This, if I am understanding it correctly, is the craziest thing I have ever heard:
The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risk of a wider run on savings.
The eastern Mediterranean island becomes the fifth country after Greece, Ireland, Portugal and Spain to turn to the euro zone for financial help during the region’s debt crisis.
In a radical departure from previous aid packages – and one that gave rise to incredulity and anger across the country – euro zone finance ministers forced Cyprus’ savers to pay up to 10 percent of their deposits to raise almost 6 billion euros.
Parliament was due to meet on Sunday to vote on the measure, and approval was far from assured.
The decision prompted a run on cashpoints, most of which were depleted by mid afternoon, and co-operative credit societies closed to prevent angry savers withdrawing deposits.
I’m not sure how you all would handle this, but if someone told me that they needed to take percent of my personal savings to pay for the sins of the international banking community and the eurozone, I would probably lose my mind. I’m all for increasing taxes when need be, but basically robbing people to shuttle cash off to austerity mongers in Germany seems like the kind of thing that would cause people to break out fifes and tri-corner hats.
And from a policy standpoint, isn’t hitting individual savers the absolute worst policy imaginable?
Yutsano
The house always wins. And the whole austerity exercise is to make sure no German banker loses out on a dime anywhere. It’s fucking disgusting. If I were a Cypriot I’d be calling for heads in the government.
srv
There’s a “tax” on your savings right now, you just don’t realize it SHEEPLE!
West of the Cascades
Pitchforks. Torches.
some guy
withdraw your money, then burn the building down.
quannlace
Well, the GOP should love this. Need to find revenue? Grab the little guy by the ankles and shake him till you get a few more nickels.
Hungry Joe
Hate to nitpick, but you can’t do all that much damage with a fife.
Johnny Coelacanth
@Hungry Joe:”you can’t do all that much damage with a fife.”
Yeah, what about an unlubricated fife?
Sayne
It hasn’t even passed yet and already has caused a run on deposits. I understand what the packaged is aimed at, Cyprus is a haven for unscrupulous people’s money, specifically Russian Mobsters, so they want these people to have to pay for contributing to Cyprus’s banking instability.
That’s fine, so only impose the haircut on foreign deposits, or deposits over 100,000 Euros (which may be virtually the same deposits). If they pull out, then good riddance.
What the ECB has done is also impose essentially 6.75% deposit tax on small domestic deposits: read normal every-day Cypriots.
That is insane, destructive and vile. Moreover it’s a giant flashing neon invitation for huge bank runs. Hopefully the Cyprus government rejects the plan.
Belafon (formerly anonevent)
Sounds like an awesome unforeseen consequences example for future text books: Who could have predicted that the citizens would collapse the banking industry when someone said they were going to take some of their money?
some guy
speaking of crazy, the Treasury Department made it legal for US citizens to fund Al Qaidaha:
ChrisNYC
The Guardian article says that there are a majority or at least a lot of non-resident Russians that keep their money in Cyprus. Also retired British. So it seems like it’s basically a tax on the users of Cyprus banks. Cyprus apparently got into trouble because of the write off of debt owed to them by Greece. And around it goes.
Chris
Merciful hell, what a mess.
Until a few years ago I never thought I’d live in a world where the United States handled economic hardship with more compassion than Europe, but damn, did Obama here vs Merkel and her sidekicks in Europe prove me wrong.
Rhoda
They are destroying all trust in the Euro. I don’t see how it survives after this; this is the red line they promised would never be crossed. They’re taking people’s DEPOSITS; that’s not a tax, that’s confiscation of property.
If I were in Italy or Spain or Ireland I’d be putting my money in my mattress if I couldn’t get any gold (and I still had some money).
Howard Beale IV
It’s going to get very ugly-the worst part is that Cypress’s banks don’t have depositors insurance (hence the EU gunpoint aimed at despositors)-and they have been paying insane amounts of interest on CD’s-some well over 10%.
Let the citizens of Spain, Greece and Italy be warned-they’re coming after you next.
More here.
marshall
Of course the bailout cash will largely go to bankers, not Cypriots.
The BBC says that the EU estimates that 1/2 the money in Cypriot banks is Russian, being laundered. This makes me think that they are really trying to tax the Russian mafia but, of course, this is a pretty blunt instrument to do that.
When Argentina defaulted a decade or so ago, people I knew there said that all of sudden you couldn’t get any cash – not at a cash machines, not at a bank, anywhere – and that within days middle-class people were selling possessions by the roadside for pennies on the dollar. That was without a bailout. If you get the same calamity with a bailout, I don’t see what the point it.
Suffern ACE
@some guy: yep. And in ten years, anyone, especially syrian americans, who gives that money will be added to the no fly list.
Violet
Is it now that we will start to see pitchforks and torches?
The Dangerman
Tax the wealthy?! Fucking communist!
I was just reading that the former Mrs. Tiger Woods has taken up with some Dude that’s worth 1.2B; on the flip side, he’s from West Virginia. Take the good with the bad, I guess (he’s twice divorced, old enough to be her Papa, and from some backwoods coal town, but loaded).
+ ? (also loaded)
Hungry Joe
@Johnny Coelacanth:
Good point. I hereby nominate you for command of the First Fifers Revolutionary Brigade.
jrg
That would piss me off bad enough to leave the country.
Mr Stagger Lee
I think it is time to revive this anthem with the Billy Bragg version.
BigWoodenSpoon
So, I’m no economist, but if the confidence in European banks is undermined, where do their depositors go? To the US? Which would mean a stronger dollar…which means the cost to exporting to Europe goes up…crap.
smintheus
The austerity merchants like to pretend that they’re the only adults in the room. Instead, it’s plain they’re not even minimally competent.
Violet
@marshall: I was in Argentina when that happened. Protests in Buenos Aires–got caught in one by accident–was kind of scary. Banks had long lines and tons of people outside. As foreigners, we could get US Dollars if we needed, but Argentines could not. Even for us, it was limited. Charged everything we could and hoarded our dollars in case we needed them for something. The Argentine peso kept losing value and dollars were worth quite a bit.
nota bene
Dumbest thing I’ve heard of this week, at least….I know nothing about politics in Cyprus but I just can’t see the Parliament rolling over for this one.
