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The Cyprus bail-out: Unfair, short-sighted and self-defeating
- pinaceae 14y agoFunny thing is - this is likely just a test run. BCG wrote the scenario up back in 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 It describes exactly the case for one-time haircuts across all citizens, neatly laid out per country. The money needed to turn those deficits around needs to come from somewhere, just printing it does not work. Certain finance bloggers are already going apeshit about this. And for those of you in the US, snickering at the European victims - it lists the US as well, with the need for a 26% haircut to balance its books. Sleep well.
- trusche 14y agoFascinating read, thanks for that. For those that like scribd as much as I do, here's a direct link to the report (PDF): http://www.bcg.com/documents/file87307.pdf http://www.bcg.com/documents/file87307.pdf
- camelite 14y agoHoly God. I'm Irish and I knew we were in a deep hole, but... wow we are really [insert dispairing profanity]
- krcz 14y agoThis is exactly what I thought. They must know it's going to end in bank run. And they want to see if they can somehow manage it.
- hristov 14y agoCYPRUS. That is the name of the country. What you typed is a completely different thing. I thought the semiconductor company was getting bailed out.
- pg 14y agoIn case anyone is confused, the original title was "Schumpeter on the Cypress Bailout." Incidentally, to those who complain about mods changing titles: we fix stuff like this constantly. All day long we quietly fix breakage, and every month or so we revert a title that someone was attached to, and we get an indignant mob bitching at us.
- jey 14y agoMaybe the submitter's original title should be kept in a small font or a tooltip or something, for both completeness and transparency.
- viraptor 14y ago> indignant mob bitching at us Any chance that every month or so a moderator makes a bad decision and the mob calls it out correctly? When did HN become about mods -vs- unwashed masses? Surely this could be solved in some way making all sides happy... (old title in parens, majority voting on title, etc.)
- deleted 14y ago[deleted]
- hristov 14y agoI agree that in this case a change was called for. I usually do not complain about misspellings, but sometimes a misspelling completely changes the meaning. Personally, I have no problem with mods changing titles as long as they do it in order to avoid confusion.
- thaumaturgy 14y agoI suppose I'm a member of that indignant mob, though I have no problem with fixing spelling errors or linkbait or inflammatory titles. But the flip side of the loud indignant mob is the quietly indignant mob; a few days ago I submitted an item that I thought might be worthwhile, except that the best-formatted (easiest-to-read) source, nbcnews, also happened to be the one with the worst title. So, I used the title for the same article from the AP instead, and within a few minutes a moderator had mindlessly changed it to match the crappy, inflammatory title from the article. I didn't bitch to anyone though, because it's clear that nobody's mind is going to be changed, but I wondered why HN doesn't just automatically pull the title from the submitted article. There's really no point in my putting any effort at all into a title. obtw, a good rule of thumb in customer service is that for every complaint you get, there were 10 other people that had the same problem but didn't put the effort into telling you about it.
- fishcakes 14y agoGerman bankers sending a message to people to move their money to Germany because it isn't safe elsewhere
- wsc981 14y agoWould the money be safe in Germany? I think I much prefer to have my money (little as it is) in a bank outside of the Eurozone. Perhaps in one of the South-America or BRIC countries if at all possible.
- fingerprinter 14y agoReally? BRIC? Perhaps a few of the most corrupt/oppressive/restrictive/authoritative/land grabby/no-due process governments in the history of the world? You'd feel safer there? Not Canada, US, UK, Australia, Japan? I'd take any one of those over BRIC any day of the week.
- wsc981 14y agoWell perhaps all of the BRIC countries wouldn't make sense, but if money is stored on a bank in Brazil or China I would expect it to be reasonably safe. The point I tried to make was that I wouldn't like to store money in countries too closely linked to the Euro and (perhaps) US Dollar.
- potatolicious 14y agoI think he's talking about stowing his money there, not himself. Corrupt, oppressive, authoritative regimes are more likely to screw their own people than valued foreign investors. Theoretically.
- tomjen3 14y agoWhat is wrong with Brazil?
- seivan 14y agoSingapore. Germany is the last fucking place I would put my money. Income tax around the 50-55% bracket. Good luck.
- riggins 14y agoThe crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.” -Rudiger Dornbusch If I was Greek, I wouldn't have money on deposit at a Greek bank. It surprises me that at a minimum the Greece financial system hasn't ice-nined already. We're witnessing history.
- avn2109 14y agoCan you shed any light on the practicalities of moving one's money beyond local government's reach? This is something I've wondered about for a long time.
