The ECB Just Gave Cyprus Its Drop Dead Date

Next Monday is the drop dead date by Cyprus

If Cyprus doesn't have a deal in place by then, the ECB will not provide its banks the emergency liquidity assistance they need to continue to operate.

Earlier this week, the Cypriot parliament rejected a plan that would have recapitalized the country's banks by imposing a one-off tax on all depositors.

Since then the government has been scrambling to come up with the nearly 6 billion euros that the country must supply to save its banks.

Below the dotted line is press release the ECB just put out, where in the central bank says that assistance will be cut off unless there's a deal.

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21 March 2013 - Governing Council decision on Emergency Liquidity Assistance requested by the Central Bank of Cyprus

The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013.

Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.

ECB Re-Bluffs To Cyprus Bluff

"Prepared To Let Cyprus Go"

By Tyler Durden
When the market briefly surged yesterday, following the cryptic note from the ECB that it would "provide liquidity within existing rules" we urged to ignore the kneejerk algorithmic exuberance (although with only algos left trading that was obviously self-defeating) which interpreted this as an indication the ECB would provide unconditional liquidity now and forever, and that this was hardly a bullish sign because "the last thing the ECB wants is to appear weak, and fold letting every other broke deadbeat country to demand the same equitable treatment and diluting Germany's political might." Today, Reuters has picked up on this coming out with its own analysis that the

"The European Central Bank is prepared to cut off funding to Cyprus and let the Mediterranean island succumb to financial meltdown if it has to, confident it has unlimited firepower to protect the rest of the euro zone."

It is unclear how much of the article is actual analysis, and how much interest-driven propaganda to put the ball back in Cyprus court with the imputed knowledge that the ECB will not fold and thus cave to Troika deposit haircut demands, but fundamentally the logic is there as, once more, the ECB will hardly want to appear weak and cave in to a "recalcitrant" and unyielding Cyprus. Of course, what happens if indeed Cyprus decides to pull the € plug, should Russia provide an unlimited backstop and in the process subjugate a part of European territory without firing a shot, and the precedent that Europe can and will let members go, nobody knows but one thing is certain: stocks will go, as always, up.

From Reuters:

Cyprus propelled the 17-nation bloc into uncharted waters on Tuesday by rejecting a proposed levy on bank deposits as a condition of a 10 billion euro ($12.9 billion) EU bailout.

Without the aid, much of it to recapitalize Cypriot banks, the ECB says they will be insolvent, and it requires banks to be solvent for them to receive central bank support.

Denied these funds, Cyprus would be left staring into a financial abyss.

For the rest of the euro zone, the ECB has a suite of policy tools at its disposal to prevent contagion - with bond purchases and unlimited liquidity offers to the fore.

Not Out of The Woods Yet

Despite Progress, Euro Crisis Is Far From Over

by Christian Rickens

The Greek debt cut worked and the rescue package has gone through. So is the euro crisis over? By no means. The situation in Greece will take a turn for the worse again in a few weeks. The other euro nations will have to use the time until then to get their own houses in order -- especially Germany.

For a change, everything has been going according to plan in the fight to save the euro in recent weeks. On Wednesday, euro-zone finance ministers gave the green light to the €130 billion ($170 billion) second rescue package for Greece. It's a pure formality after a satisfyingly large proportion of creditors agreed to a debt cut for Greece. Perhaps the most significant success of recent days is that even though the debt cut was deemed a so-called credit event, triggering the payment of the financial contracts known as credit default swaps, hardly anyone seemed to care.

For more than two years, the international financial lobby had been warning the public and governments that these credit default swaps must under no circumstances be triggered, because that would cause a disaster similar to the meltdown that followed the 2008 collapse of Lehman Brothers. Their message, effectively, was that taxpayers should cover all the losses, rather than private-sector creditors. But the CDS horror scenario has failed to become reality.

So has Greece been rescued and financial markets been tamed? Is the euro crisis a thing of the past? Unfortunately not. With their successes in the last few days, euro-zone politicians have done little more than bought themselves time. They must use this window to brace themselves for the next wave of the euro crisis which is about to crash down on Europe.