10% of deposits? It’s too unsubtle.
Jon
No, the worst possible policy would be to tax the unemployed, but that doesn’t make this good.
The Euro crisis plus the impotence of the EU to stop Hungarian viktator does not augur well for Europe.
Violet
@smintheus: They’re highly competent at putting themselves first and IGMFY.
Suffern ACE
@nota bene: I thought the Irish were going to do better. As well as the Greeks. The parliaments cave. It’s what European Parliaments do, apparently.
Chris
@marshall:
Well, “we’re trying to nail criminals” as a Trojan horse for “we’re trying to fuck over an entire population of people we don’t especially care for” is a time-honored way for the powers that be to behave, I think.
Sligo_Rover
This is just the beginning. Cyprus is just a test case to see if it can be done in Italy, Spain, etc.
http://www.zerohedge.com/news/2013-03-17/german-commerzbank-suggests-wealth-tax-italy-next
Called my mother in Dublin today and told her to pull enough cash out of the bank to cover a month of expenses. And convert a portion to dollars or pound sterling.
dp
It’s like they’re trying to incite a revolution to go along with their bank runs.
Felix Salmon guesses they hit the small accounts so that they can keep the rate on amounts greater than 100,000 euros below 10%. Ain’t that a kick in the pants?
Violet
Any bets on whether or not their Parliament approves it?
Higgs Boson's Mate
@marshall:
The point is that the German bankers get a bit of a giggle along with their money.
Roger Moore
@Chris:
And it’s not as if the US government has done a bang-up job of dealing with the situation; it’s just the Europe has been really terrible. That said, you have only to go back to the 1920s and 1930s to see that Europeans have their own history of incompetent and evil behavior in the face of depression.
Walker
How is this not going to cause a complete run on the Eurozone banking system Monday morning? This is a claim that no money in any EuroZone bank is safe.
nota bene
I should probably finish the thought.
All this austerity hokum depends on people not knowing what the fuck is being talked about. Chained CPI, etc etc. As soon as it dawns on people what all the jargon is about, opposition blooms and the political environment that usually operates to the advantage of the Masters of the Universe goes haywire.
“Confiscating deposits to pay for a bank bailout” is going to be readily understood in any language, and the instant people get the message, a bank run is the first thing that will happen.
The second thing will almost certainly be riots.
Sligo_Rover
@Violet: Not taking that bet. Last I read, the vote was postponed to at least tomorrow because the votes are not there. Surprisingly, only 71% of Cypriots are against this.
Howard Beale IV
Monday morning will be quite interesting.
Anoniminous
The worst policy imaginable would be a 100% confiscation of all privately held wealth and selling the non 1% into slavery to support the 1% in the style to which they have become accustomed.
(’tis a mystery why they didn’t Go There.)
But this is right up there. ECB just announced private deposit insurance is negotiable across the eurozone, thus not to be relied upon. Thus the major barrier to bank runs has been removed. When the Economist magazine, Forbes magazine, and Krugmann all agree the policy was effin’ stupid, it’s effin’ stupid.
The real Tipping Point, or not, will be what the major depositor of ‘hot’ currency will and are doing and what effects and impacts this will have on the $700 trillion derivatives markets early next week. Last I checked the euro was down versus the US dollar, Swiss Franc, and British pound in OTC trading.
@Howard Beale IV:
Yup. We may, or may not, have a working global financial system on Wednesday. This is the kind of asymmetrical shocks that cause positive feedback cycles in the negative direction leading to a Cascade Failure of the system.
nota bene
@Suffern ACE: a bailout’s an altogether different beast from literally handing over deposits, is what I’m saying.
Hypnos
This is getting absolutely zero play in the Italian media, and it’s not particularly high up on Le Monde and El Paìs either.
Do not expect pitchforks in Italy or Spain yet.
Baud
@Chris:
This. I have a morbid curiosity about what would have happened if the Republicans had controlled the government in 2008-09. Thank God we’ll never know.
Corner Stone
I’m not sure why anyone is very surprised by this. Look what happened here recently in the US with MF Global.
They basically just said, “Nah. That money is ours.” and it was legal to whatever extent TPTB agreed with them.
That’s what this wealth transfer has been all about from the very beginning. A lot of very greedy short term crooks not giving a rat’s ass because they knew they would get theirs. And after they got theirs they would keep getting theirs.
It’s been an engineered crisis from the beginning and now we’re seeing Phase II or Phase III depending on how you look at it.
Chris
@Roger Moore:
Depends on the country, of course. I seem to recall that in the 1920s and 1930s, Britain and France didn’t go through nearly the kind of explosion that happened in America and Germany; they had a shitty time like everyone else, but there was already enough of a welfare state to defuse the kind of fury that powered the New Deal in the States.
Roger Moore
@Sligo_Rover:
The other 29% don’t have any money in Cypriot banks.
Corner Stone
@Sayne:
I do not understand this sentiment at all. The people keeping the system liquid, absent any moral qualms, are the reason the system is unstable?
Cyprus got boned by Greece, to a large degree. Who cares if it’s KGB money floating in and off shore? Sure they’ve been making a nice return off investing in govt debt but what’s the alternative?
It sure as hell isn’t this outcome.
Villago Delenda Est
Time to start building gallows for bankster thieves, and their enablers. The EU finance ministers probably will not get the message until they’re carted off in tumbrels to the Place de la Concorde.
Chris
@Corner Stone:
That, but also, I love how those kinds of qualms only come into play when it’s a country like Cyprus that’s guilty of the dirty money. Didn’t HSBC just have charges of financing terrorism dropped because hey, Too Big To Fail? (Granted, that was the U.S. government, but still).
Mr Stagger Lee
@Roger Moore: Just like Greece a rise in the nationalist movements will ensure, the bankers like that because the natives will blame the immigrants for the austerity.
