Cyprus is 'Systemically Important'
Mario Draghi has woken up from his 'all is good' slumber and admonished the political wing of the eurocracy regarding the mooted bailout of Cyprus. In particular, Draghi has corrected German finance minister Wolfgang Schäuble regarding the view, recently expressed by the latter, that “Cyprus is not systemically important”. It is, says Draghi, and he's probably right about that. A lot of moolah is lying around in its banks after all. In other words, although Cyprus is ostensibly small, it too is “too big to fail”. Color us unsurprised.
Der Spiegel reports:
“The head of the European Central Bank, Mario Draghi, warned German Finance Minister Wolfgang Schäuble last week not to dismiss Cyprus as not being 'systemically relevant' and said a failure to bail out the island nation could threaten the wider euro zone.
European Central Bank President Mario Draghi confronted German Finance Minister Wolfgang Schäuble last week to criticize his stance on Cyprus and said failure to bail out the island nation could threaten the euro zone.
At a meeting of EU finance ministers last week, Draghi contradicted Schäuble's view that Cyprus was not "systemically relevant," a term that implied it wouldn't endanger the euro zone if it went bankrupt.
Draghi told Schäuble that he often heard that argument from lawyers, even though the question of whether Cyprus was systemically relevant or not was not one that lawyers could answer. That, said Draghi, was a matter for economists. Schäuble is a trained lawyer.”
Note the little barb there – “you're a lawyer, what do you know?”. Of course one might well ask what do mainstream economists know? According to them, the world will stop turning if not all and sundry are bailed out, a view that is contradicted by historical experience as well as sound theory.
'Judicial Arguments' and Wobbly Banks
Der Spiegel continues:
Draghi was backed by the European Economic and Monetary Affairs Commissioner Olli Rehn as well as the head of the European Stability Mechanism, Klaus Regling.
The three pointed out to Schäuble that the two biggest banks in Cyprus had a large network of branches in Greece. If any doubt were cast on the safety of deposits held with those banks, the uncertainty of Greek savers could quickly spread to Greek banks, which would represent a major setback for Greece.
In addition, they argued, a Cypriot bankruptcy would undo the positive news that had recently helped to calm the euro crisis.
In recent weeks, all indicators have pointed to an improvement, they said. The risk premiums on Spanish and Italian sovereign bonds had fallen significantly and the liabilities of national central banks had retreated from the dangerous levels they had reached. This recovery could be reversed if Cyprus was refused aid. It would also make it harder for Ireland and Portugal to return to financial markets.
They also came up with a judicial argument for helping Cyprus: the country had contributed to the bailout fund, hence it was entitled to assistance from it.
Aid talks for Cyprus, which has applied for a financial rescue that could reach more than €17 billion ($22.8 billion), have run into difficulties because of concern in Germany and other European nations that the island has become a haven for dirty money from Russia. Cyprus denies allegations that it is a hub for money laundering.”
This is too funny – now these economists are making “judicial arguments” as well, right after telling Schäuble the lawyer that he's not qualified to dabble in economics! You couldn't make this up.
What they say about the (just recapitalized for the second time) Greek banking system is quite interesting though. It highlights the fact that the fractionally reserved banking system is at all times only a tiny step away from insolvency, no matter how much money is thrown at it. Perhaps what is needed is a major rethinking of the fractionally reserved system and the central bank that backstops it? Just a thought.
Speaking of the “risk premiums on Spanish and Italian bonds”, Spain's bond yields actually look just about ready to rise again:
10 year government bond yield of Spain – chart via Bloomberg – , weekly candlesticks. Fixing to go higher? Note the interesting MACD versus price configuration/divergence – right at major lateral support to boot.
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Reality is a Formidable Enemy
Political Correctness Comedy We have recently come across a video that is simply too funny not be shared. It also happens to dovetail nicely with our friend Claudio's recent essay on political correctness and cultural Marxism. Since this is generally a rather depressing topic, we have concluded that having a good laugh at it might not be the worst idea. How to most effectively create a “safe space” on campus Cartoon by Nate Beeler It is especially funny (or...
- Fresh Mainstream Nonsense on Gold Demand
They Will Never Get It... We and many others have made a valiant effort over the years to explain what actually moves the gold market (as examples see e.g. our article “Misconceptions About Gold”, or Robert Blumen's excellent essay “Misunderstanding Gold Demand”). Sometimes it is a bit frustrating when we realize it has probably all been for naught. Gold wants to know what it has done now... Photo credit: Ajay Verma / Reuters This was brought home to...
