A quick follow-up to this post about deposit confiscation in the event of another bank bailout. It turns out there’s another element I should have anticipated, and didn’t.
Deposit confiscation + Corruption at high levels = Insiders get out ahead of time
It’s one of those “of course” realizations, isn’t it? This will happen 101 times out of 100, anywhere in the world.
A thought experiment
Let’s say that depositors in the First Bank of Bloated Greed NY (an imaginary bank) — and only those depositors — were due for a “haircut” (confiscation) to pay for a bailout because the bank put too much of its money (meaning “your money”) in Greek sovereign debt, or “Whale trade” derivatives, or catfood futures. And lost.
Let’s say there are $500 million in deposits at FBBG and instead of going to the taxpayers for the bailout, the FDIC decides to tax (confiscate) all deposits at that bank over the $250,000 guarantee (because rules allowing the confiscation of smaller deposits haven’t been decided on yet).
Those are large deposits indeed, and many of the men and women behind them are likely connected. How many of these depositors would be warned to get out by friends in the know? I’d guess that somewhere between 50% and 80% of the depositors would be tipped off eventually. They can’t tip off 100%, since that would spoil the show, so someone has to decide which schmucks should never be warned. (“How about these guys? They gave to the Green party last time.”)
In Cyprus, many big depositors were warned to get out
That’s apparently what happened prior to deposit confiscation in Cyprus. People who knew people who “knew” were told to get out. Zero Hedge (some added emphasis):
List Released With 132 Names Who Pulled Cyprus Deposits Ahead Of “Confiscation Day”
With every passing day, it becomes clearer and clearer the Cyprus deposit confiscation “news” was the most unsurprising outcome for the nation’s financial system and was known by virtually everyone on the ground days and weeks in advance: first it was disclosed that Russians had been pulling their money, then it was suggested the president himself had made sure some €21 million of his family’s money was parked safely in London, then we showed a massive surge in Cyprus deposit outflows in February, and now the latest news is that a list of 132 companies and individuals has emerged who withdrew their €-denominated deposits in the two weeks from March 1 to March 15, among which the previously noted company Loutsios & Sons which is alleged to have ties with the current Cypriot president Anastasiadis.
Whew. That’s a lot of tipping off for a small country. Do click those links. The Russians were left a back door — they couldn’t take their money from the main Cyprus banks, but they could make withdrawals at the branches in London. Clicking through the Russia link, we find this from Reuters:
The two banks at the centre of the crisis – Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus – have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia’s Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks’ largest depositors.
That had to be deliberate. Now the Greek-language paper Sigma has broken a story about a list of depositors who were obviously warned, given the timing of their withdrawals, and has photos of the list; click to see it. The Zero Hedge writer closes:
So, ironically enough, in answer to our question from last week, “So Who Knew“, the answer appears to be everyone.
Why do you care? I’ll answer with a question. What are the odds that New York bankers and regulators are less corrupt than the family of the Cypriot president? Would you take those odds with money on the line?
The middle class — always the last to know, always the first to be fleeced. Sometimes I think it’s why they keep us around.
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