Got any dosh in Cyprus?

[Colin Leake]

For the record my wife and I were married very young. We had so little money we lived in a caravan we borrowed from her mother for the first year. We then moved to the midlands and took a flat. We had virtually no furniture, cast off curtains from her mum and the floor was carpeted with carpet samples stuck together which a carpet salesman gave us. After that we bought our first house with a 100% mortgage and lived there for two years. We then were moved by the company I worked for down to Kent and bought a house with a company mortgage. It was a small house on a good sized plot of land. We doubled the size of it and modernised doing all the work ourselves and buying only those materials we could afford at the end of each month. We had our 3 children also very young and when the first arrived my wife left work to look after them and never returned to work until the last was packed off to university. No grants for this in those days.

 

I worked hard gaining ever better jobs. Every spare penny we had went into paying off the mortgage and by the time I was 37 we had paid it off. From then on much of our income went into pension funds and savings which I invested with varying degrees of success.

 

Yes we are well off now but all the money was earned and we went without in the past to make that possible.

 

 

[Dave225]

I suspect many of us could make similar stories available. Each of us has had various ‘problems’ to face in life and some we have overcome, others have been not so successful. Many people I suspect have also moved more than once in their lifetimes and each time of course the mortgage has had to be re-negotiated. The move has often been to accommodate family, or maybe just a desire to move to a better area. Some more unfortunate, or otherwise souls have re-mortgaged to give their children a start on the housing ladder and may still be facing mortgage payments in retirement. I therefore feel it is difficult to determine whether some have been more wise than others. Some have moved jobs to different areas to try and get ahead, some of us even have moved countries to try and beat the system. Others have stuck with the same career path and employer all their lives, particularly in the public sector, and appear in certain circumstances to have done very well. I think we all recognise nowadays that a final salary pension is probably the best present anyone can have, especially if it is guaranteed by the State, but unfortunately so many have lost out through no fault of their own.

 

The answer??? I do not have one except to never allow politicians to get anywhere near people’s money.

 

[nowtelse2do]

I should think there will be some people camping outside the Cypriot banks tonight. Opening times are from 10am to 4pm, 6hrs unless the bank staff have a couple of hours for dinner. I heard that the banks will close again over Easter, anyone know if that's right? if so the problem will not be a run on the bank, it will be running to the bank.

 

The chief executive of the Bank of Cyprus Yiannis Kypri has been fired by the central bank today, although they are denying it, it is being said that the international lenders ordered it. Germany was mentioned.

 

Dave

[Guest pelmetman]

Colin Leake - 2013-03-27 7:05 PM

 

Yes we are well off now but all the money was earned and we went without in the past to make that possible.

 

 

Plus you worked if I recall correctly Colin until you were 70? ;-)...........

 

I prefer a life of idle thrift............far less work required :D

[Colin Leake]

pelmetman - 2013-03-28 8:07 AM

 

Colin Leake - 2013-03-27 7:05 PM

 

Yes we are well off now but all the money was earned and we went without in the past to make that possible.

 

 

Plus you worked if I recall correctly Colin until you were 70? ;-)...........

 

I prefer a life of idle thrift............far less work required :D

 

67.

[Guest pelmetman]

Colin Leake - 2013-03-29 4:55 PM

 

pelmetman - 2013-03-28 8:07 AM

 

Colin Leake - 2013-03-27 7:05 PM

 

Yes we are well off now but all the money was earned and we went without in the past to make that possible.

 

 

Plus you worked if I recall correctly Colin until you were 70? ;-)...........

 

I prefer a life of idle thrift............far less work required :D

 

67.

 

Semi @ 46 ;-)..............hope to be able to do it properly now I'm 55 B-)

[nowtelse2do]

Looking like Slovenia and maybe Malta are the next for bailouts unless Italy and Spain get there first. Another bigger problem might be France, as a net contributor to the EU they do look to have big problem's looming up on the horizon.

 

According to the Daily Mail 8-) :-D

 

Dave.

[nowtelse2do]

Bank of Cyprus big depositors could loose up to 60%. BBC reported today.

 

That's not a haircut, it's a scalping.

 

Dave

[Guest 1footinthegrave]

pelmetman - 2013-03-29 10:12 PM

 

Colin Leake - 2013-03-29 4:55 PM

 

pelmetman - 2013-03-28 8:07 AM

 

Colin Leake - 2013-03-27 7:05 PM

 

Yes we are well off now but all the money was earned and we went without in the past to make that possible.

