15 ms·
The madness of the bailout in Cyprus
- chailatte 14y agoIf I were in Greece, Italy, Spain, or Ireland, I think I would pull out all my bank deposits but the bare minimum cash needed to cover obligations.
- dougk16 14y agoI've been thinking about this lately, and, at the risk of sounding like a doomsday kook, this seems to make sense to me (perhaps in a milder sense) no matter where one lives. My plan is, if I ever get over $X in my account, where X is some reasonable buffer to pay bills, etc., that I'll just buy gold with the overage[1]. Back in the day you'd at least get reasonable interest by keeping money in a bank, but nowadays it's really only the convenience of direct deposit and online bill pay that draws me. Even then, all these charges and penalties and sales pitches every time I enter a bank are really turning me off. [1] I acknowledge some logistical challenges with my plan if I become a millionaire.
- khuey 14y agoIf you think gold is a predictable and low-volatility store of value you really should look at inflation adjusted gold prices from 1980-2000.
- deleted 14y ago[deleted]
- dougk16 14y agoI didn't mean to imply that I would expect to make money from buying gold (if that's what you mean). Even if gold prices were expected to drop, I'd still be interested in buying it as an insurance policy. No matter how severe a crisis, once the dust settles, gold will always be worth something, for reasons I don't understand.
- deleted 14y ago[deleted]
- moe 14y agoSo, what do you propose he should do with his money? I have a hunch your little smarty-pants speech didn't help him one bit.
- khuey 14y agoYeah, you're right, the tone is unhelpful. My point is that there's nothing you can do with your money to ensure that it always has value, regardless of the magnitude of the crisis. There's always some risk. You can store your money in insured bank accounts, but we can see how well that's working out in Cyprus. You can store cash under your mattress, but high inflation will destroy its real value. You can buy gold and hoard it in your home, but there's no guarantee gold will be worth much, or that you'll even be allowed to keep it (see Executive Order 6102). You can buy land and if the state fails and thugs with bigger guns decide they want it more you're screwed. There's nothing you can do to eliminate all risk, and we're seeing now that risks we though were minimal (failures of deposit insurance schemes in the western world) aren't so minimal after all.
- seanmcdirmid 14y agoExactly, swapping a fiat paper currency for fiat metal is not useful. If you are a pessimist, buy guns, bullets and non perishable food, or invest in a secret mountain farm/retreat. Or you could just work within the system and try to help keep it from failing by running on the bank.
- wintersFright 14y ago'fiat' metal = metal by government decree?? fiat currency is intrinsically overvalued as it is valued by decree - by the threat of legal violence if you don't use it. There are no fiat metals. Your pessimist view is at the extreme end of the spectrum. Individual fiat currencies have eventually failed ever since they were invented. Each time a currency dies there are winners and there are losers, but it doesn't go all Mad Max - a new transactional currency is used (Zimbabwe) or they lop a few zeros off and keep going.... Well maybe the dog food eating bit of Mad Max is true for the losers whose wealth was stored in the currency that failed.
- caf 14y agoThis does depend on where you live. In some places, mortgages are offered with "offset accounts", where your positive balance in the account offsets your outstanding debt on the mortgage, and in doing so reduces the interest accruing on the loan. This means that your excess funds effectively earn the mortgage rate of interest (and since interest avoided isn't "income", this isn't taxed as deposit interest would be either), so it's an attractive option if you have a mortgage.
- DJN 14y agoThat sounds really interesting. Can you provide a link to an example or source of additional info. Thanks
- wintersFright 14y agooffset accounts are common in Australia http://www.news.com.au/money/banking/offset-accounts-help-lower-costs/story-e6frfmcr-1226449028274 http://www.news.com.au/money/banking/offset-accounts-help-lo...
- caf 14y agoLikely anywhere that variable-rate/variable-term mortgages are common (ie. partially funded by short-term securities).
- seanmcdirmid 14y agoSounds similar to America's interest exemption.
