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Cyprus: Who’s To Blame?

  • Written by Syndicated Publisher No Comments Comments
    March 29, 2013

    If you listen to the likes of Jeroen Dijsselbloem, (LINK)  you might conclude that the problems in Cyprus were all about the big offshore depositors who flooded the local banks with cash. It you start with the ‘logic’ that the depositors are to blame, then it’s not hard to reach a ‘solution’ with haircuts of 40-80%. I think that whole line of reasoning is bullshit. Brussels and Berlin were more responsible for Cyprus than those evil depositors. I believe the US Navy also had a hand in the collapse.

    When were the problems with Cyrpus’s banks made public? Eh, that would be in August of 2011. Why was this situation allowed to run totally amok for so long after that?  Brussels ignored the warning signs.


    cyprus August 2011


    Okay, give the technocrats some slack. They were busy with other problems in the summer of 2011. But Brussels ignored this request for help too:


    cyprus june2012

    The folks in Brussels sat on their hands for eight more months before they finally came around to a fix for Cyprus. That delay cost everyone. It cost Brussels – it put all depositors at risk, including the small ones. If Brussels had acted decisively after the official request for a bailout the +100k depositors would not be feeling the 40-80% gouging they are getting today.

    Is it possible for  depositors to file a suit against the Troika? Why not? There’s plenty of evidence that suggests it’s the likes of Jeroen Dijsselbloem who are responsible for the extraordinary losses. They fell asleep at the switch. (or it was deliberate – triple damages for that!) The folks who have their fingers burned  have a reputation for not “rolling over”.  I wouldn’t be surprised if someone tries to get Brussels to kick in some cash to soften the blow. At a minimum, Jeroen Dijsselbloem should shut up. He’s making the case for the lawsuit.





    I spoke with a friend in Athens today. He has family who live in Cyprus. Nothing new to report – the country is a shambles.  These people live well south of Nicosia – no access to money, stores running out of goods – no credit cards allowed.

    My friend contacted me in July 2011 after his relatives had their windows blown out by a huge explosion on a military base. They were miles away, but still felt the blast. At the time, he stressed that this was a very big deal, a game changer for the country. I wrote about it (Link).


    Short story: In January 2009 the US Navy intercepted a cargo ship filled with munitions. The vessel had come from Iran, and was headed to Syria. The Navy confiscated the munitions and brought them to Cyprus for “storage”. There was a brush fire, and the whole damn thing blew.


    The head of the Central Bank of Cyprus had this to say about the July 22, 2011 explosion:


    There is an imminent threat of Cyprus joining the European Union Support Mechanism, with everything bad that this entails.


    Every day of inaction increases the problems and risks. We must act today, not tomorrow.


    Brussels totally ignored this cry for help. Cyprus was forced to go begging to Moscow for an emergency E2.5B reconstruction loan. This was a strategic mistake by both Washington and Brussels.

    In preparation for this article I spoke with my friend regarding who he thinks is to blame for the cock-up in Cyprus. He’s biased;  he and his family have lost money (there was Greek money involved in the +100k accounts). So he blames Brussels. He also blames the bankers who made the bad loans/investments;  he lamented that bankers always make bad loans and never pay. He thinks the depositors ignored all the evidence, including the high yielding deposits, so don’t feel so sorry for them either.

    But he also included the US Navy as one of those who must share some responsibility. He may have a point. Those munitions should not have been brought to Cyprus. It was an accident left to happen. Thousands of tons of explosives were stored under a tent. There was huge damage to the infrastructure; the blast leveled a power plant.





    Would Cyprus have collapsed if the explosion did not take place? Probably, but the accident made it a sure thing. Is the Navy responsible for accidents? Sure it is:


    navy fire


    Is there a lawsuit in this story? I don’t know. Connecting the dots between the Navy’s decision to dump confiscated Iranian munitions in Cyprus, to the losses depositors have felt is a bit of a stretch. But then again you stretch when there’s the odd billion at stake. And then there’s the fact that the Navy has some very deep pockets…..


    – Navy – Don’t blame me. Someone was going to write this one, just happened to be me.

    – Readers from Cyprus, others – do you think the Navy had a hand in what you face today? How? Why?

    Images: Flickr (licence attribution)

    About The Author – Bruce Krasting

    I worked on Wall Street for twenty five years. This blog is my take on the financial issues of the day. I was an FX trader during the early days of the ‘snake’ and the EMS. Derivatives on currencies were new then. I was part of that. That was with Citi. Later I worked for Drexel and got to understand a bit about balance sheet structure and corporate bonds from Mike Milken. I was involved with a Macro hedge fund later. That worked out all right, but it is not an easy road. There was one tough week and I thought, “Maybe I should do something else for a year or two.” That was fifteen years ago. I love the markets. How they weave together. For twenty five years I woke up thinking, “What am I going to do today to make some money in the market”. I don’t do that any longer. But I miss it.