 

 

Plus you worked if I recall correctly Colin until you were 70? ;-)...........

 

I prefer a life of idle thrift............far less work required :D

 

67.

 

Semi @ 46 ;-)..............hope to be able to do it properly now I'm 55 B-)

 

You should be able to find plenty of time to post on here then :-S :-S :-S

[Guest pelmetman]

1footinthegrave - 2013-03-30 7:37 PM

 

pelmetman - 2013-03-29 10:12 PM

 

Colin Leake - 2013-03-29 4:55 PM

 

pelmetman - 2013-03-28 8:07 AM

 

Colin Leake - 2013-03-27 7:05 PM

 

Yes we are well off now but all the money was earned and we went without in the past to make that possible.

 

 

Plus you worked if I recall correctly Colin until you were 70? ;-)...........

 

I prefer a life of idle thrift............far less work required :D

 

67.

 

Semi @ 46 ;-)..............hope to be able to do it properly now I'm 55 B-)

 

You should be able to find plenty of time to post on here then :-S :-S :-S

 

Yep ;-) :D (lol)

[Colin Leake]

Can't help feeling sorry for the couple who managed to sell their villa just at the wrong time. The money from the sale is still in their lawyers account along with that of others. Seems they are going to suffer at least a 40% loss with no protection for any of it.

[BGD]

Colin Leake - 2013-03-30 9:21 PM

 

Can't help feeling sorry for the couple who managed to sell their villa just at the wrong time. The money from the sale is still in their lawyers account along with that of others. Seems they are going to suffer at least a 40% loss with no protection for any of it.

 

 

 

How come? That is simply not true, as far as I understand the situation.

 

They won't suffer ANY LOSS at all on the first 100,000 euros. That IS completely protected.

 

Then, on any amount above that, an as yet un-announced proportion will be converted into shares in the bank concerned..........even if the proportion is at the top end of expectations (up to 40% of the above-100k-amount), that DOES NOT make the shares thus compulsorily purchased valueless....in fact if the bank re-capitalisation is successful, in the medium term they could possibly sell those shares at a profit.

 

The Daily Wail has a massive amount to answer for in terms of mis-representing the truth to suit its vile anti-anything-outside-this-little-island agenda.

[RogerC]

Just heard on the news that some 'big depositors' are looking at losing up to 60% of their deposits.

Trouble brewing methinks.........

 

[nightrider]

So what is to stop this situation happening in Britain?

[nowtelse2do]

knight of the road - 2013-03-31 2:37 PM

 

So what is to stop this situation happening in Britain?

 

They are already, and have been doing it by printing more money Malcolm. It's one of the main reasons why the euro with all it's faults has held up against the £. With the latest news that might all change, who would want to invest or bank their money in Cyprus, or any of the eurozone countries. If all this goes t*ts up, even Germany have huge problems and so do we. As for being a share holder in the Bankrupt of Cyprus how long before you see any divi being paid or being able to sell your shares, 5yr, 10yr ? maybe and possibly never.

 

A line has been crossed, it's called trust, you 'trust' your bank to keep your money safe but even they can't foresee what a government or millionaire Brussels bureaucrat's can cook up.

 

Dave

[Guest pelmetman]

Looks like the old adage is true ;-)...........money can't buy you love :D

 

Cyprus bailout: Feeling unloved in Germany

By Stephen Evans

BBC News, Berlin

 

In Germany, the citizens feel aggrieved. They perceive their country as a generous donor of hard-earned cash to peoples who have let their finances go to ruin.

 

German taxpayers donate, the argument runs, to help those less industrious than themselves. And what, they wonder, do they get in return? Nothing but ingratitude and insult. So it seems to some Germans.

 

Outside the country, on the other hand, it does not seem like that at all. Perceptions are inverted. Instead of gratitude for the gifts donated, Germans feel the coldness of ingratitude for the strings attached.

 

Or the heat of angry insult. The Spanish daily El Pais published (and then apologised for) a piece which said that conservative Chancellor Angela Merkel "like Hitler, has declared war on the rest of the continent".

 

“

Start Quote

 

We have heard enough lies, the Germans are saying haughtily to the Cypriots, now shut up and do what we want”

 

Charles Moore

Writing in the Daily Telegraph

Anti-austerity protests south of the Alps routinely feature placards depicting swastikas and pictures of German politicians with added moustaches.