- tatsuke95 14y ago>"Back in the day you'd at least get reasonable interest by keeping money in a bank, but nowadays it's really only the convenience of direct deposit and online bill pay that draws me." Back in what day? You mean, like, 5 years ago? We're still amidst one of the worst recessions ever and rates are at all time lows. No, you don't get riskless real returns right now. But you can also borrow at exceptionally low rates. That will change in the future. Hording physical gold outside of diversification is a bad idea. You have storage costs, pay a premium over spot when you buy it and eat a spread when you sell it. And, as another commenter said, look at its real returns; not spectacular. Want to know what was a good buy? The stock market, 4 years ago. When everyone was screaming about the world imploding and it was at irrationally low levels. But that's just the thing: you have to be willing to zig when others are zagging.
- dougk16 14y agoAs I said below, it would be more of an insurance policy than an investment, but I'm still willing to believe it's a bad idea for that reason as well. I don't plan on buying enough gold that it becomes a logistical challenge to store though...basically just as a buffer if things go south. Something disturbs me, especially as a hacker, knowing that the physical manifestation of a good chunk of my life's work is just bits on a bank's computer.
- gasull 14y agoWith bitcoins you don't have to worry or pay for storage like you do with gold.
- crag 14y ago" I'll just buy gold " This only works if you physically have the gold. Having a note stating how much gold you own, which is housed someplace beyond your reach isn't security. You are still relying on the market/bank. And even if you did have the gold, this presents a slew of other problems; security and storage are two that come to mind.
- omgyeah 14y agoBut if everybody keeps thinking like that, in a few years time in the place of "Greece, Italy, Spain, or Ireland" you will read "Germany, France and UK". It's just a worldwide poker game, the banks are winning and the small guys are being forced out of the table.
- pinaceae 14y agojust posted this in the other thread (the economist one): BCG Study, September 2011: Back to Mesopotamia? The Looming Threat of Debt Restructuring http://www.scribd.com/doc/130778664/BCG-Back-to-Mesopotamia http://www.scribd.com/doc/130778664/BCG-Back-to-Mesopotamia The concepts and numbers are already there, Cyprus is a small test bed for this.
- Evbn 14y agoEventually the small guys get so desperate and bored that the only way to pass the time is to violently attach the big guys.
- rwallace 14y agoWhere else would you put your money? Keeping large sums of cash in your home is stupid and dangerous, commodities are volatile (bitcoin behaves like a commodity in this regard), real estate has high associated costs, stocks can go down as well as up.
- seivan 14y agoExpect this to happen all over Europe. In particular England. It has happened before and will happen again, until the fuckers in charge understand and learn. But no one would vote on the guy calling for budget cuts. Everyone likes the guy with the hand outs.
- desas 14y agoAccording to the article government spending wasn't the problem here, the problem was Cypriot banks making bad investment decisions.
- khuey 14y agoMy understanding is that banks in Cyprus are heavily invested in Greek bonds (makes sense given the shared language/culture/etc) and that the Greek bailout resulted in the bondholders taking a 50% "haircut" which set off the current banking crisis in Cyprus. And now the "solution" to the problem in Cyprus is likely to set off bank runs in other troubled Eurozone economies. One domino knocks over the next ... Edit: half of this is in the article which I didn't read before commenting ;-)
- dageshi 14y ago"England" isn't in the euro, it has a central bank that can and will print money if required. If anything chances are the UK will be on the receiving end of any money transferred out of Greece, Portugal, Spain e.t.c. because it's within the EU (and therefore other EU citizens can easily open bank accounts) but not inside the eurozone (the UK has not funded any of the EU bailouts except via contributions to the IMF)
- _pferreir_ 14y agoi.e. "has one's cake and eats it"
- _pferreir_ 14y agoi.e. "has one's cake and eats it"
- TillE 14y agoIt's absolutely insane. I can't understand how they think this will cause anything other than a catastrophic bank run on Tuesday. At least they get to skim off a percentage before the banks collapse, I guess? Someone's benefiting, somehow.
- samstave 14y agoThey knew it would cause this Tuesday which is why it is done now so that the peasants have to wait several days to be able to do anything. In the mean time the elite have days and resources to do what they need to do. These are acts of war on citizens by corporations and should be treated as such.