It's already clear that the Greek economy can't survive with a government debt to GDP ratio that will -- at best -- still be at 117 percent in 2020, especially given the record pace at which the country's GDP is contracting. There is still no coherent strategy for making Greece competitive again inside the euro zone, or for raising the capital for the huge investments needed -- let alone for the wholesale revamp of the country's entire public administration.

Greek Crisis Will Escalate Again

And so Greece is likely to report the next set of disappointing budget figures in a few months, and the wrangling over a new debt cut and a new rescue package will start shortly afterwards. Maybe the next wave of the crisis will hit us even sooner: Greece is scheduled to hold an election on April 22 which is expected to produce a left-wing majority deeply opposed to the strict austerity program imposed by Brussels.

Adopt a polar bear?

How did the polar bear, a vicious killing machine that is thriving, become the poster boy of climate-change alarmism?

by Rob Lyons 

Save the whale? That’s so 1970s. Now it’s the mighty polar bear that has become the poster child of the environmental movement. But are polar bears really facing extinction, or are they just a photogenic vehicle for promoting alarm about global warming?

‘Adopt a polar bear’, suggests the green NGO, WWF. WWF will even give you a cuddly toy polar bear for signing up. ‘Many scientists believe polar bears could be gone from most of their current range within 100 years’, says the WWF website, citing climate change as the major threat to the bears. Earlier this month, the US tried - and failed - to persuade the Convention on International Trade in Endangered Species (CITES), to ban cross-border trade in polar bears and their parts. The US lists the polar bear as a ‘threatened’ species, while the International Union for the Conservation of Nature lists it as a ‘vulnerable’ species.

The major claim is that climate change is causing the sea ice in the Arctic to melt earlier and refreeze later. As the press release for a new paper in the Journal of Animal Ecology, released today, suggests, this makes life harder for polar bears. The paper’s researchers tracked female polar bears in the western Hudson Bay area of Canada from 1991 to 1997, and again from 2004 to 2009. According to the lead researcher, Dr Seth Cherry: ‘The data suggest that in recent years, polar bears are arriving on shore earlier in the summer and leaving later in the autumn. These are precisely the kind of changes one would expect to see as a result of a warming climate and may help explain some other studies that are showing declines in body condition and cub production.’

But before we start getting into a lather about the future of nature’s greatest land-based killing machines (sorry, I mean big furry canaries in the climate-change coalmine), it is worth noting that there are more optimistic voices around. Susan Crockford, an adjunct professor at the University of Victoria in Canada, has just produced a short paper for the Global Warming Policy Foundation (GWPF) called Ten Good Reasons Not To Worry About Polar Bears.

Treating workers like unthinking primitives

The idea that workplaces should root out employees’ ‘unconscious biases’ is patronising and illiberal

by Para Mullan 

In the human resources (HR) field in which I work, there is currently a lot of discussion about people’s unconscious biases in the workplace. You know the type of thing: unconscious bias against women; unconscious bias in favour of men; unconscious bias against people with different ethnic backgrounds, and so on.

So when an email dropped into my inbox urging me to test my unconscious bias using the ‘implicit association test’, I was intrigued. For the next few minutes, I tested myself to see if I was ‘gender prejudiced’, typing certain letters to indicate positive or negative associations with particular statements.

Then came the results: ‘Your data suggest a moderate association of Male with CAREER and Female with FAMILY, compared to Female with CAREER and Male with FAMILY.’

What a huge non-surprise. Does it matter if my ‘unconscious bias’ makes me mildly disassociate females from careers? Surely what is more significant than my ‘unconscious bias’ is my conscious judgement. That is, I consider myself an objective, rational person, and when I recruit new staff, my decisions are based on criteria that apply to all candidates. If I were to let any ‘prejudice’ show, my fellow interviewers would put me right.

Unfortunately, many in the HR profession have bought into this concept of dealing with ‘unconscious bias’ and are offering training and education to fellow professionals. A report published by Business in the Community (BITC) at the end of 2012 claimed that recruitment of ethnic minorities has increased in organisations where employers have been educated about their ‘unconscious bias’.

Now, it does not take a rocket scientist to work out that if an organisation is focusing on recruiting ethnic minorities, then the number of ethnic-minority recruits will increase, just as the number of women in management positions will increase if you implement gender quotas. What these methods do not establish, however, are the benefits of ‘unconscious bias’ training.