 

In Britain, the Daily Mail newspaper talked of the way the events in Cyprus were handled as "one of the nastiest and most immoral political acts in modern times". It likened Germany to a common criminal because of the way the deposits of savers were initially targeted: "People who rob old ladies in the street, or hold up security vans, are branded as thieves."

 

The UK's Daily Telegraph alluded to a new German empire - or "Imperium" as it put it. The way Germany dealt with the crisis in Cyprus was "the authentic tone of an imperial power. Today that power is Germany. We have heard enough lies, the Germans are saying haughtily to the Cypriots, now shut up and do what we want."

 

So how are the Germans taking it? With shock sometimes. They invariably object strongly to the use of Nazi symbols - after all, their display, whether the swastika or the raised arm, is illegal in Germany.

 

'It hurts'

When the BBC talked to people at the Brandenburg Gate, where tourists from all over Germany gather, many said they were very upset when they saw pictures of such symbols on the streets of Nicosia or Madrid or Athens.

 

 

“

Start Quote

 

It hurts, because we think we are giving money and we try to help”

 

Unnamed German man

One young woman from Bavaria said: "When you see Greek people make that Hitler greeting, it's not good. It isn't allowed in Germany and it shouldn't be allowed in other countries. We are shocked. They are getting a lot of money from Germany so why don't they like us?"

 

A middle-aged man said: "It's not okay when people say Adolf Hitler and Angela Merkel are the same. We live in 2013 and not in 1945."

 

An older man said he did not understand why Germany was blamed for trying to help: "It hurts, because we think we are giving money and we try to help. This is something we don't understand."

 

That sense of hurt is universal. Jan Schaefer, the economics editor of Bild, the most popular newspaper in Germany, told the BBC that pictures comparing Germany to the Nazi state were obnoxious.

 

"If you go back 70 years to solve a problem today, you can't do that. So for me and for my family, it's just stupid. I look at the pictures and I just have to laugh. They are so dumb. Really, really dumb and stupid."

 

 

Greek nationalists say Germany is dictating policy to their country and Cyprus

But he added a sting in the tail of his outrage, by saying that opinion in Germany might harden against further bailouts because of the ingratitude over previous ones.

 

"The more that protesters compare Mrs Merkel with Adolf Hitler, the more people are going to get angry and they might say 'We might have taxes rising here in Germany because of the bailout of other countries, so why are you mad at us and compare our chancellor to Adolf Hitler?'" he said.

 

"There's no comparison. And we help you, so why are you yelling and shouting and protesting against us?"

 

At the moment, this sense of injustice in Germany is unformed - an inchoate feeling from the gut that emerges when you talk to ordinary Germans.

 

'Political price'

Some politicians are indicating an unease at the reaction - Foreign Minister Guido Westerwelle, for example, said after the deal over Cyprus was done that it might have been handled differently. He lamented the "shrill slogans in the public arena and the media that were often unjust and hurtful".

 

Part of Germany's difficulty is that this is an election year, which means that no politician wants to appear soft when it comes to giving away the money of taxpayers who are also voters.

 

“

Start Quote

 

It's like in school when you get better grades and those having a harder time get a little jealous”

 

Wolfgang Schaeuble

German Finance Minister

So when Germany's Finance Minister, Wolfgang Schaeuble, went on television for a domestic audience, it might have sounded better at home than abroad when he likened those complaining about Germany to children who do not do very well in exams: "It's like in school when you get better grades and those having a harder time get a little jealous."

 

Similarly, when Chancellor Merkel told a meeting of MPs from her Christian Democrat (CDU) party that Cyprus's business model was broken, that would have played well in the private meeting - but badly beyond Germany's borders (including in neighbouring Luxembourg, where the foreign minister accused Germany of "striving for hegemony").

 

Some in Germany are aware of the dangers of the country being disliked as its economic power grows. "Careful, careful," said the Sueddeutsche Zeitung. "If the country continues to be so cold-hearted it will pay an immeasurable political price."

 

But toughness pays dividends inside Germany, even as it has its price outside the country. The indications are that Germans remain wedded to the euro by two to one, according to most polls. There is a nostalgia for the Deutschmark, but not a majority in favour of a return to it.

