Tiny Cyprus rattles global markets
A proposal to tax Cypriot bank accounts in order to secure a bailout has prompted outrage and may be short-lived.
Who would have thought that the 160th most populous country in the world would have caused a near global panic.
That's the oddity of Cyprus, whose banking system was in disarray on Monday after the government agreed to tax the savings accounts of Cyprus' outsized banks in order to get a 10-billion euro bailout (roughly $12.9 billion) from the European Central Bank, the International Monetary Fund and the European Commission.
How much of a tax -- if any -- will be imposed is unclear because Cyprus' parliament refused to ratify the deal. And Cypriots were outraged.
Global markets were unnerved. Stocks in Asia and Europe tumbled. The Dow Jones industrials ($INDU) fell as many as 110 points early in the day. The blue-chip index was briefly positive in the afternoon before sliding 62 points to 14,452, its first two-day loss since Feb. 21-21.
And the Russians were spitting mad.
Yes, you read correctly. The Russians. Seems that Russian oligarchs have used banks on Cyprus to park their cash, ill-gotten or otherwise. As a result, the Cypriot banks have assets eight times larger than the island nation's gross domestic product of some $23.6 billion.
Russians keep about $19 billion in deposits in Cyprus, mainly through companies they set up there, The Associated Press said. Russian banks also had around $12 billion placed with Cypriot banks at the end of last year and have loaned about $40 billion to Cypriot companies of Russian origin.
In addition, The Associated Press said, some $49 billion was wired out of Russia illegally in 2012, much of it to Cyprus. The interest in Cyprus is lax banking laws that allow money to flow in and out without much examination and well beyond the reach of Russian officialdom.
Cyprus really is a small country. Its population is smaller than the Bronx in New York. Its economy, as Business Insider helpfully noted, is a little smaller than than that of Shreveport, La.,
Cyprus was having a debt crisis that, if left alone, could lead to a default on its sovereign' debt and the collapse of its two largest banks. For reasons that mystify, the original proposal was for the first 100,000 euros (about $129,500) of savings to be subject to an immediate 6.7% tax. Anything above 100,000 euros would be taxed at 9.9%.
But demanding bank depositors to share in the costs of financing a bailout is unprecedented. The tax is "a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future," Joachim Fels, chief international economist at Morgan Stanley in London, wrote in a client note.
The proposal basically crashed as everyone on the island in the eastern Mediterranean headed to their nearest ATM to get their cash out before the tax could be imposed. The Cypriot government was scrambling around Monday for a new idea.
That caused money managers around the world to worry that bank runs on Cyprus would leave to bank runs in Greece, Italy and Spain on Monday. The fears appear unfounded. There were no lines outside banks of customers wanting their money.
Ratification votes on the proposal were postponed on Sunday and again on Monday. Cyprus ordered its banks closed until Thursday.
The episode dismayed a great many people, including Russian President Vladimir Putin, whose official spokesman called the plan "unjust, unprofessional and dangerous."
The Economist magazine said the idea was bad for three reasons:
- Regardless of whether there were depositors lining up outside banks in Greece or Italy, it does the raise the risk the depositors are right to worry.
- Second, "There is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched," the magazine said.
- The deal "has no coherence in the larger context," the article said. European worries have calmed down. But while the ECB's price for help is to go into an austerity program, this plan suggests the ECB isn't as strong as people have thought.
But it also shines a light on something else. The stock market is jittery with the Dow sporting record levels and the Standard & Poor's 500 Index ($INX) flirting with the new highs. The S&P 500 ended Monday 13 points below its all-time closing high of 1,565.15.
In fact, the markets are a bit overvalued and may well be ready for the long-expected pullback of 5% to 7%.
Gold (-GC) jumped $12 to $1,604.60 an ounce. But crude oil (-CL) added 29 cents to $93.74 in New York. The U.S. dollar moved higher against the euro. The 10-year Treasury yield fell to $1.956% from 1.996% on Friday.
More on Top Stocks
Socialism's fun until you run out of other people's money!
The FED's been taking 4-5% a year from US depositors and filling up US banks too.
What the Cypriot bankers are doing to their depositors is not "taxation," it's called "confiscation." CNBC you are lousy at facts and news, great at propaganda and lying.
Iceland was faced with a similar financial crisis in 2008-09 and after a few bad months the economy recovered, the government learned an important lesson and cut back on entitlements and profligate spending, and life went on. The same will happen here with Cyprus.
As Havasu46 says, "socialism is fun until you run out of other people's money." What do you think about that, Barack Hussein???
I bet the citizens of Cyprus are not armed. If so the government would probably not be so bold. Just remember that. The second amendment has nothing to do with hunting, sports, arming a militia 200 years ago, or other irrelevant things that Liberals would want people to believe. Its always been about we the people having the ability to overthrow the government when it gets too totalitarian, by force if necessary. And that DID get taught in school at one time in this country!
Why do you think the Liberals are always pushing for gun control? For YOUR well-being? I think not.
Here’s why this saga is like a Monty Python skit:
Russians, Europeans and others use Cyprus Banks to hide lots and lots of money from their countries tax system.
Some of these Cypriot deposits may be gains, -profit generated from legitimate investments made with EU debt instruments, which of course could involve loans made to Cyprus.
The old EU loans are close to default and the Cypriots need new loans to pay the old loans.
So the Cypriots seize all bank deposits which could include deposits from some people who may have had a part in Cypriots debt problem.
So in the end Cypriots can say good news, here is the money we owe you on our loans, and now for the bad news your bank accounts are empty……… and now we demand a shrubbery.
We don't have to worry about it here because the "taxation" has already begun along with inflation. The 2% payroll tax is just the beginning with much more to come such as "Obamacare" tax penalties for non participation of this forced health care debacle.
The banks here have received $billions in taxpayer bailouts from reckless gambling in the credit swap default "crap table". Goldman Sucks being among the most offensive gambling against our own economy.
If in fact the Cyprus Syndrome does reach us,dipping cutting into our accounts. Hold on to yer cash cause nothing is guaranteed.
"the Blammee"....Please read the Article before commenting....
This is NOT, repeat NOT a CNBC Website,Blog nor Article...
It comes from an author on MSN...Microsoft Money Source !!!
Has NO connection to NBC, which used to be a General Electric Company,(maybe partially owned)?
Comcast recently purchased NBC, all or their part of GE's ownership..
Recently MSNBC, past several months, MS and NBC went their seperate ways also..
This SEGMENT has been called "Top Stocks" and look's as if it might change titles and become
Are you related to Socialist 1 or living in the "same household" together ??
Yup Socialist, You might want to comment on Cramer's Article....
This is our reverred Charley's article and comment section...We try not to Dis him here...
We normally like what he has to say or point out, what we might have missed..??
Blaine usually points out facts and offers muted Commentary..Not "severe guidance" or pumping anything he doesn't think is worthy of giving a second glance..
As far as Cyprus...That's just a "Headline Grabber" today..
Do we have your un-divided attenion yet....??
Cyprus....SCHYPMUS....The Mediterranean and the Middle East...Need to solve their own problems.
Looks like the Russians went all in...Got what they probably deserved, hiding money..?
The last time little, old ladies became so outraged was when Little Red Riding Hood questioned "Grannie's" identity.
Don't the facts tell us that the tax plan would mostly hit the Big, Bad Wolf: Russian crooks?
WHO WOULD HAVE THOUGHT TINY CYPRESS WOULD CAUSE A GLOBAL PANIC?
ONLY YOU CRAMER
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Researchers from the University of Michigan say high-frquency trading doesn’t actually make markets more efficient.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.