It may be practically ineffective, but ‘unconscious bias’ training is successful in one regard: it suggests to HR departments that people’s unconscious thought processes are more important than their conscious ones. It encourages managers to view their employees less like humans and more like animals. But unlike animals, we think, we reason and we act. We make decisions and judgements. But unconscious bias theory pays no heed to any of that.

Cyprus: The ghost of the West yet to come

Cyprus offers a grim glimpse of a possible future for the wider western world

By John Phelan

When the European Union (with German money) mounted its most recent bailout of Greece, one of the conditions was a 75 percent write down of Greek government debt. For the Cypriot banks, which had made loans to the Greek government totalling 160 percent of Cyprus’s GDP, this was disastrous.

With their capital bases smashed the Cypriot government felt obliged to bail them out. Lacking the funds to do so (in 2011 the IMF reported that the assets of Cypriot banks totalled 835 percent of GDP) it turned to the European Union (in reality Germany again) for a bailout.

The Germans are reluctant to lend money without conditions. If the terms of the bailout are accepted by the Cypriot parliament, in return for the €10 billion corporation tax will rise from 10 percent to 12.5 percent and interest on bank deposits will be subject to a withholding tax.

But the most controversial aspect is the proposal that bank deposits will be subject to a one off “solidarity levy”, amounts under €100,000 at a rate of 6.75 percent and those over €100,000 at 9.9 percent. 

This is the eurozone crisis at its most extreme but it only differs from events in Ireland, Greece, Spain, Italy, and Portugal, by degree. And in as far as  government eventually has to tailor its outgoings to suit its income it is really just an extreme version of the situation which will also eventually face Japan, Britain, and the US, probably in that order.

So what lessons does Cyprus hold for those who still have all this to come?

Cyprus and the reality of banking

Deposit haircuts are both inevitable and the right thing to do

By Detlev Schlichter

I, too, was shocked yesterday morning. Not so much by the news that depositors at Cypriot banks would face a haircut, or a ‘levy’ or a ‘tax’, on their deposits as a contribution to yet another Eurozone bailout package funded by taxpayers in other counties but by the reaction in the press. Here was, according to the majority of the international commentariat, yet another example of the ineptitude or outright meanspiritedness of the Eurozone policy elite, another example of imposing needless and counterproductive hardship and brutal ‘austerity’ on innocent citizens in small and troubled countries. The Daily Telegraph on its front page spoke in usual hyperbole of a ‘EU raid on savings’ and, naturally, of another ‘threat to the recovery’. What agitated most commentators was that the ‘sanctity’ of deposit insurance had been carelessly violated as even deposits of less than €100,000 were, at first at least, supposed to be subjected to a reduced haircut as well. Those types of deposits are supposed to enjoy a ‘guarantee’ that magically shields them from the harsh reality of bankrupt banks and bankrupt states. Undermining this ‘guarantee’ could have wide-reaching consequences beyond tiny Cyprus as it has the potential to undermine the trust in banking systems in Greece, Spain and Portugal.

I agree that this move is risky. The international banking system is highly levered and in large parts has been teetering on the brink of disaster for many years. Anything that affects depositors can have grave consequences. But given the state of affairs, any meaningful attempt to deal with the banking systems’ problems must inevitably entail risks. The questions are the following: Are the right type of risks being taken? And what would the alternative be?

Banking is a risky business because banks are highly leveraged enterprises. (Sorry to break that news to you.) In a fractional-reserve banking system ‘deposits’ are not deposits (i.e. contracts for safe-keeping) but loans to banks and thus loans to highly leveraged businesses.

Most people in developed countries have become used to not worrying about the health of individual banks. They have, over the course of decades, been conditioned to believe that all banks are regulated by the state and ultimately protected by the state. – Yes, but only so that the banks can take even more risks and become even more leveraged. State ‘protection’ has now created a banking monster that is swallowing up the resources of the state itself. And this can hardly come as a shock surprise in early 2013!