 

Even the leaders of a new Eurosceptic party concede that. Professor Bernd Lucke, a professor of economics in Hamburg who founded Alternative fuer Deutschland, reckons that about 25% of German voters would vote for an anti-euro party.

 

"My party fights for the dissolution of the euro area," he told the BBC. He cites the usual suspects (Italy, Spain, Greece and Portugal) but also France as being incompatible with a single currency that includes Germany.

 

"We witness ever-increasing transfer payments to southern European countries, and we see that the problems in these countries are not being solved, but aggravated more and more," he said.

 

That is a common, though not unanimous, sentiment in Germany - but that does not mean Germans will vote in droves for the new party in the federal elections in September.

 

Merkel's challenge

Nobody expects them to be a large party in the Bundestag (lower house), and perhaps not even to pass the threshold to get any representation.

 

What the new party may do, though, is to skim votes from Mrs Merkel's CDU and its allies in government, so making it easier for the opposition Social Democrats (SPD) and Greens to form a government.

 

Mrs Merkel remains head and shoulders above any other German politician in terms of popularity. She bestrides the German political stage.

 

But she also has an increasingly thin line to tread - between those who are growing sick and tired of what they see as ingratitude outside Germany and, on the other hand, those who remain fully committed to the euro and to German efforts to preserve it.

 

And behind all this is a bigger question: can an economic giant remain a political light-weight? And if it cannot, how does it cope with any resentment? Maybe Germany has got to get used to not being loved.

 

25% of Germans would vote for a UKIP type party B-).......................Lets get the party started >:-)

[nightrider]

The money I have on deposit is not a lot but then again it is not peanuts, its my life savings for that rainy day, I would not be best pleased if the government took a nibble at it, so that leaves me in a quandry? do I withdraw it now and secrete it in the house, what are other members thoughts?

[Guest pelmetman]

knight of the road - 2013-04-01 10:00 AM

 

The money I have on deposit is not a lot but then again it is not peanuts, its my life savings for that rainy day, I would not be best pleased if the government took a nibble at it, so that leaves me in a quandry? do I withdraw it now and secrete it in the house, what are other members thoughts?

 

Give it to me Malcolm ;-)...............and I'll invest it wisely in cheap wine and pork pies :D

[nowtelse2do]

Now it's being suggested (likely) that deposits in the Laiki Bank could loose 80% of their savings over £85,000.

 

Malcolm, Premium Bonds are 100% guaranteed by the government but no interest is paid, just the chance to win some, you can buy a max of £30,000. I'm fairly sure that any type of deposit with the NSI are guaranteed 100%. Bank's guarantee up to £85,000 but you have to do your homework which bank is owned by another bank like RBS owns the Natwest so if you had over £85,000 in each bank you would only be guaranteed 1 x £85,000 not 2 x £85,000.

 

If you go to the page 4 of this thread, Clive has put up a list of banks that are own by other banks.

 

Dave

 

Dave

[nowtelse2do]

Ooops, double post :-D

[Colin Leake]

BGD - 2013-03-30 9:51 PM

 

Colin Leake - 2013-03-30 9:21 PM

 

Can't help feeling sorry for the couple who managed to sell their villa just at the wrong time. The money from the sale is still in their lawyers account along with that of others. Seems they are going to suffer at least a 40% loss with no protection for any of it.

 

 

 

How come? That is simply not true, as far as I understand the situation.

 

They won't suffer ANY LOSS at all on the first 100,000 euros. That IS completely protected.

 

Then, on any amount above that, an as yet un-announced proportion will be converted into shares in the bank concerned..........even if the proportion is at the top end of expectations (up to 40% of the above-100k-amount), that DOES NOT make the shares thus compulsorily purchased valueless....in fact if the bank re-capitalisation is successful, in the medium term they could possibly sell those shares at a profit.

 

The Daily Wail has a massive amount to answer for in terms of mis-representing the truth to suit its vile anti-anything-outside-this-little-island agenda.

 

Their problem is that the money is in the solicitors account along with that of many others so only the first 100,000 euros of the total account is protected not the first 100,000 of their account so that who knows how that 100,000 is going to be divided up assuming the solicitor does not claim all the protection for himself.

[Guest pelmetman]

Colin Leake - 2013-04-01 4:47 PM

 

BGD - 2013-03-30 9:51 PM

 

Colin Leake - 2013-03-30 9:21 PM

 

Can't help feeling sorry for the couple who managed to sell their villa just at the wrong time. The money from the sale is still in their lawyers account along with that of others. Seems they are going to suffer at least a 40% loss with no protection for any of it.