- omgyeah 14y agoLet's just hope that this bank run will lead to a chain-reaction worldwide bank run, which in turn will lead to a much needed society's hard reset. But it won't.
- jaydz 14y agoBanks are closed on Tuesday too (they extended the bank holiday).
- ChuckMcM 14y agoThe bank run was an entirely predictable result. And one which the courts may soon have to untangle. I too expect that capital will move from weaker banks into stronger ones and that will result in a liquidity crisis. Along one path the European Union dissolves, and along another path nation-state sovereignty dissolves. Either way it seems pretty clear that countries with larger economies don't seem to be particularly willing to continue to let poorly run smaller economies drain them of resources.
- lrei 14y agoWhy would the EU dissolve if the Euro collapsed? Only 17/27 countries in the EU are in the Eurozone. It would be significantly more complicated to dissolve the whole European Union and dealing with a political and legal mess that would ensue. Dissolving the Eurozone would be comparatively easy. Also the concept that somehow "poorly run smaller economies" were draining the resources of the "larger economies" has no basis in reality. It doesn't take a lot of research to find out who benefited the most from the Euro. Hint: not any the "poorly run smaller economies".
- deleted 14y ago[deleted]
- tatsuke95 14y agoLike 90% of the past 5 years, this isn't a banking problem, it's a government problem. The IMF can suggest ways to fund a bail out, but the government has to accept it. Confiscating your citizens money is a horrible precedent.
- ams6110 14y agoWhat is any tax but confiscation?
- tomp 14y agoUsually, it's not retroactive.
- waterlesscloud 14y agoIt often is retroactive. California is looking at a retroactive tax on angels and entrepreneurs right now. http://www.businessinsider.com/california-entrepreneurs-retroactive-tax-2013-1 http://www.businessinsider.com/california-entrepreneurs-retr...
- deleted 14y ago[deleted]
- mkr-hn 14y agoWeakly moderated forums are usually a bad place to discuss the role and funding of government.
- wintersFright 14y agoGoverments steal purchasing power already via targeted 2% inflation. There is a precedent already - this is just a different way to skin the cat (or more to shear the sheep!)
- stefantalpalaru 14y agoIt's not just the banks. Cyprus has a huge public debt[1]. The measure is also not the first of its kind in the EU - Italy did it in 1992 to cover a financial emergency. They took "only" 0.6% from all bank accounts back then. [1] http://www.cyprus-mail.com/cyprus/highest-annual-increase-government-debt/20130124 http://www.cyprus-mail.com/cyprus/highest-annual-increase-go...
- grannyg00se 14y agoAccording to wikipedia, Cyprus' public debt is less than Greece's, Italy's, USA's, Canada's, Germany's, and many others.
- omgyeah 14y agoYeah, but Cyprus, Greece, Italy, Portugal and Spain don't have any nukes ;)
- feee 14y agoCyprus' public debt took off after they were downgraded by Moody's and friends last year (meaning they were no longer able to borrow). This happened because the EU--in their infinite wisdom--wrote off a €4b loan (in bonds) Greece owed to Laiki (a Cypriot bank). So that's €4b the government lost overnight, and round about €10b it's "lost" since 'cos they can't trade. Public debt for 2011 was 71.1 of the country's GDP.[1] [1] http://www.centralbank.gov.cy/media/pdf/AnnualEconomicIndicatorsFeb13eng.pdf http://www.centralbank.gov.cy/media/pdf/AnnualEconomicIndica...
- italophil 14y agoThe article is a lot of fear mongering. It ignores the fact that before the EURO the Southern European countries had high inflation rates and hence didn't need bail outs. These high inflation rates devalued savings in the local currencies and often created similar runs on banks. Since the smaller economies have a low impact on the EURO inflation this is an alternative adjustment.
- papercruncher 14y agoI was born and raised in Cyprus and my entire family still lives there. I spoke to a few of them this morning and whether the measures pass or not (parliament still needs to approve) they all plan on making a run to the bank asap.
