"All human activities have three distinctive features: pattern, time and ratio - all of which observe the Fibonacci Summation Series" (R.N. Elliott - "Nature's Law - the Secret of the Universe" - 1946)

Friday, March 29, 2013

EUROCRATS HAVE THROWN THE MASK and requiring the sacrifice of private investors

This week was consumed the fifth rescue in the European Union, the lightest in the facts but the heaviest in the form.

After spending more than 500 billion Euros in aid to Ireland, Portugal, Greece and Spain, it seems that the Troika wanted to spare 10 billion to save Cyprus.

It is not credible, s
imply lacked the will, and the justifications for the "elections in Germany" or "lesson to Russia," are weak and unsatisfactory.

The bailout of Cyprus provides for the closure of a bank, the restructuring of another, the cut of the savings of the bondholders, but above all, the compulsory levy on deposits.

A change of unprecedented strategy that becomes a terrifying precedent.

Many felt that this new bailout's model imposed by the Troika, was a "unique case", modeled on a small EU country, however "inconvenient" because it is the tax haven of the oligarchs Russians; the French President Hollande repeated it loudly, I do not know how convinced, perhaps to exorcise the problem.

But some doubt that it was not an isolated plan showed the outset; the Eurocrats would not have given birth to a hypothesis so disruptive if they had at least thought to experience a new "final solution" to the crisis of sovereign debt and the so-called "moral hazard."

Despite having shown little foresight in the management of previous crises, especially in the Greek, which cost much more than expected because of the inability to assess the adverse effects of an intervention reluctant and belated, it is difficult to think that "our" European leaders are so naive to don't predict the effects of such a choice.

In fact it is more likely that they wanted to test the market, and launch at the same time a heavy warning to Spain and Italy.

Reuters, the President of the Eurogroup, Jeroen Dijsselbloem says "If we want a sound financial sector, the only way is to say that those who have taken risks to manage them, and if it can not should not hire them."

Again: Thomas Straubhaar, a professor of economics at the University of Hamburg,  wrote in Die Welt: "So far, the countries bankrupt could use the fear of a domino effect to blackmail Europe. Now, it is no longer possible because the euro-zone countries have in hand a new paper, which should not be afraid to use. "

After the usual comedy of denials, it turns out that there is a legislative proposal to the European Parliament which provides for the possibility of intervention on deposits over € 100,000.

Institutionalize a procedure of compulsory levy on current accounts and deposits means irreparably undermine the confidence of investors in the banks; it is to violate one of the sacred tenets of savings.

In the United States, immediately after the Lehman crisis, have so understood the gravity of the problem that the Government and the Fed intervened to create a network of protection on banks and depositors.

It will be said, States fails so also the banks!

True, but the banks were born that collect money deposited by savers and the grant of loans to households and businesses, investors pour their money in current accounts and deposits not because of the performance, now also really very least, how to the safety and readiness of redemption.

If the saver has the doubt that his money in the bank are not safe, the consequences can be devastating; panic, runs on banks to withdraw capital, banks that do not have sufficient cash and close in a few days, perhaps not reopen because insolvent, crack total system, public disorder and worse.

The Government of Nicosia launched by decree restrictions on withdrawals of various types (cash, checks, cash, deposit accounts, credit cards) to avoid the risk of a capital flight that could destabilize the banking system, and have been introduced the first eurozone exchange controls.

The reopening of banks in Cyprus after a 12-day lockout, there were long queues at the counters but a relative and unexpected calm. Obviously they still need to digest the effects of what is happening to them, and that the markets have already guessed.

From now, the problem for the countries at risk will be not only represented by the heavy conditionality imposed in case of resorting to aid and shield anti-spread, it will be like someone has successfully written "the sacrifice required of the private investor"


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