- riggins 14y agoI don't have any special insight. I'm just articulating my surprise that all the turmoil hasn't triggered a bank run sufficient to cause a crisis. When you can lose 7% of your savings overnight, even money in the mattress starts to look more attractive than a bank.
- rwmj 14y agoSince Greece is still in the Euro, you simply turn all that money into Euros and keep it under your bed (or preferably in a safe). The upside is that the government can pretty much do nothing about this as long as you don't tell anyone about it. The downsides are many and various: 1. You lose whatever the inflation rate is per year (eg. 3%-5% of your savings annually). 2. Keeping cash or equivalents around is a security problem. 3. If everyone does it, there are bank runs which collapse all banks. It's downside #3 which everyone is worried about here, since people in Greece, Spain, Latvia (according to the article), etc, are looking at Cyprus, and are going to be concerned that the same haircut might happen in their own country.
- kybernetyk 14y agoTo counter the inflation effects you could just buy Gold instead of Euros. Gold offers also a higher value/volume ratio than paper money. ;)
- omgyeah 14y agoThis is nothing more than a warning for the rest of the countries with "failing economies". Banks can afford destroying people's lives to simply increase numbers in excel sheets. Greed is human kind's drive force and it's unstoppable.
- OGinparadise 14y agoThe Germans have had enough of this and when they can (couldn't in Greece, even though the population suffered) they let others share in the pain. Cyprus along with Dubai is known as a place to send your hard stolen billions so you could understand the goodwill towards them. Edited to add: Cyprus also doesn't make it easy for EU. EU has master plans, namely more or less to get along with Turkey to the extent they can, and to start the remaining Eastern European countries in the EU path. Cyprus were let in EU as a divided country, only after Greece (their sister /mother country) threatened to veto any new other members unless. Once Cyprus got in they threatened veto against cooperation with Turkey, the other part of the island etc., making work much harder for EU and especially NATO. US would like for EU and NATO to cooperate but Turkey is a member of NATO but not EU and Cyprus is a member of EU but not NATO. Both can veto but Turkey has a million man strong army, and has been a NATO asset for 60 years. In other words, they were in for some payback. A tiny country played the entire EU for fools for a long time. http://www.bing.com/search?q=Turkey+eu+cyprus+veto& http://www.bing.com/search?q=Turkey+eu+cyprus+veto&
- magoghm 14y agoI don't know what was the specific reasoning behind what they did, but I believe it might turn out to be the worst decision ever in the history of banking. How are the people in Greece, Spain & Italy going to react when they hear about this? Will they decide to take preemptive measures (take their money out of the bank) before the same thing happens to them? Note: I am not claiming that the same thing will happen in other countries, only that people in other countries might be concerned about the posibility of it happening and decide to do something to protect their money.
- hkmurakami 14y agonot to mention that it only takes a small (almost minimal) proportion of withdrawls to do significant damage to the health of the banking system.
- 1337biz 14y agoMy grandparents were born in Europe throughout the second world war. They always "warned" me not to keep too much money in the bank as when times get tough it is going to be worthless. Always thought that this was kind of a war-generation mindset, but the Cyprus situation makes me actually believe that they are not that much off after all.
- dschiptsov 14y agoIt is, again, a matter of a point of view.) In theory, no one benefits when, say, Russian criminals or politicians (which is actually just an alias) park stolen money there. Money should work (flow) which means - getting invested. If they just stolen, evacuated from the original country and parked in a bank which cannot even invest them properly - no one benefits, except bankers and criminals. There is also nothing special in that EU elites want to break the scheme - why should they care about Russians laundering money? They would prefer their own schemes.) So, nothing to see here. Parking money abroad is a risky enterprise, so, just take some loses and diversify better next time.)))
- steve19 14y agoWrong. The banks loan out money that is deposited to people seeking loans. These Russians are helping Cyprus. There is no such thing as parking money (with the exception of stuffing your mattress with usd) The people who save (Russians, Cyprus locals) should not be punished.
- dschiptsov 14y agoIt seems like you have never been in Cyprus.) There is nowhere to loan billions. The population is small, businesses are tiny. And of course there are no "people who save". It is mostly enterprises trying to hide money from taxes and corrupted officials, who cannot show unearned "wealth" at home. People would benefit when the money would be invested at home (well, in Russia it is a suicide), or perhaps, in an agriculture in a highly populated developing countries where lots of people just need a job to support their families.
- justincormack 14y agoThats not quite true. There was a massive property bubble. But a lot was lent in Greece, or used to buy Greek and Cypriot government debt.