 

 

 

How come? That is simply not true, as far as I understand the situation.

 

They won't suffer ANY LOSS at all on the first 100,000 euros. That IS completely protected.

 

Then, on any amount above that, an as yet un-announced proportion will be converted into shares in the bank concerned..........even if the proportion is at the top end of expectations (up to 40% of the above-100k-amount), that DOES NOT make the shares thus compulsorily purchased valueless....in fact if the bank re-capitalisation is successful, in the medium term they could possibly sell those shares at a profit.

 

The Daily Wail has a massive amount to answer for in terms of mis-representing the truth to suit its vile anti-anything-outside-this-little-island agenda.

 

Their problem is that the money is in the solicitors account along with that of many others so only the first 100,000 euros of the total account is protected not the first 100,000 of their account so that who knows how that 100,000 is going to be divided up assuming the solicitor does not claim all the protection for himself.

 

All that hard work.......all that sacrifice......all that doing the right thing *-).............

 

 

I'm glad I is a lazy oike.................with no money..............who clocked off early :D.......

 

 

 

 

[Syd]

I thought this was interesting

 

Woops made a mistake there, will try again

 

 

Doug Casey: All Banks Are Bankrupt

 

 

 

 

(Interviewed by Louis James, Editor, International Speculator)

 

L: Doug, there is considerable disagreement over the significance of the Cyprus crisis. A lot of people are saying that it's just a flash in the pan; Cyprus is a small country, far off, and doesn't really matter. Other people are saying it's very significant. The European Central Bank took unprecedented steps. What do you think?

 

Doug: I think this could be the spark that ignites the keg of dynamite under the current financial system. All banks, all around the world, are bankrupt, and have been for years. That's because all the world's banks run on a fractional reserve basis.

 

L: I know what you mean, but we should spell that out: by law and backed with government guarantees, banks only have to keep a tiny fraction of the money people deposit on hand. They lend out the vast bulk of it, and in even in good times, they could not return all depositors' money at once, since loans cannot be called in instantaneously, and most would be defaulted on if they were. In bad times, the charade is even more hollow, since many loans that banks are currently owed will never ever get paid.

 

Doug: Yes, and they are all in that position. It was more serious in Cyprus because that economy is very leveraged to finance. In other words Cyprus was a banking epicenter for Europe. It was easier to make deposits - there were fewer questions asked - making banking the major business of the country. But I think the trouble will spread from there. It could spread to Luxembourg or Malta next; both are at least as leveraged to the financial sector as Cyprus. And from there... who knows?

 

Anyone with any sense should withdraw whatever cash they have in European banks, whether in euros or any other currency, immediately. Cyprus demonstrated that governments are quite willing and able to confiscate money sitting in a bank account in order to preserve the banking system. We live in Bizarro World.

 

L: Why would it spread? Cyprus was said to be particularly vulnerable because of its strong Greek connections; Cypriot banks had bought of lot Greek debt. Would people in Luxembourg be as exposed?

 

Doug: All banks are in effect creatures of the state at this point. They all own a lot of government bonds, which are considered the most secure form of capital. Of course, that's the opposite of the truth; all these governments are bankrupt as well. The Greek government is just more overtly bankrupt than most.

 

Actually, we should take a minute here to discuss what a properly run banking system looks like. Historically, banks offered two types of accounts: demand deposits and time deposits. Demand deposits are what we call checking accounts today, but the original idea was that you'd pay your bank to store your money securely, and you had the right to "demand" your deposit back immediately, and to transfer funds via check.

 

The idea of time deposits, which became savings accounts, was that the bank would pay you interest when you deposited your money with them for a specific period of time. That's why it's called a "time" deposit; you lent the bank your money for a given time, as did other depositors, and the banks would always know how much money they could lend out - at higher interest rates. Furthermore, loans made against time deposits were always short term, and also self-liquidating, against receivables, or excess inventory, for instance.

 

There were no government guarantees for deposits back then; bankers needed to capitalize their businesses with their own funds, and if they miscalculated, they were personally liable - and often did go bankrupt themselves if they made too many bad loans. Depositors naturally avoided banks known to make risky or illiquid loans. Banks competed to be known as the most prudent and solvent.