- Drowning the Fir
Presidential Duties Our editor recently stumbled upon an image in one of the more obscure corners of the intertubes which we felt we had to share with our readers. It provides us with a nice metaphor for the meaningfulness of government activity. First, here is a look at the picture – just quietly contemplate it for while and let it work its magic on you: Yes, these two gentlemen are actually watering a tree in the middle of a downpour... Photo via...
- The Wonder Years Are Over
Everybody Is Unhappy PARIS – “France?” We were in a cab on the way from Charles de Gaulle Airport yesterday. We had innocently asked our cab driver how things were going in the country. He had some thoughts... French president Francois Hollande: against all odds, he managed to attain the most powerful position in French society. And yet, even he is unhappy. Photo credit: Patrick Kovarik / AFP “France is a mess. We have 5 million people unemployed. And...
- Gold – The Commitments of Traders
Commercial and Non-Commercial Market Participants The commitments of traders in gold futures are beginning to look a bit concerning these days – we will explain further below why this is so. Some readers may well be wondering why an explanation is even needed. Isn't it obvious? Superficially, it sure looks that way. As the following chart of the net position of commercial hedgers illustrates, their position is currently at quite an extended...
- Corporate Tax Receipts Reflect Economic Slowdown
Tax Receipts vs. the Stock Market Following the US Treasury's update of April tax receipts, our friend Mac mailed us a few charts showing the trend in corporate tax payments. Not surprisingly, corporate tax payments and refunds mirror the many signs of a slowing economy that have recently emerged. An overview in chart form follows below. First up, corporate tax receipts in absolute figures. Corporate tax receipts in absolute dollars and cents – this is quite astonishing...
- Heretical Thoughts and Doing the Unthinkable
Heresy! NORMANDY, France – The Dow rose 222 points on Tuesday – or just over 1%. But we agree with hedge-fund manager Stanley Druckenmiller: This is not a good time to be a U.S. stock market bull. Legendary former hedge fund manager Stanley Druckenmiller at the Ira Sohn conference – not an optimist at present, to put it mildly. Photo credit: David A. Grogan / CNBC Speaking at an investment conference in New York last week, George Soros’ former partner...
- Staying Home on Election Day
Pretenses and Conceits The markets are eerily quiet… like an angry man with something on his mind and a shotgun in his hand. We will leave them to brood… and return to the spectacle of the U.S. presidential primaries. On display are all the pretenses, conceits, and absurdities of modern government. And now, the race narrows to the two most widely distrusted and loathed candidates. US election circus: Deep State Rep vs. Rage Channeller The first, a loose...
- The World's 100 Most Influential Hacks, Yahoos and Monkey Shiners
Hacks and Has-Beens NORMANDY, France – What has happened to TIME magazine? Henry Luce, who started TIME – the first weekly news magazine in the U.S. – would be appalled to see what it has become. Time cover featuring the sunburned mummy heading the globalist IMF bureaucracy (which inter alia advocates that governments should confiscate a portion of the wealth of their citizens overnight, even while its own employees don't have to pay a single cent in taxes). Once you...
- How the Deep State’s Cronies Steal From You
Expanding in Ireland DUNMORE EAST, Ireland – We came down the coast from Dublin to check on our new office building. For this visit, we wanted to stay somewhere different than we normally do. So we chose a small hotel on the coast, called the Strand Inn. Irish landscape with alien landing pads. Even the guys from Rigel II have heard about Ireland's corporate tax rate. Photo credit: Tourism Ireland It is an excellent place for seafood and soda bread on a...
- A Trump Landslide in November?
Objective Reality After spending three weeks with objective truth at the ranch, we are now forced to return to the world of myths, delusions, and claptrap. Yes, we are in Buenos Aires looking at a TV! And there they are... talking about the world of politics, money, culture... the world of Facebook and CNBC... of Trump and Clinton... of ZIRP and NIRP... and of Game of Thrones. The royal seating accommodation fought over in “Game of Thrones”. It looks decidedly...
- Kuroda-San in the Mouth of Madness
Deluded Central Planners Zerohedge recently reported on an interview given by Lithuanian ECB council member Vitas Vasiliauskas, which demonstrates how utterly deluded the central planners in the so-called “capitalist” economies of the West have become. His statements are nothing short of bizarre (“we are magic guys!”) – although he is of course correct when he states that a central bank can never “run out of ammunition”. BoJ governor Haruhiko Kuroda Photo credit:...