The naïve believe that bank deposits are always ‘money good’ because they are backed by the state and the state, after all, is an endless cornucopia, was maybe understandable, or at least excusable, until about 2008, when then Prime Minister of Ireland, Brian Cowen, in the middle of the Irish banking crisis, had the genius idea to simply declare a state guarantee for all deposits at Irish banks. Hey, problem solved! Obviously, Cowen didn’t do the math and didn’t realize how big that guarantee was going to be. Well, he was found out by the markets – and Ireland, the country, went bankrupt.

After Lehman, after Ireland and Iceland, and after Greece, I think you must have lived in a cave for the past 5 years to really think that banks are safe because they are guaranteed by their governments. Come on! Please get real.

Excuse me but my sympathies for Cypriot depositors is somewhat limited. If you are a depositor in a Cypriot bank, whether of deposits of more or less than €100,000, who did you think was guaranteeing your deposit? The Blue Fairy? Did you really think that in such a small place with such a bizarrely bloated banking system – one that for years and, by now, very publicly had been investing in Greek government bonds! – your government had the resources to protect all depositors? The bailout of Cyprus’ two largest banks will cost the equivalent of 60% of GDP! And after what happened in Greece, did you really think that the Germans were willing to cover the whole bill?

I am a free market guy. I am in favor of laissez faire so I always like to see placards that read “Hands off”. One could see such placards at demonstrations in Cyprus yesterday: “Hands off Cyprus”. That is great. But be careful what you wish for. A proper hands-off policy means letting the chips fall where they may. That would certainly mean no bailout and thus total collapse of the Cypriot banking system and the Cypriot economy. Don’t forget that Cyprus and its banks and its depositors are still being bailed out with other people’s money here.

That is also what some of my libertarian friends don’t seem to get when they speak, as some of them did yesterday, of another incident of the ‘the state stealing from its citizens’ or of confiscating their property. As much sympathy as I usually have with these views, in this instance they are simply mistaken. If this were expropriation it would mean that the act of abstaining from this expropriation – of the expropriator simply doing nothing – would mean that the ‘victim’ keeps his property. But if the EU did nothing in this situation – “hands off”, laissez faire – it would mean that most depositors, including those under €100,000, got wiped out completely. The choice is not between keeping everything and paying a ‘levy’, but between paying a ‘levy’ and losing almost everything.

Some commentators will object here and say that, for the sake of a more cheerful public sentiment and for the sake of the nascent recovery, the bailout should be more generous and protect more Cypriots to a larger degree. But that would mean either more expropriation (and now the word is indeed appropriate) of taxpayers in Nordic countries, or more money-printing by the ECB. And this is where many commentators are either short-sighted or indeed hypocritical.

Using the printing press to cover any excess committed by banks and governments, no matter how outrageous, must mean inflation and this certainly hurts all savers, including those with savings of less than €100,000. I found it particularly galling that many of the commentators who are now posing as defenders of the small saver are usually among the loudest proponents of exiting the euro, issuing new and weaker currencies and using debasement to gain short-lived competitiveness – all measures that defraud the domestic saver. All those who persistently argue against ‘austerity’ and for more stimulus, more debt, weaker currencies, higher inflation, do not care at all for savers. As Keynes famously suggested, they want to kill the rentier class, whether the rentiers are big or small. And now they claim to be the advocates of savers?

Of course, there are notable exceptions. In today’s Telegraph, Jeremy Warner does a good job explaining how costly the bailout of British banks has been – and still is – to British savers, not least via higher inflation, zero interest rates and endless quantitative easing.  I also thought that Simon Nixon’s piece in the Wall Street Journal yesterday was informative and balanced. But they are the exception.

I am no friend of the EU and I feel uncomfortable finding myself in a position in which I have to defend their policies but I feel that those elements for which the EU gets most viciously attacked in the media – ‘austerity’, letting Greece default, at least partially, bailing in depositors – are most sensible to me as these policies are, in principle at least, based on an acknowledgement of the underlying problems and as they do not seek near-tem comfort in the deceptive and damaging policies of endless fiscal transfers and money-printing

 .

Cyprus and the Death of Deposit Insurance

Can Cyprus happen in US ?

By Robert Tracinski 

From the beginning, the European crisis has been a story of small countries on the Eurozone's "periphery" revealing fundamental problems at the heart of the system. Now a very small country on the outer edges of the periphery—the tiny Mediterranean island of Cyprus, with about a million inhabitants and 0.02% of Europe's GDP—is triggering the latest wave of the crisis.