 

Both lenders and depositors were cautious. Before the early 20th century, people might well have laughed at today's depositors of Cypriot banks. If they were foolish enough to put their money in banks that made such stupid loans, they only get what they deserve.

 

L: Our friend Rick Rule likes to say that the idea that the state can guarantee everyone's deposits is just another unaffordable, unbacked social promise of the 20th century. Just another example of living beyond our means.

 

Doug: Yes. I don't think people understand this. People don't have a clue, do they? People read editorials by Paul Krugman and neither laugh nor roll their eyes. It's like they're all on Prozac.

 

L: The nature of real banking is not something they teach in school anymore, that's for sure.

 

Doug: Then it's worth repeating. The distinction between time and demand deposits is critical. They are completely different, actually unrelated businesses. Today the distinction has been totally lost. But it's much worse, since central banks have allowed the problem to compound to the nth degree.

 

Sound banks never made what we call consumer loans today, because there is no guarantee, no collateral. Banks in the past made only short-term commercial loans that were fully covered by the value of the assets being financed. You never had to rely on the good faith of the borrower. You simply facilitated short-term - short-term - liquidity. The idea of a 30-year, a 20-year, or even a 10- or 5-year mortgage was anathema to sound bankers. A building and loan society might grant a five-year mortgage to one of its members, with a very significant down payment; that's because even though it's an asset class with value, real estate is illiquid. Forget about credit cards. Forget about car loans; if you want a car, save up for one. It's funny, actually. Car loans started out with a one-year term and a big down stroke. Then they went to two years. Now they're five or more, when people don't just lease. So even the family car has gone from a minor asset to a long-term liability. Subprime loans would have been completely unthinkable in the past.

 

L: Many people might say that credit that tight would be impractical today.

 

Doug: Many people don't like the idea of having to live within their means. They feel they have a right to have whatever they want, now. That's why the average American has essentially zero net assets. If everyone had to pay cash for everything, our whole society - from individuals on the lower rungs to big corporations to the state itself - would be much, much wealthier. We would not be, individually and as a society, one paycheck from being forced to live in a cardboard box under an overpass.

 

L: Perhaps so, but again, many people think modern high finance is not just normal, but necessary for civilization today. Big Business requires Big Credit.

 

Doug: Nonsense. The way you become wealthy is by producing more than you consume, and saving the difference. We don't need a fractional reserve banking system, we don't need government guarantees, and we certainly don't need to use government IOUs backed by nothing masquerading as money.

 

I understand something like 20% of the US economy is financial in nature. It's ludicrous; millions of people spending billions of dollars bundling, swapping, and repackaging imaginary assets. I'd guess that in a free-market economy, banking and related industries would amount to about 2%, a tenth as much. Money is essentially just a medium of exchange and a store of value; it's problematic when it becomes a gigantic industry. All these people who spend their days gambling with ledger entries would have to go out and find something productive to do.

 

L: Get real jobs.

 

Doug: Exactly. The whole banking business is corrupt from top to bottom today. Part of the problem is that banks are no longer financed by the individuals who start them, putting their personal net worth on the line. Now, they are all publicly traded entities - just like all brokerages - playing with Other People's Money. Management has no incentive to do anything but pad their wallets, so they pay themselves gigantic salaries and bonuses, and give themselves options. These people aren't shepherding their money and that of clients they know personally. They've got zero skin in the game.

 

This is true all over the world, not just in the US and Europe. All these banks are going to blow up, and not just in far-off, little countries.

 

L: It's interesting that a part of the basis for your negative prognosis for the global financial network is rooted in human psychology - the perverse incentives of playing with Other People's Money, exacerbated by government guarantees and banks mistakenly viewing government bonds as safe investments.

 

Doug: Imagine you're a smart, young trader working for Goldman, Deutsche Bank, or one of these big financial institutions. It's actually in your interest to make incredibly crazy bets. You can win billions of dollars if red comes up on the financial roulette wheel. If that happens, you get a multimillion-dollar bonus. You win. But if your bet doesn't work out, what then? The bank loses a few billion dollars, and you just go for a work at another bank, with more experience on your resume. And you do the same thing over again.

 

L: So what does one do with hundreds of trillions of dollars in derivatives?