- camperman 14y agoMoney's already been taken out of the 9,9% accounts dude. And electronic transfers are frozen.
- papercruncher 14y agoYes, but as the article pointed out, trust is broken and everyone thinks this will happen again
- camperman 14y agoAh, OK. Yes I agree. In fact, I think this action will be viewed very seriously across the whole of Europe and not just Cyprus. I expect to start seeing bank runs starting next week in the PIIGS countries.
- DannoHung 14y agoFunny that it's targeting only bank accounts and completely ignoring all other liquid assets. By which I mean: Holy shit, if this isn't targeted directly at middle class and lower households and small businesses, I don't know what would be. Also, these guys have all got to be huffing paint if they think a run on the banks won't be a direct result EVEN AFTER THE MONEY IS GONE.
- jonascopenhagen 14y agoActually the Russian mafia supposedly has a lot of money in the tax haven that is Cyprus. (Source (in Danish): http://www.dr.dk/Nyheder/Udland/2013/03/16/100422.htm http://www.dr.dk/Nyheder/Udland/2013/03/16/100422.htm)
- mcartyem 14y ago10% of the $34.6 billions Russians have parked in Cyprus is a lot of money. http://www.businessinsider.com/cyprus-bailout-russian-angle-2013-3 http://www.businessinsider.com/cyprus-bailout-russian-angle-... http://www.bloomberg.com/news/2013-01-21/russia-cyprus-money-flows-imply-laundering-schaeuble-says.html http://www.bloomberg.com/news/2013-01-21/russia-cyprus-money...
- hmottestad 14y agoWe have: - Stocks - Derivatives of stocks - Natural resources (oil/gold) - Derivatives of natural resources - Bonds - State bonds - Real estate - Land (without a building) - Undervalued company that owns all your stuff and you own the company (put that one in there, since it's a usual and practical way of owning real estate and more) No, let me think. Let's just stick with people pensions. So much better.
- hkmurakami 14y agoMy understanding is that securities (stocks, bonds, derivatives) are under your name so you maintain ownership of the securities even if the ibank that acted as your broker goes down. (This is why money management companies maintain separate accounts for each of their clients rather than have an aggregate pool) So the Cypress banks going bankrupt wouldn't have affected these securities. The deposits on the other hand would have potentially lost a huge fraction of their value. (Though I still don't think this was a wise move...) edit: I wonder what warranted a downvote in this comment of mine?
- tnuc 14y agoEven after the tax is taken out there will be a huge run on all banks in Cyprus. If I was in Cyprus, I would be buying gold and burying it somewhere safe :)
- gasull 14y agoBitcoins are better for that matter since you don't have to worry so much about storage. You can easily cross a border with them. Or you can create a brainwallet (basically a passphrase that recreates a wallet), delete any data of the bitcoin wallet from your electronics, cross the border, then recreate the wallet from the passphrase. https://en.bitcoin.it/wiki/Brainwallet https://en.bitcoin.it/wiki/Brainwallet
- paulhauggis 14y agoThis is bad advice. Bitcoin isn't stable enough yet to put my life savings into it.
- jasonlingx 14y agoA good reason to keep your cash in bitcoin ;)
- lrei 14y agosure because bitcoin value never went down overnight. Not even 10% like the cypriot savings. Oh wait, never mind. It went down 30% in a single day: http://www.dailytech.com/Digital+Black+Friday+First+Bitcoin+Depression+Hits/article21877.htm http://www.dailytech.com/Digital+Black+Friday+First+Bitcoin+...
- icebraining 14y agoThe Cypriot savings didn't lose value, they lost a part. It's not the same thing at all. The proof is that Bitcoin returned to its previous value (and then some) rather quickly, while the savings will never return.
- lrei 14y agoLosing value and losing a part is the same thing. Say you have 100 dollars. And with 100 dollars you can buy 100 beans: * The dollar loses 10% value. Now you can only buy 90 beans. * You lose 10% of your 100 dollars. Now you only have 90 dollars. You can only buy 90 beans. Compare that with: * Cyprus banks go bankrupt, the euro loses 10% value - never mind that people actually lose 100% of their money. * Cyprus savings take a 10% cut, Euro keeps 100% of its value. Sure it's a simplification but I think it's a valid point.
