March 19. Bank holiday in Cyprus continues as parliament doesn’t have tax votes
–US interest rate futures are again rallying this morning, though still well below Sunday evening highs, as Cyprus’ parliament apparently doesn’t have the votes to pass the deposit tax. I have seen many articles detailing the composition of depositors, “this is a tax on Russian money launderers” and yet I have seen nothing on who owns senior bonds. Is it too systemically dangerous to force losses on bondholders, causing banking dominoes to fall throughout europe?
–A country that has mostly been out of the news is Iceland, which went a different route, letting banks fail, which…(wikipedia) “meant that the domestic residents would not suffer any losses from the systemic bank failure.” Iceland’s economy is about half the size of Cyprus, and its banking system was 10x GDP ($13b), while it’s reported that in Cyprus the banking system is 8x (GDP $24b). Iceland is struggling with currency depreciation and inflation currently, but the main consideration in europe is “who leaves next?” when Cyprus exits the euro. The fallout should be continued loss of confidence in the euro and in peripheral economies, and much more importantly, in the european banking system.
–Cyprus economy has been compared in size to Shreveport LA in the US, but perhaps Birmingham AL is another comparison, as Jefferson County prepares for bankruptcy. That county’s GDP is about 2x the size of Cyprus, and it’s preparing “a workout plan that calls for reducing the bankrupt local government’s $4.23 billion of debts by more than $1 billion”. Detroit is also heading for bankruptcy, so Meredith Whitney’s call several years ago about municipal bankruptcies wasn’t completely wrong. But she was on CNBC yesterday afternoon saying she was as bullish as she has ever been on US equities. Bell ringer…
–While most news is centered on Cyprus, one interesting side note in the US is the call by sev’l US states for the ouster of FHFA head DeMarco, who has refused to let Fannie and Freddie write down mortgages to provide debt relief. DeMarco appears before a Senate panel today. From what I have read, it appears that he may soon be forced out, and a more lenient FHFA leader may write down mortgage principal for struggling homeowners. A final shot in the arm for housing?