This is not really about Cyprus, of course, but about the precedent that is being set there. In exchange for an infusion of capital into the nation's banks, Cyprus is being asked to impose a "special bank levy" that would take 6.75% out of all bank deposits up to 100,000 euros, and 9.9% above that.

This is described as a "wealth tax," except that it's not a tax. A tax is a regular rule that operates uniformly according to a pre-determine formula. A one-time, ad hoc seizure of money isn't a tax. It is confiscation. Or we can use a plainer word for it: theft.

The big news isn't this bank heist, but who is pulling it off. The plan was imposed, not by some wild-eyed revanchist Communists, but by the finance ministers of respectable European countries, who thought up the idea and imposed it on Cyprus. Like Willie Sutton, they know where the money is.

There are special circumstances that made them think they might get away with it. Cyprus is a small island with a large banking center that holds deposits many times larger than the local economy. A lot of this money comes from Russia, and Cyprus is reputedly a tax haven for Russian "oligarchs" (politically connected billionaires) and mobsters. In an American context, you might compare Cyprus to the Cayman Islands, which have been so vilified just having a bank account there is enough to end a politician's career. Just ask Mitt Romney.

But in showing us what they'll do to an unsympathetic target, Europe's leaders are showing us what they would like to do everywhere: dig themselves and the crony banks out of a tight spot through the mass confiscation of wealth. It's the ultimate bailout plan: they just take whatever they need.

And there is more to it than that. This is confiscation, but it a particular kind of confiscation with particular implications. It is the end of deposit insurance. Depositors, particularly small depositors, are supposed to have an ironclad guarantee that their money will always be there, no matter what—that they won't wake up one Monday morning to find that 6.75% of it is gone.

That's why the Cyprus heist is really important. It is a warning that the whole system of deposit insurance is coming unglued.

Teaching students to think racially

Race theory is dividing university students

by Dennis Hayes 

You may never have heard of ‘critical race theory’, but it dominates academic and institutional thinking about race in the UK today. The University of Birmingham, for instance, recently opened a new research centre for ‘Race and Education’, headed by a leading critical race theorist.

The question of what critical race theory actually means is contested even by its practitioners. Many accept that it is not really a ‘theory’ at all, but rather a ‘perspective’ or a set of beliefs about racism. Or, to be more blunt, it is a political position pretending to be a theory.

For all its supposed academic credentials, critical race theory boils down to one simple claim: ‘If you are white you are racist!’ This absurd ‘theory’ is now in the mainstream of higher education. It is not only promoted by lecturers and professors who work in the area; it is increasingly the perspective of university managers, staff developers and equality and diversity officers, too.

Critical race theorists will dismiss my claim as absurd, but that is because they avoid saying what they really think. The fact that their basic, shared assumption is never stated - that is, if you are white you are racist - allows their views to be promoted and adopted by institutions and those who fund their theorising.

Yet there is an obvious and nasty consequence of their ‘theory’ - namely, the view that anyone who criticises their approach is also probably racist. That’s because critical race theory embodies a metaphysical truth that cannot be questioned. If you do question it, you provide evidence for its veracity and you are likely to be censured or disciplined.

The critical race theory perspective is devious. First, racism is held to be endemic in society, and a catalogue of examples is used to prove this, while counter-examples are ignored. Second, racism is declared to be complex - so complex, in fact, that any clear views on the subject are dismissed as white or liberal prejudice. Third, refuge is taken in relativism, and the ‘theory’ is declared to be a perspective that is both academic and a political or social-justice project.

Porn: no longer a dirty little secret

A serious crisis of values – one that censorship won't solve

by Frank Furedi 

In the nineteenth and twentieth centuries, pornography consisted of printed or visual material that was available only on the margins of society. Individuals who bought pornographic literature would feel embarrassed if they were seen by others. Salacious and obscene magazines were kept in brown envelopes; buying porn was a dirty little secret between shop assistant and consumer.

That was then. Today, pornography has gone mainstream. It has been so normalised that people talk openly about ‘my porn’. Porn talk is a part of modern-day conversation.