- icebraining 14y agoThe Euro losing 10% of value in relation to what? USD? Yen? And even if the dollar loses 10% of the value vs every other currency, it's not true that you can only buy 90 beans, because you're not the only one with dollars: there are farmers who sell in dollars, and buy their stuff in dollars, and so will probably keep their prices. When everyone you trade with uses the same currency as you, there's no value to be lost or gained relative to them, and since Cyprus trades in Euros, a loss of 10% versus say, the dollar, wouldn't automatically make everything 10% more expensive.
- st0p 14y agoTo quote the article: "This is why The IMF and the ECB has stepped in and bailed out the banks. Rumor has it that without the bailout Cyprus two largest banks would be bankrupt in a matter of days. A situation no economy can survive, especially not one with a disproportionally large banking sector." I don't see the problem to be honest. We (I live in the Netherlands) are paying a lot of money to help them out, which is okay. But yeah we're asking the inhabitants of Cyprus for a sacrifice too. The 10% tax is a very crude way to implement this, but dire times need dire actions.
- omgyeah 14y agoI wish you won't ever see the consequence of dire actions against you or your family. You have no idea how it feels like. You have no idea how unfair it is. In case that you have not realized it, you are not paying any money. You are loaning with loan-shark rates. Have you ever heard of a loan-shark losing money? Things are much more complicated than black or white. Greece and Cyprus are not independent countries. Their very existence was built on loan. Loan with a purpose. And this purpose fulfills as we speak. These countries' sovereignty is more than a joke, more than a century old. You feel cheated. Greeks (people living in Cyprus are also Greeks) feel cheated. Every single person feels cheated. Sadly, we live in the dystopian future where international mega-corporations (a.k.a banks) have more power than some countries. You can however blame the rotten democratic system that we live by. You can blame human kind's greedy nature. But you can't blame people of being stupid. The society can only be evaluated by the way it treats its weakest members. You can't blame stupid. You must protect them. This is what makes a society virtuous. Protecting its weakest links. Everything else is pure low-level greediness instinct that has driven us from living into caves to the modern world. If thinking that poor nations had it coming helps you keep your conscious clean, so be it. But it has always been about survival of the fittest and not survival of everybody and apparently it will keep being this way. Until human kind becomes one. Above races, religions, borders and whatever. Amen :)
- st0p 14y ago>> In case that you have not realized it, you are not paying any money. O yes I am. I'm paying taxes here to keep your economy afloat. I don't mind that, but I'm not going to respond all of the rest you posted.
- znowi 14y agoI say let them default. Can't manage your assets - go out of business. Employ shady schemes - go to jail. Now this would be fair.
- moe 14y agoWait a second. So I lend you a thousand dollars, for a nice interest rate. Then you go bankrupt or just disappear. And in this dire situation I should not be allowed to collect $1 from a thousand random citizens to compensate my loss? What an absurd concept. </sarcasm>
- omgyeah 14y agoUnlike people, countries don't disappear. They have many (natural) resources standing still on the earth. Which can be used to pay back loan. But greed is good. I can have both the other country's natural resources and $1,000 from my citizens. Win-win for me. Lose-lose for everybody else.
- tatsuke95 14y ago>"They have many (natural) resources standing still on the earth. Which can be used to pay back loan." Like the German war reparations after WWI? That worked out well for everyone.
- moe 14y agoIf you feel a need to invoke Godwin you should at least try to be intellectually honest. The citizens in the tumbling EU-nations are paying what they perceive as unfair reparations already (Justification: "You lived beyond your means" - most citizens most certainly didn't). The radicalization is already happening (cf. elections in Greece and Italy). You make it sound like taking 6.75% out of the small guy's savings account would somehow be better than stretching out the pain or (god forbid!) claiming the wealth back from those who extracted it in the first place.
