What happens in European banks stays in European...oh wait, nevermind

Cyprus-style deposit tax now possible in New Zealand?

New Zealand savers could see a Cyprus-style tax on their bank accounts, the Green Party is warning, accusing the Government of planning similar solutions for the country.

Canadian "bail-ins" possible should certain "systemically important banks" fail (pages 144-145, h/t www.silverdoctors.com)?

The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada.

Not every precedent becomes a trend, but given how the unthinkable has become both thinkable and predictable, it doesn't hurt to be paranoid. If Canada, the "model for global banking," the financial system that was celebrated for being far less reckless than those in the US and Europe, is using bail-in language reminiscent of what was heard during that "one-off" event in Cyprus, it is definitely time to contemplate the risk of having your savings cut and pasted from your bank account.

When authorities cross a line and it doesn't trigger revolt, they keep moving until they cross the next line, and the one after that. I would be a bit suprised if we didn't see more Cyprus-like "solutions." The European Union is the world's largest economy, and is a place that seems to fancy itself the supreme repository of all things moral and just, so if such a thing can happen there (and in front of the world, no less), my guess is that other countries will at least attempt similar measures; under the guise that depositor haircuts are now part of "international law."

Those who dream of international law delivering the world from giant villians never consider that it can just as easily be used against puny non-villians. In fact, it is more likely to be used against puny non-villians because puny non-villians can't push back. 

Ah well, there is probably some cosmic lesson in the fact that the originator of the word "utopia" wound up getting beheaded.

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Cyprus gets Greeked: is there a lesson for your "real assets?"

We all see what is happening in Cyprus. Governments in the Developed World are behaving more like Third World governments (Cyprus is a Eurozone country, after all). Here in the US, your financial assets are more monitored and regulated than ever before, causing some foreign banks to stop accepting American deposits.

The "rich" world is glued together with promises so detached from reality they're practically psychedelic (appropriate that they were dreamed up by and for baby boomers). This is leading to previously "unthinkable" measures like the one in Cyprus. But these moves aren't new (in '92 Italy had a more modest 0.6% deposit tax), and they certainly aren't a Europe-only phenomenon. In 1933, the US had bank holidays AND the government outlawed the possession of gold, only legalizing it again in the 1970s.

So...

Do you have some extra cash on hand? Smart. Maybe provisions for a week or two in case stores and banks were closed due to some natural or man-made disaster? Smart. Do you maybe possess a few silver coins in case of real trouble? Not a bad move at all.

I mentioned cash, which may annoy some myopic survivalists. "The dollar bill is just paper!!!"

Correct, but I guarantee you any Cypriot who had a cash stash at home before this crisis is faring much better than one who didn't. People do not revert to trading seashells overnight.

While we're on the subject of paper, we should take time to think the next thought. You know what else is just paper? Contracts. Contracts, like dollar bills, are just promises. Cypriots had contracts with their banks. But when quaking duress arrived...bye bye (αντίο!) contract. Remember that this also applies to real assets. Real assets--apart from precious metal coins in your physical possession--are also just backed by paper. A receipt for gold stashed abroad is just a piece of paper. And having a contract for a patch of land in Costa Rica doesn't mean much if you aren't there to protect it (an important lesson for those with "safe zones" established abroad). Squatters are not known for their fear of fine print. Remember, part of the reason that escape ranch you bought in Latin America was so cheap was because assets in countries with less overall stability tend to sell at a discount due to the risk involved in investing there. You remember that free market and its price signals? Stop merely using them as a slogan and start giving them some actual thought.

Politicians interested in nationalization--which of course just means personal gain and aggrandizement for the nationalizing politician and his cronies--also don't worry much about the concerns of survivalists (there is a reason Chavez died a billionaire despite not inventing anything for Apple). Never forget that with just a bit of force, a contract can be nullified (along with the person attempting to enforce it).

Just to drive the point home: you know what else is just paper? The Constitution. Waving it around scares no one. Unless you are able to fold it into the world's deadliest origami sword, it isn't going to help you much.



