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View Diary: Cyprus: Trial Balloon of the Plutocracy (47 comments)

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  •  They bought Greek bonds. (2+ / 0-)
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    Joieau, LaFeminista

    Deposits don't sit in bank vaults, you know.  They took the Russian mob's money as deposits and then invested it in Greek bonds to help their neighbors out (and of course because they were related to each others' mothers-in-law).  The Greek bonds then collapsed and they lost billions.  Now they can't cover their depositors.  
    They went to the Germans with this little problem, and the Germans agreed to lend them enough to cover part of the shortfall if the depositors also took some of the losses (instead of all of the losses as they would if the banks folded).  The deposits are roughly 60% local small businesses and individuals, 30% Russian oligarchs and crime bosses, and 10% wealthy tax evaders.  Naturally the small fry don't want to pay the price of bailing the big guys out, the wealthy don't want to pay anything and have lawyers, and the Russians are threatening your mother-in-law.  Alternatively, Putin has offered to make the whole mess go away (about $40 billion worth of problem) if Cyprus deeds Gazprom complete and exclusive rights to all of Cyprus's oil and gas reserves (about $500 billion).

    Meanwhile, Greece has been sucked down a black hole and everyone in Cyprus has family there so they know exactly what they're in for if they can't find a solution to paper things over.  But the local economy is roughly self-sufficient in food, it's a small island that hasn't completely eliminated horse-carts, and heating/cooling isn't a life or death issue.  So they can probably weather a lack of international finance better than the huge population of Athens locked in a barren bowl between big rocks.

    •  So... (0+ / 0-)

      it's not the government in trouble, it's the banks who loaned out all the mobster's money to Greece, which defaulted. Is that right?

      Are banks in Cyprus legally chartered to levy taxes? If not, wouldn't it be the government that has to levy the tax? Wouldn't the government be authorized to seize the assets of the mobsters, for the reason that it's mob money? Sure, it's not still in the banks, but the banks could then just write off whatever the mobsters had on deposit and then they wouldn't need a bailout.

      As for threatening Mom-in-Law (Greece), if the mob money is simply zeroed out of the equation, their default would just be a shrug to Cyprus. And since this is the brainchild of the ECB, why haven't they demanded all other European banks that lent money to Greece ding their small depositors? Or seize the funny money of noted mobsters?

      What could the mobsters do about it? They have no power to 'threaten' entire nations that aren't Russia or the Ukraine, they just have to shrug and put their incoming dirty money somewhere outside the EU. I imagine there's lots of Too Big To Jail banks in the U.S. that would gladly accept their money. Since this country is never going to penalize the rich for being rich or anything, and Too Big To Jail means that U.S. banks never have to say they're sorry.

      •  The government (1+ / 0-)
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        apparently doesn't want to just seize the assets of the mobsters OR the rich people.  They're worried that they wouldn't get any more business.  And Putin has threatened their grandmothers.  Remember that Russian mobsters are highly connected in the Russian government (until they cross somebody more powerful, at which time they are GASP! revealed to be mobsters).  The Russians periodically threaten everyone in Europe by halting natural gas shipments and turning off the heat in winter.  Cyprus has some nice natural gas fields that Gazprom wants.  Nor would default be "just a shrug" to Cyprus, since only about 40% of the deposits belong to wealthy foreigners.  The other 60% of deposits are locals, mostly small accounts -- the ones using bulldozers to break into the closed banks to grab their money.

        The Cypriot government is also on the hook because they already nationalized the biggest bank in order to try cleaning it up last August.  Therefore, at this point they own it, rather like Obama getting stuck with GW Bush's bills.

        •  Thanks. But... sigh. (0+ / 0-)

          This stuff is so far over my head, and I never figured out why they all went Euro in the first place (made no sense to me). Guess I'll just have to watch and read and hope it eventually paints a clear picture of what, I get the feeling, they've deliberately made smoggy.

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