 

Doug: I don't know, and neither does anyone else. Not even Warren Buffett. Nobody can possibly keep track of quadrillions of dollars of derivatives. It's a daisy chain in which nobody can really know who is creditworthy. It's impossible to assess the real counterparty risk. All these thousands of traders sitting at computer banks, second-guessing markets; it's actually quite insane. I can hear them on the phone: "Hello, New York? Buy! Hello, Tokyo? Buy! Hello, London? New York and Tokyo are buying. Sell." It's an immense waste of productive manpower, them and the divisions of highly paid lawyers, accountants, and administrators behind them. Little of this would exist in a free-market world without central banks spewing trillions of currency units out every year to support governments. Of course, a gigantic financial industry arose to deal with it.

 

In any event, the people who today imagine they run the show may have put a finger in a dike, but it's all going to come to very bad end.

 

One of the interesting things about this Cyprus thing is that, according to the numbers I hear bandied around, the Russians are supposed to have had somewhere in between $30 and $60 billion in Cyprus. Who knows what the real facts are, because you can't trust what's reported in the press... but I've been to Cyprus - both Northern Cyprus and the Republic of Cyprus. It's true that the place is overrun with Russians and Russian money.

 

Now, you've got to figure that if you're a Russian oligarch with a lot more than 100,000 euros in a bank and the bank tells you you're not getting it back - are you going to just sit on your hands and do nothing? I hate to say what I would do if I were a crony capitalist... but if I were, I might just send several very burly men with cold steel strapped under their arms to talk to the banker in question and make it very clear to him that I will get my money back.

 

L: I sure wouldn't want to sell life insurance to Cypriot bankers right now - nor ECB bureaucrats, for that matter.

 

Doug: I've read that just before this crisis hit the papers, billions and billions of Russian money found its way out of Cyprus. That's supposed to be why the Russians were raising hell at one point, and now they've gone quiet. My guess is that the Cypriots heard from their oligarch depositors or prudently gave them advance warning, and decided that the most important thing was getting that money back to them. But everyone else - people who don't have squads of hit men - gets screwed.

 

So much for Cyprus. I guess they'll go back to shepherding, growing olives, serving ouzo to the occasional hippie tourist, or whatever subsistence-level activities they did before becoming a banking haven, because no one anywhere in the world is going to deposit any money in Cyprus for a very long time. Cypriot businesses can't even get money out of the bank to pay their bills - they've just been hit with the financial equivalent of a nuclear bomb.

 

On the other hand, Cyprus has a little stock market that's probably at a washout bottom. Five years ago, at the top of the bubble, its Index peaked at around 3,300. Now it's about 100. That's one of the worst crashes in history, anywhere. I suspect that there are some very viable businesses available - companies selling for a tiny fraction of book. A smart speculator would be on a plane to start sorting through the wreckage. I think fortunes could be made there, especially since it now has capital controls. Which, incidentally, will become common everywhere.

 

The more important take-away from all this is that no bank in the world is safe at this point. They are all in exactly the position as Cypriot banks were before their crash.

 

L: In today's world, you almost have to have some money in the bank, if only to pay bills with.

 

Doug: Just keep enough cash for a few months' expenses. A bigger crash is coming, there's absolutely no question about that in my mind. The only question is whether it happens later this week, or next week, or next month, or a few months from now. I don't know, but it won't be long before it all starts unraveling.

 

I cannot stress strongly enough that I think anyone who chooses to keep a significant amount of money in any bank is patently stupid. I mean that in the technical sense of stupidity - being an unwitting tendency towards self-destruction. And I don't just mean European banks, though they are certainly closer to the edge - but it's true of Japanese banks, it's true of American banks, Chinese banks: it's true of all of them.

 

L: So where do you keep your money?

 

Doug: There is only one answer, as far as I'm concerned: buy gold. One of the most important financial truths I know is that gold is the only financial asset that is not simultaneously somebody else's liability. This is not an academic distinction. It never was, but the urgency of it is much more pressing today.

 

L: Do you really think the Cyprus crisis could spark the unwinding of the bankruptcy of the rest of the global financial system? Is this the first domino?

 

Doug: Well, it could be. But I have to tell you, I'm here in Punta del Este in Uruguay, and I just had lunch with some Spanish real estate developers. They have quite substantial assets, actually, and they didn't seem worried at all. I was surprised; these are rich, sophisticated people. But they seemed like most US tax slaves, who think Bernanke cares about them and can kiss everything and make it better. These guys see problems, but they think Christine Lagarde and her fellow bureaucrats are going to sort everything out. They see that real estate prices are off 50% in Spain, and are thinking that this is the time to buy. I think it's way too early, of course. Better to wait for massive riots. A lot of that property is going to catch fire from Molotov cocktails.