Narcissus
This shit’s just going to keep happening until oligarchs start getting strung up. I’ll start paying attention when that starts happening.
Anoniminous
@BigWoodenSpoon:
They run to the bank, the fortunate few get their money back and run home to stick it under a mattress, the majority get nothing because the bank fails. Gold prices soar which pleases the Gold Buggerers mightily until they try to buy something and find out the merchant can’t make change for a €100,000 to €100,000,000 gold coin. Since the mattress stuffers want to hang on to their cash discretionary consumer purchases collapse setting off a string of business failures. Go a couple of iterations and they’re back to bartering sheep for potatoes.
Low probability, worst case, scenario but it’s no longer a laughable scenario. And it’s exactly the scenario bank deposit insurance was created and instituted to prevent.
poco
Is Iceland not on the Euro? They told the banksters to take a hike and it worked really well for them. Why can’t Cyprus do the same?
PaulW
The important thing to the Euro-Lords (and to our bought-out politicos here in DC) is that the upper classes avoid paying the burden of the taxes at all hazards. The second most-important thing is that the ones who caused our economic failures in the first place – the bank CEOs, the financiers, the Bubble makers – never answer for their crimes.
arguingwithsignposts
They did this to Cyprus because it’s tiny in the scheme of things. They wouldn’t do this to one of the PIGS. Yet.
PeakVT
Confiscating the deposits of average savers is bad enough, but what is really outrageous about this “deal” is that bank bondholders are being kept whole. That’s right, folks, the big professional lenders – who should be able to assess risk, yadda yadda – are being protected, while the average depositor – who really has no way of assessing the risk profile of a bank even if the necessary information was publicly available – is getting the shaft. Same as it always is, I suppose, but still wrong.
One could make the argument that Cypriots “deserve” this deal because they allowed their country to become a offshore banking center, but AFAIK that’s not something the voters sought out, but just something that the politicians created for the bankers.
Yutsano
@poco: Iceland did that precisely because they’re still on the krona. And if you look, almost every country in Europe that is not on the Euro is doing better than the Eurozone nations.
PaulW
@poco:
Because Iceland is a haven for socialists and Keynesians and free-thinkers obsessed with accountability. Duh.
Also because everybody in Europe has been told to clap their hands and believe in the Confidence Fairy for the last 5 years, and everyone’s arms are now too tired to fight back.
PeakVT
@poco: No, Iceland wasn’t in the Euro, which made it a lot easier for them to tell others to stuff it.
Anoniminous
@Anoniminous:
Jesus. When FOX NEWS thinks you’ve blown it. You’ve blown it big time.
@Hypnos:
It’s midnight in Italy. News won’t really hit until their morning.
4tehlulz
@poco: Iceland wasn’t part of the euro; Cyprus is, so they have to deal with the ECB (i.e., Berlin and Paris).
Unsympathetic
Make no mistake – The ills of the euro are purely the result of banker stupidity.
Like hell what happened to Cyprus is a tax. It’s direct confiscation of the funds of people who did nothing wrong!
I call it what it is — theft for the purpose of “making whole” those who did wrong, while they skate on their offenses. Those who were in a regulatory role and should have put a stop to it while the people get screwed to the wall.. should be strung up and hung from the lamppost.
We shall see if any of the following two things happen:
1) Justice is imposed by the people so-assessed.
2) The people of Europe realize that this is not a “one-off” and it can happen to them — and they act in a protective fashion up front rather than take the risk (how do you spell “bank run”?)
Incidentally, everyone knows Spain (along with Italy) have a bunch of banks that are sitting on bad assets, right? And that they’ve not been written down, right? And they’re functionally insolvent, right?
So.. $100 bills in your wallet have just been declared to be worth somewhere between 7-10% more than those “deposited” and “stored” in a bank.
I ask the following pertinent and relevant question: Where is your money, Cole?
* This isn’t anything to do with Russian mafia — Cyprus can handle 100% of those monies with laws already on the books.
PaulW
I seriously think the Euro Zone is led by sadists who want to see with all honesty what happens if a whole nation riots. Just so they can prepare for the big game when Spain and/or Italy rise up.
handsmile
@Walker:
This is the grave concern that’s roiling international financial analysts at the moment. See in particular, this post by Reuters’ Felix Salmon (first linked to by PeakVT this morning), “The Cyprus Precedent.”
http://blogs.reuters.com/felix-salmon/2013/03/16/the-cyprus-precedent/
Also, this article by the Guardian’s economics editor Larry Elliott, “Cyprus bailout: Big implications in a small-scale rescue”:
http://www.guardian.co.uk/world/2013/mar/17/cyprus-bailout-big-implications-small-rescue
Also at the Guardian, check out its clear and comprehensive summary of the subject: “Cyprus savings levy: questions and answers.” (I linked to it this morning on mistermix’s “Why does it hurt…” thread, but I’ve run out of permitted links here.)
Chris
@arguingwithsignposts:
Yet indeed. I agree with the guy above who said it sounded like a test run; if this goes through without too much protest and if they decide it’s warranted, the next move will presumably be repeating it in PIIGS territory.
Boudica
@Roger Moore: I’m sure 2% answered “don’t know” leaving…our favorite number…27% who approve.
Sayne
@Corner Stone:
When I said I understand it, I didn’t mean that I agreed with it, or condoned it, or thought it was a logical course of action.
But, when your economic model is “The beatings will continue till morale improves,” which is basically what the ECB has been doing throughout the crisis, it’s logical to punish people as much as possible. Punish the big depositors, and if they pull out, it has the further effect of punishing the Cypriot people. Then they’ll learn their lesson good.