- gruseom 14y agoNot everyone who's being hurt here was "parking money abroad". They're stealing 6.75% of ordinary people's savings. That's shockingly unfair and stupid. Does anyone know why they didn't restrict this to accounts over the insured 100K limit? It makes no sense to me why they would take the political hit of doing something this evil. If it's about taxing Russian criminals' billions as we're hearing, why would they need to raid average citizens' accounts?
- alexmic 14y agoI'm Cypriot, and today I've seen 6.75% of my family's savings disappear.
- bitcartel 14y agoIt's theft from your family, plain and simple. You still have a chance to stop this outrage, as it must pass your parliament, and then other Eurozone parliaments too. Good luck.
- eurleif 14y ago>You still have a chance to stop this outrage, as it must pass your parliament, and then other Eurozone parliaments too. Citation needed? My understanding was that this was already in motion, and is going into effect before the banks open on Tuesday.
- bitcartel 14y agoCyprus makes the key decision. "Cyprus's parliament will decide on Sunday whether savers must pay a levy on bank deposits under terms for an international bailout to avert bankruptcy - with approval far from certain... Cyprus's parliament was due to convene at 4 p.m. (1400 GMT) in an emergency session" http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus-idUSBRE92E02220130317 http://www.reuters.com/article/2013/03/17/us-eurozone-cyprus... Only then will other Eurozone parliaments rubber-stamp the bail-out funds. If for some unlikely reason the bail-out is not approved, I imagine the Cypriot government would have to swiftly return the money or face a very angry mob. "Hours after euro zone ministers approved 10 billion euros ($13 billion) for Cyprus to stave off bankruptcy, Wolfgang Schaeuble briefed parliament's budget committee and said he would ask the lower house - which has a say on all euro zone rescues - to support the deal. The Bundestag will likely have to vote on the outline of the deal this week, which is the last before the Easter break. German Chancellor Angela Merkel has a majority in the lower parliamentary house. Schaeuble said the house would then likely debate the full Cyprus program in the second half of April before giving its final go-ahead." http://www.reuters.com/article/2013/03/16/us-eurozone-cyprus-germany-idUSBRE92F09F20130316 http://www.reuters.com/article/2013/03/16/us-eurozone-cyprus... "If the finance ministers reach a deal at Friday's meeting, it's likely to be a broad political decision, with technical details left for next week. The bailout would still have to be approved by parliaments in several eurozone nations, though EU officials say everything should be done by the end of the month." http://timesofindia.indiatimes.com/business/international-business/Eurozone-seeks-to-broker-deal-on-Cyprus-bailout/articleshow/19008333.cms http://timesofindia.indiatimes.com/business/international-bu...
- Freestyler_3 14y agoWhere does this put the trust in banks? What will the reaction be from people in other countries with money in the bank? They could start fearing that one day their money will be locked away from them and that the bank is going to take percentages off of their savings. This is a decision that might push others over the edge.
- jemaddux 14y agoMy thoughts exactly. How can they justify simply taking deposits?
- nwzpaperman 14y agoFact 1: Deposits are loans from depositor to bank. Fact 2: Deposits are accounted for as liabilities on the banks' balance sheets. Fact 3: Banks write multiple loans against each dollar deposit; it has a fancy name: fractional reserve banking. Fact 4: Most countries are now on zero reserve banking and only manage their loan portfolio size by the amount of capital they have on their balance sheets.
- afterburner 14y agoInsured deposits being raided? Bank runs anyone?
- kunle 14y agoImportant part here: > The second error is one of equity. There is an argument to be made over the principles of bailing in uninsured depositors. And there is a case for hitting everyone in Cypriot banks before any taxpayer in another country. But there is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched. Typically, as you impose losses for burden sharing, you start with equity as the most highly risky capital, move to debt, and after that move to depositors. The reasoning is that this underlines basic choices about who is taking risk; equity investors have the most risk capital, bondholders are right behind them (based on the structure of the bond) and depositors are the lowest; philosophically this is because as an investor in equity/debt it's your job to evaluate the bank's chances of failure. As a depositor, you just want somewhere to park your savings. Bad deal.
- tezza 14y agoThis grab from domestic savings is a new item. Yet will anyone outside Cyprus, EU or small niche communities like HN take notice ? It is hard to say. Portugal seized money from pensions (2.5%) and hardly anyone noticed. They called it a "Solidarity Tax" http://www.portugaldailyview.com/whats-new/press-review-government-injects-e100m-to-save-tap-treasury http://www.portugaldailyview.com/whats-new/press-review-gove... There has been a lot of head-in-sand citizen behaviour. This lack of alarm is aided by shockingly bad press reporting of the issues.