- 14y ago
- ameister14 14y agoThis makes me extremely uncomfortable and I don't understand how anyone could think this was a good idea. We have high unemployment across Europe, Catalunya is attempting to become independent and there is open talk in the press about a military coup if that goes through. Meanwhile, Greece elected a bunch of fascist mps, and now this? Imagine if you woke up tomorrow and 10% of your savings were gone. What would you do? Take your money out of the bank, sure, but also immediately attempt to remove your government. Not exactly a move towards stability here.
- wintersFright 14y agoAt the end of the day you have two camps: debtors and savers. You can't force a tractor factory to make a factory once it has closed down ie: you can't force a debtor to pay debt they want to default on. The only way to rebalance the system is to screw the savers. It was always going to happen, the question is whether by stealth via inflation or overtly. It looks like they are taking the overt path. The problem is the savers saving in the instrument of debt: currency.
- davorb 14y agoI'd like to add one thing, that those people weren't just hoarding that money. What happens now is that Cyrpus is losing out on some badly needed investment.
- deleted 14y ago[deleted]
- Tuna-Fish 14y agoThe traditional answer in this situation would have been to devalue the currency. Cyprus is not capable of doing this because they do not control the Euro. It's important to note that 10% haircut is much, much less than what would have happened if Cyprus was not under the Euro and had devalued. Just a few years ago, everyone in Iceland lost more than 50%.
- danenania 14y ago
- kubindurion 14y agoThis is THEFT. I leave my country if that happens to me. (I am from Poland, EU)
- caf 14y agoWhat about if the alternative is no bailout, the bank goes under, and you get almost nothing back at all? Like it or not, when you deposit 100 euros in a bank, you don't have 100 euros anymore - you instead now have an unsecured bank debt with a face value of 100 euros.
- krcz 14y agoAll banks (at least in Poland) are backed up by kind of guarantees fund, which allows to return some money to clients in case of bankruptcy. (WRONG INFO: It's 100% for amounts < 1000 EUR, 90% for amounts between 22'500 EUR and 0% (no guarantees) above that.) EDIT: actually it's 100% up to 100k EUR and 0% above. But it's kind of risk you should be aware of when keeping money in bank. Simple taking money from accounts under risk of bankruptcy isn't.
- khuey 14y agoAnd what good did that 100% up to 100k EUR do people with bank accounts in Cyprus? That's the whole point. They broke the deposit guarantee. Now you really do have an unsecured bank debt.
- krcz 14y agoWhat do you mean? Won't things described here: http://www.centralbank.gov.cy/nqcontent.cfm?a_id=8158&lang=en http://www.centralbank.gov.cy/nqcontent.cfm?a_id=8158&la... work in case of bankruptcies of these two banks?
- khuey 14y agoBut the banks aren't going bankrupt. If you have 100k EUR in a bank account in Cyprus today, you're going to get 93.250k EUR on Tuesday. If instead the bank went bankrupt you'd have 100k EUR in your bank account on Tuesday too thanks to the deposit insurance. You'd be better off if the bank actually went bankrupt! The typical pro-bailout argument at this point is that if Cyprus lets the banks go bankrupt the deposit insurance scheme (in other words, the government) won't be able to make everyone whole. That argument is a tacit admission that bank accounts really are unsecured.
- acd 14y agoThe rich are getting richer for each year that goes, Middleclass are therefore relatively getting poorer compared to the rich. Yet we bail out the banks that supports the debt money of the super-rich. Thus we save the rich and put austerity packages on the poor. There is not money for the principal in the current economic system. Almost all money is debt. Less than 5% of banks assets are cash, the rest is debt. The current economic system is a gigantic Ponzi scheme, were wealth is transferred from the working class to rich. Since there is not money for the principal the system will crash by itself since its inherently instable, but no we keep saving the debts the rich has created. If central banks did not create at least 2% inflation new money in its goals, since there is not money to pay the interest principal in the system, all banks would eventually go bankrupt. We should create a new economic system with debt free money.
- gasull 14y agoAgreed. Except that new economic system already exists. It's called Bitcoin. Also, debt money isn't necessarily bad if it isn't controlled by politicians and bank oligarchs. Ripple is a good example of this.