When you’re a sociopath with a hammer, everything is a nail.
stickler
@Chris: Re – Britain and France – Britain didn’t explode like the US after 1929 largely because the banksters (and Churchill as Chancellor of the Exchequer) had kept Britain miserable all through the 1920s. Unemployment was high, interest rates were high, growth was slow (but the pound sterling was strong, so rentiers had a great decade). France kept gaming their currency against gold so the economy seemed pretty healthy until 1931 or so, and their decline wasn’t anything as dramatic as the USA. But they, too, had a rotten time in the Depression (which is why they finally elected Communists and Socialists in 1936). As Krugman points out, things got better for countries as soon as they got rid of the gold standard (i.e., allowed pro-growth and inflationary policies – or, in so many words, doing the EXACT OPPOSITE of what Merkel and the GOP are advising today).
Yutsano
@handsmile: @Chris: It’s amazing how a “rare exception” starts to become more and more common when it becomes clear one of those PIIGS is keeping a German bankstah from buying a third yacht to moor in the Riviera.
lojasmo
@Roger Moore:
Suspiciously close to 27%
MattF
And note– just to add to the debacle– the damage is done. Even if the ECB comes to its senses and says “Um, just kidding” tomorrow morning, no sane person would deposit money in a eurozone bank from this point on.
Unsympathetic
ECB/IMF wanted the “tax” on Cyprus to be 40% not 9.9%
PeakVT
@PaulW: Sadists, or literal-minded hard-money idiots?
Perhaps those are personality traits that come as a package.
Hawes
Most analysis I’ve seen of the Great Depression is that it was a normal business cycle crisis put on steroids by really crappy monetary policy – specifically an obeisance to the gold standard. That – and in the US – the absence of a safety net to blunt the impact of the trauma.
The reason we haven’t collapsed again is that we have a safety net and the Fed has not pursued stupid monetary policy.
Europe meanwhile….
And if Cameron wasn’t an austerity prick, England would likely be booming.
poco
Thanks to all who responded. So, Iceland is not on the Euro and as Yutsano explains, all European countries not on the Euro are doing better. So, wouldn’t it be better, for the TPTB in Euro-Zone to realize that their dream is going to hell in a hand-basket. I mean, the arguments for the Euro were so idealistic, why are the TPTB letting it be hijacked by the banksters?
maya
This is way too hard to for a commoner like me to understand. Still trying to figure out what happened to my GWB “$1000 average” tax cut.
Tokyokie
@Mr Stagger Lee: Except there’s the small matter of the (Greek) nationalists already being in control of the southern part of the country (the part that’s seeing the bank runs). The northern part of the island has effectively been a separate country since the Turks invaded back in 1974.
Chris
@Anoniminous:
Any story that disses Europe flies with Fox News. If they tell a story about how the people running the EU are socialist bastards making a mess of things, their viewers’ll love it. If they tell a story about how the people protesting the EU are socialist bastards threatening to make a mess of things, their viewers’ll love it. Most of them couldn’t even find Europe on a map, much less Cyprus, much less picture the political landscape there; they just want to hear that these Other People are doubleplusungood.
4tehlulz
Do we have to break up German again?
pseudonymous in nc
@marshall:
Especially when the people with the dodgiest Russian money saw something like this coming and started moving their funds to Latvia.
handsmile
@Yutsano:
Hey now, don’t be snide. German bankstahs have “fee-fees” too. (of course, in their case, it’s a long, consonant-laden Teutonic word.)
Unsympathetic
@Chris:
I hope the US moves more towards Italy, putting the rejection of austerity [or its half-twin, the indefinite bailouts for the TBTF] onto the political front burner.
Suffern ACE
@Chris: lol. That’s true. It’s socialists vs more radical socialists.
Unsympathetic
@pseudonymous in nc:
100% wrong. COMPLETELY INCORRECT. This is the ECB test to see what the result is for direct confiscation.
Cyprus already has the legal tools to completely remove the Russian mob money.. they just refuse to use them.
Anoniminous
@Chris:
I don’t read Fox Business News so you may have the better take.
arguingwithsignposts
Meanwhile, Christine LeGarde is coming off looking positively evil. What is it with these people at the IMF? I mean, I know what it is, but damn.
Barney
Not quite the same, but the Icelandic government did abolish the guarantee for small (up to €20,000) foreign depositors in 2008 when they closed their failed banks, thus meaning those people would have been unable to access any of their money at all.
The British and Dutch governments (the nationalities of most of the foreign depositors) paid the savers back instead, and demanded the money back from the Icelandic government in turn – the international dispute which eventually the Icelanders won (instead, the money is gradually coming back from the remaining assets of the failed banks).
So there is precedent for ignoring previous guarantees on deposits, but only for foreigners – the Icelandic government did guarantee its own nationals’ deposits. But people have praised the way the Iceland collapse was handled.
Chris
@Anoniminous:
I suppose it depends if Fox Business News is supposed to be of a higher quality than regular Fox because the audience is supposed to at least have the basics on things like economics. I don’t watch it either.
MattF
@arguingwithsignposts: I wish the French would stick to making pastry. Is that too much to ask?
Joel (Macho Man Randy Savage)
Maybe they looked at the United States, observed that large cash holding institutions aren’t spending the money they have, and decided to force the issue.
Denali
@Yutsano,
Unfortunately, Hungary is not on the Euro, and its economy is in the tank, especially after Orhan. My son who lives there said the forint lost 9% after the Central Hungarian Bank takeover by Orhan’s crony. So the answer is not simple.
jayackroyd
@poco: no the reason Iceland could do what they did–make the bankers take the haircut by reducing the loan amounts, and devaluing is because they are not on the euro.
Unsympathetic
@Barney:
Exactly! Iceland ignored/showed the #1 finger to the IMF, which represents the same conventional wisdom as the Cyprus bailouts, and today is growing faster than the rest of the world.
Cyprus needs to get out of the euro ASAP if not sooner, assuming their leaders give two flips about their people.
Dear Cyprus Parliament:
No legitimate government has a right to cross the line between taxation and theft.
All legitimate governments obtain their power from the freely-given consent of the governed, and that consent may be withdrawn at any time.
Cyprus’ banks are not randomly in this situation — it’s due to the deliberate malfeasance of governmental regulators.