Some of today’s debates about pornography are just a clash of views over what constitutes ‘good’ or ‘healthy’ or ‘appropriate’ porn. ‘We need better lesbian scenes, not ones that blatantly pander to men, with heterosexual actresses looking vaguely nauseated as they gingerly trail their fake nails across each others’ breast implants’, argues one commentator and avid connoisseur of porn.

Of course, the normalisation of a culture of pornography has not gone unchallenged. Some use the term ‘pornification’ to describe the proliferation of self-conscious and explicit exhibitions of sexual themes and activites. Earlier this year, Britain’s shadow health minister, Diane Abbott, warned that British culture is ‘increasingly pornified’ and is damaging young people. Last week, a proposal was put before the European parliament calling on the EU to ‘take concrete action on discrimination against women in advertising’ via a ‘ban on all forms of pornography in the media’. The parliamentarians’ response captured the spirit of our times. They insisted that the proposed ban on porn should be dropped but they voted to regulate the media portrayal of women. In other words, porn is okay but the media degradation of women is not. This curiously selective approach towards censorship reveals officialdom’s acceptance that pornography is now an integral part of the European way of life.

The cultural significance of pornography

Historically, debates about pornography have focused on its alleged harms and its moral corruption of society. There have also been arguments about the very meaning of pornography. The question of what makes a particular picture or literary passage pornographic has been a source of dispute between artists and their moralistic critics for years.

According to the Oxford English Dictionary, pornography is ‘the explicit description or exhibition of sexual subjects or activity in literature, painting, films, etc, in a manner intended to stimulate erotic rather than aesthetic feelings; printed or visual material containing this’. This definition links pornography to obscenity, which the OED defines as ‘the character or quality of being offensively indecent, lewdness’. Of course, definitions offer only limited help for clarifying the problem of porn, because the idea of what constitutes lewdness is to some extent always open to interpretation. Throughout history, important literary and artistic achievements have been condemned by moralists as pornographic.

Cyprus Rejects Deposit Levy in Blow to European Bailout Plan

Searching for Plan B

By Patrick Donahue and Georgios Georgiou 

Cyprus’s parliament rejected an unprecedented levy on bank deposits, dealing a blow to European plans to force depositors to shoulder part of the country’s rescue in a standoff that risks renewed tumult in the euro area.

Cypriot legislators in the capital Nicosia voted 36 against to none in favor of the proposal in a show of hands today. There were 19 abstentions. Hammered out by euro-area finance chiefs over the weekend, the deal had sought to raise 5.8 billion euros ($7.5 billion) by drawing funds from Cyprus bank accounts in return for 10 billion euros in international aid.

Stocks dropped and the euro fell to a three-month low against the dollar at the prospect of impasse in Cyprus. European officials including Dutch Finance Minister Jeroen Dijsselbloem had said that Cyprus must contribute to its own bailout, while stressing that the Cypriot situation is unique. German coalition lawmakers said that Cyprus can expect no aid without meeting the terms.

“Cyprus has rebuffed the outstretched hand” of its partners, Hans Michelbach, a German lawmaker from Chancellor Angela Merkel’s Christian Democratic bloc and the ranking member on parliament’s finance committee, said in an e-mailed statement. The vote is “an act of collective unreason” and “the people of Cyprus must now pay a high price.”

Nicosia Talks

Cypriot President Nicos Anastasiades, who said the plan’s alternative would be the “indescribable misery” of a collapse in his country’s banking sector, is due to meet with political party leaders in Nicosia at 9 a.m. tomorrow, his office said before the vote. Cyprus’s banks and stock exchange will remain closed at least through tomorrow.

Anastasiades spoke by phone with Merkel today for the second time in as many days, German government chief spokesman Steffen Seibert said in a text message, declining to give details of the conversation.

Saddam Hussein’s Revenge

One more such victory as Iraq, and we are undone

By PATRICK J. BUCHANAN

Ten years ago, U.S. air, sea, and land forces attacked Iraq. And the great goals of Operation Iraqi Freedom?

Destroy the chemical and biological weapons Saddam Hussein had amassed to use on us or transfer to al-Qaida for use against the U.S. homeland.

Exact retribution for Saddam’s complicity in 9/11 after we learned his agents had met secretly in Prague with Mohamed Atta.