- ryguytilidie 14y agoI don't understand how someone decided the Eurozone was a good idea. It really is probably the biggest economic disaster in modern history.
- uiri 14y agoThey tried it before with the Latin Monetary Union. It collapsed for a few reasons, mostly due to the fact that it was a gold and silver standard. I suppose the people who created the Euro thought that the problems with the LMU would be avoided with fiat currency.
- petercooper 14y agoThough no more a bad idea than the US dollar from the perspective of the federalists who most strongly supported it. The problem is the union is too weak to force it to work in the way it can in the US.
- kansface 14y agoWedding essentially third world countries with Germany's isn't healthy, but at least it stops wars.
- VLM 14y agoTemporarily
- _pferreir_ 14y agoI'm curious as to which of the countries currently in financial trouble can be considered "third world".
- JumpCrisscross 14y agoWhen a sovereign fails, its banks fail, and private sector losses are virtually assured. The question is who bears the burden. Roughly half the deposits in Cypriot banks, with assets five times its GDP, are of Russian, Greek, or British origin [1]. They were attracted by high deposit rates (roughly double EMU average) and a system tolerant of likely tax evaders. >"This whole thing is entirely unfair for the people living in Cyprus. The average citizen had nothing to do with the banking sector stocking up on Greek debt, but now they have to pay for it." Foreign deposits are flighty. The loan-for-austerity solution is too slow. The Cypriot financial minister has already noted "substantial outflows" from banks over the past few weeks [2]. Announcing a future tax would leave the burden exclusively on ordinary Cypriot depositors. This measure was intended to help the Cypriots, not burn them. Further, the mark-downs on Greek debt is a proximal, but not the root, cause of the problem. The IMF warned Cyprus in 2011 to raise capital levels, potentially by slashing deposit rates - it did not. Ratings agencies chimed in, in 2012, that private sector losses would result if Cyprus did not increase contributions to bank capital. Complicating the situation is that 15-20 percent of Russian bank capital and nearly 10 percent of Russian corporate deposits sit in Cyprus - there was probably external pressure to keep the banks leveraged. Pre-crisis, Cyprus stood out for its high growth (almost 4%) and low unemployment (low of 3.6% in 2008), despite a falling savings rate, rising labour costs, and a red hot real estate market following its accession into the eurozone in 2004 [3]. Today, we have a zero growth economy with a banking crisis that would have tipped its debt/GDP from 87% to 145%. Cyprus needs a capital injection equal to half of GDP. This was never going to be painless. >"So what do investors, businesses, and savvy savers do? They pull their money from banks in the troubled euro countries. No need to take the risk, even if it’s small." This is unlikely - the EU banking environment is already highly re-patrimonialised. Non-financial corporate and high net worth deposits have already fled to the degree that they can. Domestic depositors are, for better or worse, less flighty (and savvy) than senior bank debt investors - hence the logic for preserving their latter at the expense of the former. Also Cypriot banks have very little senior bank debt (0.3% of assets for Laiki [4]). This is cruel, yes, and I sound with The Economist's criticism of the tax levied on minor accounts (those holding less than €100 000). But forced de-leveraging will be cruel. Given the political constraints from Deutschland limiting the ability of the European Central Bank to launch into Fed-style monetary base expansion and its Landesbanks preventing euro-wide deposit insurance, the bank regulatory constraints imposed by a country relying on flighty deposits for financial stability, and the economic constraints of a highly-indebted nation in the middle of a geopolitical brouhaha between Greece, Turkey, and Russia slated for near zero growth in the near future, this is not a terrible deal. Note that Iceland, which was in a similar position in 2007, saw its economy crater by nearly 1/3 from 2007 to 2011, or about 9% annually. Peak (2007) to trough (2009), 3/5. [1] http://blogs.ft.com/beyond-brics/2013/03/13/russias-cyprus-problem/#axzz2Nkqaa1N5 http://blogs.ft.com/beyond-brics/2013/03/13/russias-cyprus-p... [2] http://www.ft.com/intl/cms/s/3/83fb0dd2-8802-11e2-b011-00144feabdc0.html#axzz2NeRbHw8o http://www.ft.com/intl/cms/s/3/83fb0dd2-8802-11e2-b011-00144... [3] https://www.imf.org/external/pubs/cat/longres.aspx?sk=25382.0 https://www.imf.org/external/pubs/cat/longres.aspx?sk=25382.... 2011 Cypriot IMF Article IV Consultation [4] http://ftalphaville.ft.com/2013/03/16/1425732/a-stupid-idea-whose-time-had-come/ http://ftalphaville.ft.com/2013/03/16/1425732/a-stupid-idea-...