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The Loud Shall Inherit the Earth

Since the financial crisis, collapse has been on everyone’s lips. The players in this general talk of implosion: doomsday preppers, gold bugs, and gun nuts, and people who are fashionably hysterical about doomsday preppers, gold bugs, and gun nuts.

So let’s say society took that silly walk over the precipice: who would rise under such a scenario? My guess is that it would be the great pandering orators; feel good folks like Bill Clinton and Sarah Palin. Substance barely matters here in the pre-apocalypse, but at least it matters somewhat. Right now people do take notice if you're Dr. Prodigy Patel, the world's greatest neurosurgeon. They may not care as much about your frontal lobe tinkering as they do about born again benchwarmer Tim Tebow, but at least neurosurgeons still get some respect.

But if society broke down and existence became more like The Road, substance would not matter at all. No one would follow a mousy brain doctor.

The people who would rise would be the great superficial talkers, the ones who could fill the threatening silence with verbal comfort food. Anyone who spoke with precision or unassuming expertise would get nowhere. The untrained ear (which comprises the vast majority of ears), barely understands subtle oration now, and would make even less of an effort to fathom it while scrounging for another unappetizing post-apocalypse meal.

Ironically, one of the people most heralded by those worried about collapse is a prime example of someone who wouldn’t rise under such circumstances: Ron Paul. Consider just some of his talents: medical training, military experience, and an esteemed track record as a high school athlete. The man has about as much substance as you're likely to find in a person. But despite all these qualities--qualities that are uncommon by themselves, let alone combined in one person--no one would follow him post-apocalypse. Why not? Because Ron Paul isn't a rousing speaker. He would either bore the survivors or go over their heads. They might even trample him in their rush to hear Oprah Winfrey's next speech.

Being a verbose dolt is always a surer path than being a learned square. It is an even surer path these days; just look at the 40 year boom in the self-help racket. Self-help exists because once people leave the nest to become adults, they still look for people to be their parents. In the pre-self-help days, when people didn't get divorced every three years and switch religions each time there was a heat wave, their spouses and clergymen acted as de facto parents. Whether they actually loved their spouses or believed their clergymen was irrelevant. They still had a stabilizing force to pat them on the head and say that everything was going to be okay. As those stabilizing forces shriveled, they turned for direction to sophistry factories likes Dr. Phil.

Post-apocalypse, we would all feel like children again, and the people who would capitalize on this would be the folks best able to recite "reality" back to us in bumper sticker form. Even without electricity the soundbyte would be king (perhaps especially, as there would be no Wikipedia to fact-check people with).

So for those who think a societal breakdown would cause a Great Purging of the Morons, I couldn't agree less. You optimists would probably be horrified by the folks who would rise in the wake of such a collapse. We would probably see a lot of pro-wrestlers become leaders; not because of their biceps, but because of their tongues. It wouldn't be a reflective Buddha-type who would take the reins. It would be Ric Flair.

Hedging about hedges

When the press writes about gold buyers, they often include a subtle jab like, "Investors buy gold as a hedge against inflation and the collapse of civilization."

WTF?

Civilization doesn't have to collapse for an investor to make money in gold, any more than a country has to collapse for an investor to make money in credit default swaps. The direction of your bet just has to go in your favor. No one says you have to ride your investment all the way to Armageddon.

Example: If you bought gold at $800 and sold at $1,6000, you made a nice gain. Yet there is still food on the shelves, judges in the courts, and gasoline at the pumps. There are also no roving bandits motorcyling about.

Plenty of investors buy 30-year Treasuries. No one expects them all to actually hold them for the full 30 years. Not even close. It's a trade, not a buy and hold to infinity.

Gold is like insurance, and buying insurance is seen as prudent. Yet gold, man's longest running form of insurance, is often viewed as a foolhardy investment (in fairness to gold's critics, insurance buyers are rarely the harebrained Quasimodos you sometimes see buying gold).