Create a flourishing democracy in Baghdad that would serve as a catalyst for a miraculous transformation of the Middle East from a land of despots into a region of democracies that looked West.

Not all agreed on the wisdom of this war. Gen. Bill Odom, former director of the National Security Agency, thought George W. Bush & Co. had lost their minds: “The Iraq War may turn out to be the greatest strategic disaster in American history.”

Yet, a few weeks of “shock and awe,” and U.S. forces had taken Baghdad and dethroned Saddam, who had fled but was soon found in a rat hole and prosecuted and hanged, as were his associates, “the deck of cards,” some of whom met the same fate.

And so, ’twas a famous victory. Mission accomplished!

Soon, however, America found herself in a new, unanticipated war, and by 2006, we were, astonishingly, on the precipice of defeat, caught in a Sunni-Shia sectarian conflict produced by our having disbanded the Iraqi army and presided over the empowerment of the first Shia regime in the nation’s history.

Only a “surge” of U.S. troops led by Gen. David Petraeus rescued the United States from a strategic debacle to rival the fall of Saigon.

But the surge could not rescue the Republican Party, which had lusted for this war, from repudiation by a nation that believed itself to have been misled, deceived and lied into war. In 2006, the party lost both houses of Congress, and the Pentagon architect of the war, Don Rumsfeld, was cashiered by the commander in chief.

Two years later, disillusionment with Iraq would contribute to the rout of Republican uber-hawk John McCain by a freshman senator from Illinois who had opposed the war.

So, how now does the ledger read, 10 years on? What is history’s present verdict on what history has come to call Bush’s war?

Of the three goals of the war, none was achieved. No weapon of mass destruction was found. While Saddam and his sons paid for their sins, they had had nothing at all to do with 9/11. Nothing. That had all been mendacious propaganda.

Where there had been no al-Qaida in Iraq while Saddam ruled, al-Qaida is crawling all over Iraq now. Where Iraq had been an Arab Sunni bulwark confronting Iran in 2003, a decade later, Iraq is tilting away from the Sunni camp toward the Shia crescent of Iran and Hezbollah.

What was the cost in blood and treasure of our Mesopotamian misadventure? Four thousand five hundred U.S. dead, 35,000 wounded and this summary of war costs from Friday’s Wall Street Journal:

“The decade-long [Iraq] effort cost $1.7 trillion, according to a study … by the Watson Institute for International Studies at Brown University. Fighting over the past 10 years has killed 134,000 Iraqi civilians … . Meanwhile, the nearly $500 billion in unpaid benefits to U.S. veterans of the Iraq war could balloon to $6 trillion” over the next 40 years.

Iraq made a major contribution to the bankrupting of America.

As for those 134,000 Iraqi civilian dead, that translates into 500,000 Iraqi widows and orphans. What must they think of us?

According to the latest Gallup poll, by 2-to-1, Iraqis believe they are more secure — now that the Americans are gone from their country.

Left behind, however, is our once-sterling reputation. Never before has America been held in lower esteem by the Arab peoples or the Islamic world. As for the reputation of the U.S. military, how many years will it be before our armed forces are no longer automatically associated with such terms as Abu Ghraib, Guantanamo, renditions and waterboarding?

As for the Chaldean and Assyrian Christian communities of Iraq who looked to America, they have been ravaged and abandoned, with many having fled their ancient homes forever.

We are not known as a reflective people. But a question has to weigh upon us. If Saddam had no WMD, had no role in 9/11, did not attack us, did not threaten us, and did not want war with us, was our unprovoked attack on that country a truly just and moral war?

What makes the question more than academic is that the tub-thumpers for war on Iraq a decade ago are now clamoring for war on Iran. Goal: Strip Iran of weapons of mass destruction all 16 U.S. intelligence agencies say Iran does not have and has no program to build.

This generation is eyewitness to how a Great Power declines and falls. And to borrow from old King Pyrrhus, one more such victory as Iraq, and we are undone. 

Cyprus, Why Now?

Follow The Money

by Steve Hanke

While the Cypriot Parliament may be dragging its feet on a proposed rescue plan for Cyprus' banks, the country ultimately faces a choice between Brussels' bitter pill... and bankruptcy. Cyprus' newly-elected President, Nicos Anastasiades, has quite accurately summed up the situation:

"A disorderly bankruptcy would have forced us to leave the euro and forced a devaluation."

