Thursday, 21 March 2013

WTF is going on in Europe?

It’s hard to keep up with the avalanche of developments over the Cyprus case, but despite the relative absence of concern here and the odd non-reaction of financial markets, it sure looks as though the thing could still blow up.

Many geniuses, PhDs and Leading Personalities were involved in the brilliant EU scheme to seize insured deposits from the trusting Cypriots, who committed the crime of saving money and placing it in banks. It’s breathtaking and restores faith in the superior wisdom of one’s plumber. But then the Cypriot legislature bucked all recent trends and the chin-stroking predictions of world punditry by telling the Germans/EU overlords to shove it.

I don’t think we’ve fully grasped the implications of the EU’s attempt to violate perhaps the most fundamental precept of the money system: states guarantee and protect our cash if we put it in a bank.

Alas, no longer.

When the Argentine economy melted down after the 2001 stiffing of international creditors (for which that country continues to be dinged by the burnt hedge funds et al.), I interviewed a lady waiting in line at the Spanish consulate while her niece applied for a visa. Young people were pouring out of the country then as their prospects were so grim at home. (Ironically, Spanish youth would be delighted to be living in the Argentine economy today.)

I asked this woman of 50 or so if she had lost savings when the banks seized up and blocked access to depositors’ funds. She laughed heartily and said, ‘I haven’t left any money in a bank in 20 years’. And, she added, she had once run a clothing business that employed 22 seamstresses.

In any other setting, the woman would be a crackpot. But as it turned out, she was far more astute than her supposedly sophisticated peers who thought a deposit guarantee meant that their deposits were guaranteed. She had kept her cash under the bed or bought inflation hedges like gold coins. Banks? Don’t make me laugh.

That is the sentiment that the European financiers and their political lapdogs have unleashed by showing anyone paying attention that keeping one’s money in a bank puts you at the mercy of a dictator in Brussels who cannot be impeached, defied or voted out. So why did they do it?

One salient fact is that Cyprus did not have any big debt rollovers due until June, so a more reasonable solution could have been worked out calmly and deliberately. So what was the big rush? After all, the new president of that tiny state, Nicos Anastasiades, was only elected at the end of February and had hardly figured out where his desk is when he was summoned to the continent and bullied by the EU ‘negotiators’ with an ultimatum: accept this crazy scheme, or watch your country go down the tubes.

Things did not work out quite as expected for the northern European (mostly German) bosses. So once again, the question is why do this? All sorts of conspiratorial theories are afloat, and while these cannot be dismissed outright, I think we should never underestimate the blunt force of ideological rigidity and the steady drumbeat of propaganda that Germans have been consuming in recent years about how virtuous they are in contrast to the lazy, spendthrift Italians, Spaniards, Greeks, and all those darkish people down there. If that sounds ridiculous, think of what we have to deal with here when discussing the War on Drugs, gun control, climate change, taxes, and healthcare. I rest my case.

But there are many additional possible factors: there is apparently a tug of war playing out over Cypriot gas reserves in the adjacent seas, and there is evidence that the Europeans have wanted for a while now to use Cyprus to smack down the Russians.

There’s also a lot of loose talk about Cyprus as a money-laundering center for the Russian mafia and oligarchs, which is really the height of hypocrisy given the exact same behavior as practiced by Luxembourg, the British Channel Islands, our own Caymans and, for that matter, Delaware, for pity’s sake. Shaxson’s Treasure Islands is a good corrective to anyone laboring under delusions about the aromas surrounding the finances of the western powers, and we need go no further than the recent non-prosecution of HSBC for laundering the billions of Mexican narco lords for confirmation.

Whatever the explanation for how we got here, there is no clarity at all about where we are going. I think at a bare minimum we are entering a new phase of financial lawlessness in which the average person will enjoy even less protection against the blatant criminality and theft being practiced by the banks. Simultaneously, it will become even clearer that elected officials worldwide mean less in the decision-making process than central bankers and the gargantuan megabanks to which they answer.

Surprisingly, this bizarre episode has not generated much negative reaction from world financial markets—so far—which perhaps can be explained by the fact that the bondholders and hedge funds exposed to Cyprus have remained exempt from any sacrifice (unlike elderly retirees and mere workers). But the potential for a serious blow to the creaky operations of this irrational system remains, and if it happens, the ensuring chorus of WHOCUDDANODE? will be defeaning.

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