Anoniminous
@Chris:
I’d think the business section would have to have it’s head at least semi-straight. But what do I know?
Screw it. I’m off to eat a St. Patty dinner of corned beef, cabbage, and mucho beers.
OK peeps, try not to destroy the global economy over the next couple of hours. KAITHXBAI.
sidhra
@Yutsano:
And tails in the Banking industry.
Robert Sneddon
When the BCCI went down (in part thanks to Senator Kerry’s investigations over money laundering through that bank) a lot of small investors in the UK were left dangling since as a foreign bank it wasn’t covered by the usual depositor guarantee scheme for banks registered in the UK even though it operated street branches for depositors.
On the other hand it was a popular bank for legitimate small businessmen like Pakistani shopkeepers and traders who got better treatment from the Arab-owned BCCI than they did from the whitebread High Street banks and the closure of BCCI at gunpoint caused a lot of pain in those quarters. In the end the BoE did give small depositors some cover under the guarantee scheme even though the BCCI had never been levied to support the fund (to do that it would have to have agreed to be inspected by the BoE on a regular basis which of course it was very reluctant to do).
minutemaid
ah yes, world renowned macro economist wr0ng way Cole, in addition to knowing how to do the Presidents job better than the President, also knows better than the Eurozone how to manage their currency.
All this while watching Netflix and telling us what a shit he was growing up. He’s quite the multitasker.
Denali
@Denali,
sorry, meant Orban –
Suffern ACE
@Chris: he. Have you ever watched CNBC? There’s Bloomberg News and then there’s the other business channels with their doomsday clocks and folks screeching for attention all day long, as if they are reporting from a hurricane that hasn’t come ashore just yet.
trollhattan
@handsmile:
Right, but every few decades they just work out their frustrations with a nice, slow drive to the Low Countries, nicht wahr?
catclub
@Hungry Joe: The weapons grade stuff is two fifes, out of tune. Which is any two fifes.
Denali
Minutemaid, you’re mean!
bcinaz
This sounds like something cooked up by Goldman Sachs or the Royal Bank of Scotland.
Heaven forbid the bad actors pay up.
Lurking Canadian
This sounds like something dreamed up by the straw-incompetent government in an Ayn Rand novel. Just too stupid to be serious.
Yutsano
@Denali: Yeah, I was aware that Hungary wasn’t doing as well, which is why I had to say most instead of all. I think it has more to do with Hungary’s industries tie in so closely with the Eurozone and we can see how well that’s working.
@minutemaid: Herp de Durf. It’s nice to know you contribute so well to the social fabric of this blog you hoser.
Unsympathetic
The ridiculous thing of this is.. Cyprus’ initial reason for joining was a deposit insurance on the first 100,000 Euros in case of bank trouble. The EU made a very big deal of this benefit. This deal not only reneges on this promise, it spits in the faces of the voters.
Americans didn’t revolt with TARP. Not only didn’t we revolt, but we said, “Thank you for stealing our money!” to all the politicians when we reelected McCain, McConnell, etc. Banksters gave themselves bonuses and we just sat there.
Nothing’s likely to happen in the short term in the US because the bankers have figured out how far they can push us, and it turns out it’s a lot. Bankers are relying on the “circumcision principle” – the bizarre notion that you can take six to ten percent of the top of literally ANYTHING without people getting that upset about it, and they’re likely to find that this trick still works. Especially when you sell it as the only alternative to losing everything. Unless you’re a person who is already prepared to put a match to what little you still own, a 7% loss will always look better than a 100% loss.
After all, we’re having the EXACT same thing done, but what’s been done in the US is far worse — at least Cyprus is honest theft. In the US, much of the theft is done through stealth (inflation). The middle class has been crushed with everything doubling, tripling, quadrupling, or more in price over the last 5-10 years while NOMINAL wages and employment are stuck back at mid-late 90s levels.
The really dangerous possibility is if these bank runs cause a domino effect in the derivatives market with certain counterparties blowing up because their derivatives’ counterparties don’t trust them.
The honesty in economics movement is growing — we all know a fight is coming. I have no illusions about it. The fate of the honest people is in some small way mine, and yours.
PurpleGirl
@Mr Stagger Lee: I do not the current status of Turks in Cyprus but… I do remember years ago that Cyprus was being torn apart by nationalist fights between Greek-backed Cypriots and residents of Turkish ancestry.
Villago Delenda Est
@Hawes:
Which is precisely why total dipshits like Paul pere et fils want to do away with the safety net and pursue the most stupid monetary policy they can.
Zapruder F. Mashtots, D.D.S. (formerly Mumphrey, et al.)
Has anybody told the Republicans about this? Seems like something they could get behind. And, come on, let’s be real here, small-time bank depositors like me and almost everybody else, we’re nothing but the takers here, anyway. It doesn’t seem fair that my bank doesn’t have a lien on my earnings; bankers are Job Creators. They’re makers; I’m nothing but a taker. Why do I have any right to my money, anyway, when they’re so far above a leech like me? I feel so bad for the poor bankers. And all the other Galts who so kindly consent to let us hand our money over to them for a return of .000001% every 600 years so they can gamble it away or blow it on hookers. We should be thankful that they let us hand over our money to them at all. It’s an honor. If anything, we should be paying them.
dance around in your bones
Well, I would be totally pissed.
However, I am currently watching The Jerk(after many, MANY years!) where Steve Martin earns and then loses all his fortune, and laughing my ass off. So, I am ignoring the whole thing.
Plus, he found his Special Purpose!
Chris
@Unsympathetic:
Yeah, I’ve said this before, but one of the biggest differences between today and a hundred years ago is the amount of populism on behalf of the banksters that’s out there. (Even if the teabaggers work on astroturf, it’s not like there’s not a ton of conservatives happy and willing to take their money and carry their gospel).
We had cultural splits a hundred years ago too, between the urban dwellers, many of them immigrants and Catholics, and the rural people who were mostly WASP and at least a few generations old. And the differences were very serious, but there was a ton of rage against the banksters in both.
