Banks: Unsafe at any Speed

Off the keyboard of RE

Discuss this article at the Economics Table inside the Diner

Note from RE: The discussion is ongoing in the Cyprus Blows thread inside the Diner.  Not one to be missed for Kollapsniks.  This one is BIG.

First on the question of Asset Taxation, from Zero Hedge:

Quote

German Commerzbank Suggests Wealth Tax In Italy Next
Submitted by Tyler Durden on 03/17/2013 15:20 -0400

European UnionGross Domestic ProductInternational Monetary FundItaly

While some argue that Cyprus was “one of the biggest money-washing machines for Russian criminals,” and others that Cyprus ex-Pat community and energy resources brough deposits (not to say their high deposit interest rates), it seems the European Union (IMF et al.) have decided that the route to crisis stabilization, just as we outlined here over a year ago and updated here, is through a wealth tax.

However, as Handelsblatt reports, the gross distortions of wealth distribution among both core and peripheral nations (evident in the chasm between ‘mean’ and ‘median’ net assets – or wealth) makes some nations more ‘capable’ of ‘giving’ and as Commerzbank’s chief economist notes, median wealth in Italy is EUR164,000 (as opposed to Austria’s median of around EUR76,000 and mean of around EUR265,000) meaning that in theory Italy has no debt crisis (with net assets at 173% of GDP) – significantly more than the Germans at 124% – “so it would make sense, in Italy a one-time property tax levy,” he suggested.

“A tax rate of 15% on financial assets would probably be enough to push the Italian government debt to below the critical level of 100% of gross domestic product.” So there you have it, the ‘new deal’ in Europe, as we warned, is ‘wealth taxes’ and testing the “capacity of Cypriots” appears to be the strawman on what the public will take before social unrest becomes intolerable.

 
Asset Taxation is the substitute for Income Taxation when the Velocity of Money in Commerce falls too low to support the infrastructure of that commerce. The money extant in society is wrapped up in Assets some people have, such as Bank Accounts, Pension Plans and Property.In theory, Asset Taxation forcibly Liquidates savings to finance the cost of further running the infrastructure, but it of course is a Cannibalizing process. In the case of many if not most of the Assets of Industrialization also, their REAL value is no longer the artificially Marked Value.

Simple example is the McMansion. It’s marked at say $200K. In order to extract some of its supposed Market Value, the state raises the tax on it from say 5%/yr ($10K) to 10%($20K). Except said Owner of the Property could not afford the $10K, much less $20K. So the state finally Repos the property for back taxes and auctions it off. If it is in Detroit, likely nobody will bid even high enough to pay the back taxes. It’s essentially WORTHLESS.

Repoing Stocks & Bonds held in Pension Plans, same deal. After the Repo and Bankrupting the holder of said 401K Plan, these assets sell for Pennies on the Dollar, if they sell at all.

Regardless of the fact such Cannibalism doesn’t WORK, it is the Last Ditch Effort of the State to maintain solvency. It is now occurring in Cypress, will move to Italy soon enough.

You think this won’t Cross the Pond from Eurotrashland?  Think again.

The folks mainly to be hit by Asset Taxation are not the Poor, they got no assets to tax. Middle to Upper Middle class get nailed through asset taxation. This is nothing new. It is how collapse goes.

After looking at Asset Taxation of Cyprus Bank Accounts I pondered some more on the question of why the Banksters didn’t just hit the “big” accounts of Ruskie Oligarchs supposedly targeted here.  The answer is:  they don’t deposit in large accounts.

First off, Everybody Knows the deposit insurance limits, so you just open several accounts all below the limit.  Second, they don’t KEEP their megabucks there, these are Pass Thru laundering accounts on the way to Lichtenstein or the Cayman Islands.

So fact is there probably was not sufficient funds in >100K accounts to pull out. They had to hit the smaller accounts, that’s where most of the money is.

As to why they hit locals as well as Ruskies, its because they can’t tell the difference. They don’t ask Nationality when somebody opens the account, and the Ruskies use Agents with Cypriot names on the accounts. So the account doesn’t read “Vlad the Impaler”, it reads “Spiros the Fudge Packer”.  LOL.

On a more general level, this is one of the many reasons the Insurance on Bank Accts up to $250K here is pretty much a crock of shit in a systemic collapse. Who keeps that much money in a Bank Account? Savings accounts don’t pay Jack Shit in interest.  Anybody with more than a spare say $50K puts it into Stocks & Bonds and PMs for the Gold Bug crowd.

99% of Bank Accounts held by J6P have less than $10K in them.  Even high income Doctors, Lawyers and Dentistas don’t usually keep that much Cash in an on-demand account.  Only accounts like this are Bizness Payroll accounts and even there a really Big Biz will only transfer in what is needed on Payday.

So the reality is, if the Banksters are going to Haircut depositors, aka STEAL their money, they are gonna hit everybody right down to Billy’s College Savings Passbook account he deposits his Birthday and Christmas money from Granma in.

In this case, the relatively low Haircut figure of 6.5% or so probably was conjured up on the Hopium depositors would “take their medicine” and not run the Bank the next day, which is of course stupid beyond belief.  Nobody is going to keep money in a Bank which steals 6.5% of your money over a weekend.

The question now is not whether there will be a run on the Cyprus Banks, there will be even if the Troika backs off here and/or Da Goobermint rejects the Bailout.  Cyprus Banks have been Ralph Nadered, declared “Unsafe at any Speed”.

The question IS now whether this WAKES UP depositors in Greece, Spain, Italy, France and even Germany that their Banks are ALSO insolvent, and leaving ANY money in an Insolvent Bank is just plain STUPID.

I can’t see how anyone would leave more than 2 months worth of Bills they have to pay in a Bank in Eurotrashland now. If you are one of the few people left who actually DOES make more than your Bills, you take it in CASH every Paycheck and stuff it in the Bank of Sealy, or Bury it in your backyard in a Tupperware container.

This is the situation on the ground in Eurotrashland NOW, as we speak. Hasn’t crossed the Pond yet, but it will.  Coming Soon to a Bank near you.

RE

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