now there’s where the money is, at least in the US. Argentina nationalized all of their pension accounts, the government piously claiming that it was for the good of the people. Why not here as well?

  32. puptent
    puptent March 31, 2013 6:40 pm

    There is a plan floating around to nationalize your retirement account! It appeared in Time Magazine and has been discussed on the hill. Basically you would be given a Social Security “voucher” for the value of your account, and a guaranteed return on investment (3 percent, maybe) going into the future. Sounds great, huh? I don’t know what happens to your portfolio and you lose your legacy rights (inheritance), not to mention any tax deductions you may have enjoyed with your IRA, 401K Roth, etc. Oh, and any future “investments” you would make go directly into the Federal Coffers. Just keep smiling.

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