In which: one of the Koch brothers goes crazy, and why capital controls don’t stop money leaving – they just stop it leaving too quickly. And the upside of bureaucratic paperwork.

Good morning

The headlines:

  1. Stop wining.

    Link: that Koch.

    One of the Koch brothers (specifically – William) bought “fake” wine at an auction and has spent the last five years suing the seller. Even after the seller offered to reimburse.

    In 2004/2005, Willy bought 36 bottles for $500,000. Of those, he reckons 24 of them are a bit dodge – and they cost $320,000. And honestly, I have no real criticism to give here. The Koch brothers give thousands and thousands of people jobs – and if part of the social cost of that is one of them dropping half a mil on wine, then that’s what it costs and more power to them.


    According to the defendant lawyers, this trial has cost both sides cumulatively around $14 million. And you have to ask yourself – does that really make sense? Spending 40 times the supposed “loss” in order to what – exact retribution? Over some wine?

    I mean – there’s no perspective here. And you can’t make this “relative to his overall wealth” – increasing your loss by over 40 times in order to satisfy ego, when the other party has tried to take blame and reparate, is ridiculous regardless of class.

  2. Capital Controls.

    Link: the details leak.

    The Cypriot banks will open today, under a tight regime of capital and withdrawal controls. Withdrawals will be limited to €300 per day; and transferring money to foreign accounts will require an Everest of paperwork.

    The controls will be in place for the next 7 days, subject to review. Of course, five years ago, Iceland also implemented “temporary” capital controls – and those are yet to be lifted. But let’s ignore that because “It will serve no purpose for us to run to the banks and try to find ways to get money. To get it where?” [~ Yiangos Dimitriou, head of Audit at the Central Bank of Cyprus].

    For more specific details about the capital controls, you should visit Zero Hedge.

    The important thing to note is that transfers outside the republic will be permitted, provided that the payments are for commercial transactions within the ordinary course of business. And, you know, all transactions can be made commercial, and all business can be ordinary.

    An example: my hypothetical friend Costa is the director of a Cypriot holding company that can make a prepayment to a foreign subsidiary in another tax haven in order to acquire land/equipment/inventory. I am a Russian with a personal bank account in Cyprus. I loan him the money to make the prepayment. As internal transfers are not so restricted, the transfer goes through. The Cypriot Holding Company then makes the prepayment to the foreign subsidiary, which is a commercial transaction in the ordinary course of business. The foreign subsidiary then pays the money into my non-Cypriot bank accounts, with Costa getting a 20% cut of the initial amount. But hey – that’s less than the 40% loss otherwise.

    I’m just saying that the benefit of capital controls is not that the money stays within Cyprus indefinitely. The benefit is that the outflow is now controlled, measured, and regulated by the speed of processing paperwork. And if activity hots up and there’re too many transfers happening, well then there’ll suddenly be a “backlog” at the Central Bank, and everything will slow down until everyone calms down.

That’s all for now.

Have a good day.