The current setup is like if the rural and Southern populist movements of a hundred years ago, instead of following W. J. Bryan and Huey Long’s crusades against big money, had rallied around Wall Street in mutual loathing for These People and the liberal emos who dared to support them.
Roger Moore
@Yutsano:
And part of the reason that Iceland wound up in the position it was is because they had their own currency. People who wanted to make deposits there needed to buy Krona to do it, which drove up the exchange rate. That drove up returns in offshore depositors native currencies, making the whole thing that much more attractive. It was a classic speculative bubble that finally popped when the supply of new deposits dried up. That exchange rate driven part of the speculative bubble never would have happened if Iceland had been on the Euro.
pseudonymous in nc
@Unsympathetic:
Um, doesn’t that sort of refute your point? The government in Larnaca wants a bailout; the bailout is contingent on doing something to address the dodgy money in the system; the implementation carries the pretense that it’s not aimed at the dodgy money. So it’s a clusterfuck, but it’s one that shows an utter lack of courage all round.
If Cyprus wants to retain its current banking industry, then perhaps it should ask Putin for a handout.
pseudonymous in nc
@Unsympathetic:
Actually, there’s nothing stealthy about the things that have become markedly more expensive: health insurance premiums, college tuition, etc.
(America is a place where the luxuries are cheap and the essentials are expensive.)
You’re not going to tell us to buy GOOOLD, are you?
Anne Laurie
@Suffern ACE:
So did I, but a lot of Irish-Americans muttered that anyone with the gumption to fight back against Tha Gubmint got the heck out of Ireland after the Famine/the Rising/the Troubles/the Celtic Tiger Bubble… there’s an argment that those who stayed on the Ould Sod are literally the most conservative people, not just politically but down to their DNA.
Roger Moore
@Villago Delenda Est:
After all, disaster capitalism only works when there’s a disaster to capitalize on.
dance around in your bones
And I am now getting ready to watch The World According to Dick Cheney.
Why, I have no idea. Maybe my blood pressure needs a bit of a run.
Barney
@Unsympathetic: No, what the IMF is suggesting here is partly following the Icelandic route – using the money of small depositors to stabilise the system. The difference is that this includes domestic small depositors as well as foreign ones. The other difference is that this is being done with part of the deposits to stop the banks from collapsing, whereas Iceland did it with all of the foreign deposits, after the banks collapsed.
JGabriel
Cyprus should default and tell the Euro-Zone Finance Ministers to suck it.
.
marshall
This made my evening :
Anti-Weed N.Y. Assemblyman Steve Katz Charged With Possession
A Republican, natch.
PurpleGirl
@Tokyokie: Thanks for the information on the Greek/Turkish split in Cyprus. I couldn’t remember the time period and didn’t think I had time to Google.
JGabriel
John Cole @ Top:
Well, if I were a Cypriot, I wouldn’t be depositing any more of my money in a Cypriot bank any time soon.
.
Suffern ACE
@pseudonymous in nc: also, there might. Be a question as to how Cyprus was planning on covering its insured deposits. It turns out that there was no insurance that could cover the failure of its 2nd largest bank. How did that happen?
Yutsano
@Roger Moore: They also had the flexibility to deleverage from the mess they were in. If they had been in the Euro (there were other issues besides the currency valuation situation they were facing) they’d be another Greece. But they told the bankers to eat it and changed their laws to keep that sort of mess from happening. The ECB has gotten so powerful it’s telling Parliaments what to do. And our wingnuts worry about the UN.
Chris
@Anne Laurie:
?????????????????????????????????????????????
I admit I’ve never been to Ireland. I have stereotypes about the place too… terrorism figures prominently, as do figures like Bernadette Devlin who actually bitch-slapped an MP in front of the whole House of Commons for saying that Bloody Sunday was a fabrication. Don’t tell me that kind of fire only exists north of the border?
Barney
@Roger Moore: No, I don’t think that was the case. The Icelandic banks took deposits in pounds and euros in the UK and Netherlands, and ran the accounts in those currencies. Meanwhile, they lent to Icelandic speculators, who bought up European companies (including, ironically, a British frozen food retailer called ‘Iceland’). So this wasn’t a simple ‘money piled into Iceland’ situation; it was banks that happened to be based in Iceland, governed by Icelandic law, doing loads of deals in other currencies, including loans to speculators who eventually couldn’t pay them back.
Unsympathetic
@pseudonymous in nc:
Nope, one of the first things to drop in value in deflationary scenarios is gold. Even proposing the idea that gold is a solution suggests you’re trying to sell some!
Why, exactly, do you think the things we use have become expensive?
Food became more expensive because bankers bid up the price of oil for farmers.. and the price increases cascaded down the chain to you and me. Then when oil dropped back down in price by half, nobody wanted to drop prices.
School has become more expensive because bankers needed an element of credit to be constantly increasing.. and school loans are the only one.
Chris
@Chris:
(And yes, I know the war’s over. Only since a decade or two, though).
Roger Moore
@Yutsano:
They also worry about the Fed.
Unsympathetic
@Barney:
Incorrect.
IMF didn’t propose anything about the Icelandic route to either Iceland or Cyprus. Iceland told IMF to shove it because IMF’s plan was for Iceland to take on foreign depositors. Cyprus was told to take 40% rather than 9.9%.
What should be done in this situation?
1. Close the insolvent banks and walk up the capital structure, distributing the damage as required by law.
Since that will cause depositor funds to be lost:
2. Jail the responsible bank executives AND the government employees who (1) unlawfully invaded the zero boundary on assets .vs. liabilities and (2) failed to put a stop to it before the shareholder equity was exhausted.
That’s justice.
There is nothing illegal about losing money or going bankrupt. There is something very illegal about failing to do your job as a regulator and lying about your solvency as a bank executive to the point that depositor funds are impaired. Since the money is in fact gone and cannot be recovered, everyone involved in that should pay by losing their job and spending at least the next 5 years in prison.