Yes, Brussels and the IMF have finally decided to come to the aid of the tiny island, which accounts for just 0.2% of European output -- to the tune of roughly $13 Billion. But, this bailout is different. Indeed, the term "bail-in" has emerged, a reference to the fact that EU-IMF aid is conditional upon Cyprus imposing a hefty tax on its depositors. Not surprisingly, the Cypriots, among others, are less than pleased about this so-called "haircut".

Still, the question lingers: Why now? The sorry state of Cyprus' banking system is certainly no secret. What's more, the IMF has supported a "bail-in" solution for some time. So, why has the EU only recently decided to pull the trigger on a Cyprus rescue plan?

One reason can be found by taking a look at the composition of Cyprus' bank deposits...

There are three main take-aways from the chart:

1. European depositors' money began to flow out of Cyprus' banks back in 2010.

2. Indeed, most European depositors have already found the exit door.

3. Over that same period, non-Europeans (read: Russians) have increased their Cypriot exposure.

If the proposed haircut goes through, Russian depositors could lose up to $3 billion. No wonder Vladimir Putin is up in arms about the bail-in. Perhaps a different "red telephone" from Moscow will be ringing in Brussels soon. 

A bird in hand is worth two in the bush

Cyprus Bank Deposit Levy and Natural Gas Bonds

By Anthony Alfidi

Cyprus' president has pledged to cover the value of its imminent savings deposit levy with an equivalent value of natural gas bonds.

 It's hard to say whether Cypriot savers should take this promise seriously without some analysis of its viability.

Let's use the European bailout sum for Cyprus of US$13B as a proxy for the amount of savings about to be confiscated from Cyprus' resident depositors.  I need a proxy because I have no idea how much the government of Cyprus will actually collect from this levy.  The natural gas revenue needed to back the bonds that would make savers whole would likely come from the Aphrodite field.  Title to this field is unclear; Turkey has made a competing claim for the sovereign right to control drilling.  There is currently no pipeline from Cyprus to either Turkey or Crete which could deliver the gas to market; that would cost US$1B to build and Cyprus has no money.  Building a $10B LNG terminal is ten times as unlikely, because Cyprus is still broke.  The energy supermajor that ends up building it will get the lion's share of the revenue from the gas field as compensation for its costs and will have to deal with the likelihood of being shut out of other projects in Turkey. 

The lack of drilling and delivery infrastructure means that no Aphrodite gas will go to Europe until 2018 at the earliest.  A lot can happen with the price of natural gas in five years.  The wide availability of shale gas in the U.S. will keep the price down in North America.  Europe's need for gas is met mainly by Russia, and Gazprom can adjust its rates at will to pressure Russia's neighbors. 

There is no single European energy market and the price of natural gas by country varies widely.  The caloric value of natural gas is about 1000 BTU per cubic foot (cf), so this gives us a way to find the value of the Aphrodite field if we have a single market price.  I will use the U.S. price because the CME trades the Henry Hub futures market in natural gas, giving this particular commodity some price predictability for several years.    BTW, that's the instrument that global hedge funds will use to speculate on gas prices and that energy producers will use to hedge delivery contracts. 

The current U.S. natural gas Henry Hub spot price is $3.72 per million BTUs.

The Aphrodite field contains an estimated gross mean average of seven trillion cubic feet (i.e., 7 tcf) of natural gas, according to Noble Energy.

Math:  ($3.72 / 1M BTU) x (1000 BTU / 1 cf) x (7 tcf) = $26.04B total present value

The good news for Cyprus is that the total value of their natural gas discovery is about $26B, twice the value of what Cyprus is expected to receive in the bailout.  This begs the question:  Why didn't Cyprus just pledge the value of its gas field as collateral for the bailout instead of giving in to Brussels' demand that they shake down depositors? Brussels may trust cash up front more than the expected future value of gas revenues, given the competing sovereign claims and lack of infrastructure.  A bird in hand is worth two in the bush. 

The savings levy itself is not quite a done deal until a majority of the fractious Cypriot parliament votes for it.  This will be fun to watch.