- ikassinopoulos 14y agoThe problem is worse as far as it concerns loans here in Cyprus. Let's say I have a loan for 100k to buy a new house. Now I have 90k, I still owe 100k to the bank and I cannot afford to buy the house without a new loan. The same goes for startup fudings, student loands and who knows what else. there is no control over special cases and most of the wealthy ones have already moved their money to foreign banks a few weeks ago. Jobs and salaries are still safe and people will not be on the street. Even I as a student not currently in Cyprus had my account frozen and lost some 100s of euros. I hope the country is now in a way saved but this is still a disaster for some of us. However I don't feel the same for the eurozone and don't see how it is possible to keep Italian banks from drying out during the next few weeks.
- scotty79 14y agoThat's basically end of banking on Cyprus. Who will keep money at the place that arbitrarily decides to steal 6.75% of it (or 9.9% if you are rich)? Also if I lived in Portugal or Spain I'd be on my way to the bank right now. Well actually I'd just transfer almost all of my money to mtgox (or some european market) and buy bitcoins.
- gasull 14y agoI think for people living in Europe it makes more sense to use Bitcoin Central, since they accept SEPA transfers in euros without needing to convert them to dollars before buying bitcoins: https://bitcoin-central.net/ https://bitcoin-central.net/ https://en.bitcoin.it/wiki/Bitcoin-Central#EUR https://en.bitcoin.it/wiki/Bitcoin-Central#EUR
- siculars 14y agoThis is 100% contagion for depositors in all shaky countries. If they can do it in Cyprus they can do it anywhere. I would expect huge inflows into Germany to continue matching outflows from everywhere else in southern Europe. Insanity.
- 3dptz 14y agoOff by 80% error "You could wake up one day and see that your €1 million has shrunk to €100.000 overnight." Should be "1 million has shrunk to 900.000" or "1 million has shrunk by 100.000 overnight"
- dwaw 14y agoI HATE NIGGERS
- dwaw 14y agodwa
- romarin 14y agoWhat is worse for the EU and Cyprus: default on its sovereign debt or default on bank deposits insurance? I would think the latter because potential EU wide bank runs and reduction of foreign investments.
- romarin 14y agoWhat is worse for the EU and Cyprus: default on its sovereign debt or default on bank deposits insurance? I would think the latter because potential EU wide bank runs and reduction of foreign investments.
- Alberto_ben 14y agoWhy is anyone talking about bitcoins? You can put your money into bitcoins but you can't actually take any reasonable amount of money "out". It is a simple Ponzi scheme created by anonymous hackers to take people's money. Look at the largest "exchange". How much do they let you convert into actual money? The main one limits you to $1K per day or $10K per month. But you know what? They don't have to convert anything for you if they don't want to. There are no laws, nothing. One day, your bitcoins will be completely and totally worthless. There is no government to back it up as a store of value. There are a bunch of anonymous hackers who manipulate the price to get more people to give them actual money while they give them worthless virtual numbers. And everyone thinks they are making money as the price goes up and up. But try and take any of that money out. Guess what, it won't be there. The exchanges will close and poof, you have nothing. Some of you are really, really gullible.
- Geofflee 14y agoThat is incorrect. It does not require an exchange for me to move money in and out of Bitcoins. All I have to do is find another human who is willing to trade Bitcoins for another currency, and vice-versa. For example, I could do this on eBay or a forum. The large "exchanges" merely make this process more expedient. At the core of this concept is that people are willing to trade one good for another good, and in this case, it's Bitcoins for another currency.