Mark S.
@JGabriel:
Why would anybody if they could help it? It sounds like the stupidest idea in the world.
Yutsano
@Mark S.: Hell I wouldn’t come near an Eurozone bank now. Not if the ECB can just order to have it be skimmed off the top like that.
Anne Laurie
For another angle, here’s cranky anti-Euro blogger John Ward’s take:
Suffern ACE
Cyprus is worse is hardly something I’d run a campaign on.
Mr Stagger Lee
@PurpleGirl: No doubt the Turkish Cypriots may either be laughing at the Greeks or arming themselves when the Greeks lose their shit. When I may my post earlier, I was thinking what may happen in other nations, that what is going on now in Greece, where the ultra-nationalist Golden dawn is winning the hearts and minds of the Greek people. I saw a YouTube video where the GD members lashing out at the immigrants and blaming them, which no doubt pleased the bankers, cause they aren’t taking the heat. I suspect if this ever happens in the US, where the people lose their bank deposits, God help any racial minority. Fox, Beck, Limpballs, Alex Jones will definitely point fingers and it will not be pointed at the banksters.
danielx
@PaulW:
This. They told the bankers to pound sand, and though painful it worked. Bankers hate that shit.
But yes, this does sound like an experiment on the part of the EU. If it works, wonderful, let’s try it on on more of these southern European scum. If Cyprus goes up in flames with bank managers and government ministers hanging from lampposts like strange fruit, well, it’s a no-account little island; no real harm done.
pseudonymous in nc
@Suffern ACE:
Shorter Gideon: “luckily for us, the UK banking sector’s sufficiently large to host a chunk of dodgy oligarch money without being owned by the Russians.”
danielx
Also, too – it seems worthwhile to reiterate, after the true drama of bankers and regulators alike getting barbecued by Carl Levin and the Senate Permanent Subcommittee on Investigations that these hearings were in reference to JP Morgan Chase.
This is the bank with the best rep, supposedly a “clean” bank, with Jamie Dimon being a managerial superstar. Amazingly enough, it appears that the organization resembles an ongoing criminal enterprise.
But hey, only truly Unserious people would think that banks which are not only too big to fail but too big to jail should be broken up.
Roger Moore
@danielx:
It wasn’t telling the bankers to pound sand that made the difference; it was treating domestic and foreign depositors differently, and telling the foreigners to pound sand, that made it work. Of course that approach is a lot easier if you’re a small, tightly knit community and the foreigners you’re telling to pound sand live far enough away that you can afford to treat them differently. It’s not something that works as well when you share a border and a tightly interconnected economy with the foreigners you’re telling to get bent.
Suffern ACE
@pseudonymous in nc: yeah. I’m surprised he didn’t advertise channel island banks as alternatives for oligarchs.
Chris
@Mr Stagger Lee:
I somehow missed this, but it’s a good point. I think Europe is poised on the edge of the Nixonland abyss, with the banksters figuring out that they can hand the people shit sandwich after shit sandwich and just pin the blame on These People. No idea if they got the idea from us or thought of it on their own but they definitely realize it by now.
Unless the moderate left can come up with a credible alternative to neoliberalism and implement it, they’re heading up the same creek we entered in the seventies.
Chris T.
You guys realize that Republicans are going to say “this proves socialism doesn’t work” (on the theory that All Europeans Are Socialists), right?
sherparick
A couple of points between the U.S. and Europe. The U.S., deposit insurance goes up to only a certain cap ($250,000 per bank usually, with special rules about multiple accounts). So big depositors due need (in theory) need to mind the health of the place they do their banking. In 2008, the EU governments, basically to get Ireland to do a full 100% guaranttee for all its huge bank debts to Dutch and German banks, made a 100% guarantee to all depositors. Now, becaue they don’t want as a group to bail-out Cyprus, but still want all that senior debt to the Germans and Dutch paid in full, they have decided to screw the little depositors instead of just the big ones. If I had money in a Greek, Italian, Spainish, or Portugese bank, I would be getting it out that bank by tomorrow morning.
As Atrios says, it is not just that the world is currently run by malicious people, it is being run by STUPID Malicious people.
Pooh
It’s not “right” to decapitate a WR coming across the middle, but it does have some benefits for later in the game. I think that this is somehow relevant.
Pooh
Also, how long before one of our Very Serious Thinkers ponders the necessity of FDIC protection?
Chris
@Chris T.:
Yeah, that’s what I said. The fate of the EU, which started out as an experiment in free trade, proves something about socialism. Only a Republican.
liberal
@PeakVT:
That’s what I was wondering about—I assumed that when there’s real trouble, the standard thing is to haircut the bondholders, not the depositors.
liberal
@Denali:
That merely means that being on the Euro is a sufficient condition for being fucked up, not a necessary one.
Corner Stone
Looks like bank holiday for Cyprus on Tuesday and maybe Wednesday as well.
Guess we’ll see in a few hours if Italy or Spain citizens have been paying attention.
liberal
@Unsympathetic:
The middle class has been crushed by many things, but a quadrupling of the price index in the past decade is not one of them.
mdblanche
Europe is run by Republicans who know how to keep their mouths shut about rape and teh gayz, isn’t it?
@Suffern ACE: “As they say in Alabama, thank God for Mississippi (we’re Alabama).”
Corner Stone
@Roger Moore: Could you tell me a little about where you get your background/information on Iceland and the EZ financial crisis?
I’m not saying my understanding is 100% correct in this very complex issue but it seems to me we’ve been watching or reading about two very different series of events.
Corner Stone
Damn you Matt Taibbi for running the Cypriot banks into the ground! Damn you to Hell!
TS
@Roger Moore:
My understanding from family in the UK was that a lot of the Iceland investment was from the UK – and the UK government bailed out individual investors – they lost nothing. Organizations who invested are fighting for payment from the banks in Iceland.