 

L: That's pretty striking. Of all Europeans, it's the Spanish and Italians you might expect to be most worried, and these Spanish guys didn't seem worried at all?

 

Doug: They were pretty sanguine. If I were in Europe, I'd run to my bank first thing. But I haven't heard of any bank runs in Europe. When it does happen, however, government printing presses will be running at even higher capacities than now, and people will have the problem of what to do with all that cash. A lot - like my Spanish friends I had lunch with today - are viewing real estate as a place to park wealth that can't just dry up and blow away. That's true, of course. But property has significant carrying costs, and prices can plummet if there are no buyers; there's a huge liquidity risk associated with getting overweight in real estate. That brings me back to gold again.

 

L: Some people are saying that increased distrust of banks in Europe might actually be bearish for gold prices. Europeans needing to move large amounts of cash will buy dollars, and many people are still programmed to sell gold when the dollar rises.

 

Doug: That's plausible, but I just don't see gold going down in a big way at this point. I really don't.

 

I just met a fellow in Cafayate last week - a very interesting guy who runs a gold exploration project in south Kivu province in the DRC. He says that there are Chinese all over Kivu, buying gold from the artisanal miners, on the order of 40-50,000 ounces per month - and they're paying London spot prices. Apparently this is under the auspices of the Chinese government itself, as it allows them to dump dollars off the market and cart home the gold. The Chinese are stuck with far more dollars than they can get rid of without provoking a panic, so this makes perfect sense. It's quite clever of them, actually.

 

And this is just one story, from one place. So no, I don't see gold going down.

 

L: Okay. We already know that you say to buy gold for prudence; are there any other investment implications?

 

Doug: Well, I mentioned the Cyprus stock market. That's the sort of thing I might do if I were younger - hop on a plane tomorrow and go check out the opportunities for crisis investing at a time when there are almost no other buyers.

 

More generally, I just have to say again that the trailing half of the storm is coming, and it's going to be much worse than 2008. Investors who don't rig for stormy weather will go down with their ships.

 

You know, another thing my Spanish friends said was that more and more people they know are thinking of moving to South America. It's much cheaper, there's less crime, less regulation, less taxation, and more opportunity. I think other Europeans - all Europeans - should think of following suit.

 

L: And folks in the US?

 

Doug: Them too. Things look calmer in the US right now, but the government in the land that was once America is now much more powerful, aggressive, arrogant, grasping, and ruthless than the governments in Europe.

 

I'd say to all people, all around the world, that the failure of Cyprus is like the failure of the Credit-Anstalt Bank in Austria that failed in 1931 and set off the banking crisis that followed the stock market crash of 1929, and then the Great Depression. You need to plan for further crisis and the deepening of the Greater Depression that has already started - and start taking concrete steps now to implement that plan.

 

I can't say exactly when the next big step down is coming, but it is.

 

L: Okay Doug. Well... another cheerful conversation - but an important one, I think.

 

Doug: You're all very welcome.

 

While Doug Casey isn't rummaging through the wreckage of the Cypriot stock market in search of bargains, he is implementing a plan to create new wealth. It's a strategy that he, fellow contrarian investing legend Rick Rule, and others have used to make multiple fortunes over the years. On April 8 you can hear them reveal exactly how they do it... and how you can too.

 

[CliveH]

Really interesting article Syd - Many thanks.

 

Makes for depressing reading tho 8-)

 

And sadly - this is what a lot of us watching this are very very concened about.

 

What is especially worrying is that to those in charge - the goal has become not the safe and fair running of the economies under their control such that the people in those economies benefit and grow - their goal seems to be the propping up of an ideal.

 

And that is where history provides us with a lesson.

 

The specifics are obviously different - but the effects and consequences are running the same course it seems.

 

 

 

[Syd]

 

Morning Clive

 

I am currently switching from Gold and Silver into Silver only.

Have done ok out of currency exchanges recently.

 

I see Gold dropping in price for a month or two but silver rising quiet dramatically.

 

Not at all into Banking or Insurance, in fact they worry me, got a good safe now.