This is part of the story
http://www.bbc.co.uk/news/business-17396175
Suffern ACE
@liberal: that is how it is supposed to work. Unfortunately, Cyprus can’t make good on its deposit insurance claims. I assume something similar could happen in the US if all the banks went poof, but in the end, the federal government could borrow or the fed could print and lend to the federal goverment to make depositors whole. Unfortunately for Cyprus, no one is going to lend it money to make good on its deposit insurance program if its large banks go under. So no one at its banks is really insured.
Cypriot banks have been giving out rather large interest rates to attract depositors to stay solvent. But I am also going to guess that Cyprus has not been levying insurance premiums on those banks. What sucks for depositors is that this tax isn’t going toward shoring up the deposit insurance system. Instead, it is going to be used to pay bondholders. Yay! The banks have fewer liabilities so they can claim to be solvent! Until next month when they still can’t pay those bondholders. Then what?
marshall
@pseudonymous in nc:
i believe Russia is looking for some ports in the Med, so Putin might be willing to deal.
liberal
@Suffern ACE:
Why would there be an issue with deposit insurance claims if they haircut the bondholders?
Are you saying they’re unwilling to haircut bondholders, or that even if they gave bondholders draconian haircuts, they’d still have to haircut the depositors to get to solvency?
Suffern ACE
@liberal: you can’t just haircut bondholders. You need to declare the banks insolvent to do that. If you do that, you need to be able to pay the the deposit insurance claims, or borrow that money. But if there’s no money, and no one will lend it to you, then how will you pay the claims?
Todd
Deal was that depositors can get 90% with a bailout, or nothing withou.
TS
@Suffern ACE:
The banks in Iceland did exactly the same thing – why else were the British sending them their money without a worry
brendancalling
@Yutsano: I’d be strapping on the suicide bomb and loading the van with fertilizer…
Xenos
The reporting on this issue has been pretty irresponsible and often inaccurate. Consider a few things:
1-EU directives require member states like Cyprus to maintain depositors insurance. The EU does not supply that insurance or guarantee it.
2- The banks in question were insolvent. The depositors had a lot less than 90 centimes/euro in real value in their accounts. This deal has saved them from catastrophe.
3- This was not a haircut but a buy-in. The depositors lost value out of their accounts because they were forced to purchase shares in their newly recapitalized banks. They shares are likely to not be worth what people paid when open trading on these, but are worth something.
4- I can’t find a single reporter who has bothered to ascertain the simplest details about the Cypriot deposit insurance system. This system may be underwritten by the recapitalized banks themselves, or by the Cypriot government. Depositors may eventually be made whole under the terms of the Cypriot depositors insurance system. But that is not the subject of this deal, which was set up to avoid all depositors losing nearly all of their deposits, not just 10%.
I am pretty cynical about the banking system in Europe (I am getting an LLM in EU finance right now, but have been off at a scouting event all weekend, and so am just catching up on this topic), but this looks less like an evil European Central Bank clusterfuck and more like a fairly typical IMF screw-job.
And it bears mentioning that in Greek the word “Euro” means “I piss.”
Xenos
@sherparick:
You have a cite for this?
Here is a nice summary of the EU requirements by the FSA (UK bank regulator). In pertinant part:
emma
This is totally disgusting. They call this a bail in, and not a bail out. All these names give me the spooks. This is nothing more than robbery.
The guy from http://sentiment-trader.blogspot.com/ and who is very accurate with this market calls, is saying this will be the next catalyst for the market to fall and sell off.
Xenos
Per the back pages of today’s FT, the IMF talked to Germans into this position. And no, there seems to be no funds left in the Cypriot government that can cover the small depositors. The Cypriots wanted cover from the EU, and just got the stick.
DSK, boy did you screw everything up. The worst aspects of the IMF are running amok now.
Tone in DC
Thanks for this, it’s the first I have heard of it.
But who the hell told McMegan? Shouldn’t she be inspecting counter tops with M. Malkin at this point?
http://www.thedailybeast.com/articles/2013/03/17/after-cyprus-bank-bailout-depositors-race-to-withdraw-their-cash-is-the-rest-of-europe-next.html
fuckwit
For some reason, this story makes this song stick in my head:
http://www.youtube.com/watch?v=KeeCMCQFTOE
Barry
@Sligo_Rover: “Called my mother in Dublin today and told her to pull enough cash out of the bank to cover a month of expenses. And convert a portion to dollars or pound sterling. ”
F*ck that sh*t – tell her to pull out everything.
Barry
@Roger Moore: “And it’s not as if the US government has done a bang-up job of dealing with the situation; it’s just the Europe has been really terrible. That said, you have only to go back to the 1920s and 1930s to see that Europeans have their own history of incompetent and evil behavior in the face of depression. ”
What I find interesting is that the Nazis didn’t come to power as the result of the Weimar hyperinflation, but because of the Great Depression.
You would not know this from listening to the ‘respectable’ people running Germany (and the EU). I’m wondering how much of this is neoliberal (neofascist) ‘shock’ capitalism’.
Or rather, I’m wondering if any of it is not.
Barry
@Walker: “How is this not going to cause a complete run on the Eurozone banking system Monday morning? This is a claim that no money in any EuroZone bank is safe. ”
THIS. The principle of deposit insurance has now been deliberately discarded; the only question is how much the depositors lose.
Barry
@Unsympathetic: “In the US, much of the theft is done through stealth (inflation). The middle class has been crushed with everything doubling, tripling, quadrupling, or more in price over the last 5-10 years while NOMINAL wages and employment are stuck back at mid-late 90s levels.”
Um, not in the world I live in.
It’s amazing how right-wingers *always* see inflation, whether it’s there or not.
Barry
@Xenos: “This was not a haircut but a buy-in. The depositors lost value out of their accounts because they were forced to purchase shares in their newly recapitalized banks. They shares are likely to not be worth what people paid when open trading on these, but are worth something.”
That’s a haircut, advertised as a ‘buy-in’. You must have some interesting laws wherever you live ‘I didn’t rob him – I just sold him this pen for everything that he had in his pockets. It’s a buy-in!’.