Cyprus

Proposed Bank Raid in Cyprus a Sign of Things to Come?

When someone suddenly takes money out of your bank account without your permission, what's that called?

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oh no, the monopoly money
alles-schlumpf/Foter.com

Eurocrats would like to put Cypriot savers on the hook for the rescue package the European Union and the International Monetary Fund have proposed for Cyprus, as Matthew Feeney noted here yesterday.

The $13 billion package will require Cyprus to raise $7.6 billion by taking it out of savings accounts in Cypriot banks. Many account holders in Cyprus are Russian and Russia's president, Vladimir Putin called the proposed levies "unfair, unprofessional and dangerous." A public outcry over the across-the-board levy (9.9 percent for accounts holding at least 100,000 euros and 6.75 percent for accounts holding less than that) led the Cypriot government to suggest an exemption for accounts holding less than 20,000 euro. That exemption, of course, doesn't change the nature of the large-scale theft of savings being proposed.

Cyprus is not the first country to receive an EU bailout, but it is the first that will have to partially fund its own bailout in this manner, which is leaving observers in other EU countries wary about their futures. An op-ed in the Irish Examiner warns that what may happen in Cyprus may happen in Ireland (an earlier bailout recipient). From the unsigned op-ed:

The raid on Cypriot bank deposits, held in the name of ordinary people, businesses, institutions, communities, and prudent savers, breaks one of the fundamental trust-based relationships that has sustained western societies for centuries.

It means, too, that the link between property and material security is weakened for all Europeans living in societies with a weak economy…

It sets a precedent that will reverberate across Europe and find particular resonance in other supplicant countries dependent on external finance to sustain state services. 

The comparison is obvious — if bank deposits can be raided by a government in one bankrupt eurozone country, then why not in another? As Spain has requested a €40bn bailout for its banks, can Spanish depositors be certain or even confident, that they will not face similar demands? 

… Our Government welcomed the deal describing it as a "positive development for Cyprus, the eurozone as a whole, and Ireland". It might not have been so positive if our financiers had forced it to raid Irish bank accounts to sustain a toppling system. 

It is more likely that, in those circumstances, our Government would echo the sentiments of Cypriot president Nikos Anastasiades, who sought to assuage popular anger by urging Cypriots to support the deal, insisting that the alternative was instant bankruptcy of the island's two main banks and the banking sector, with the loss of 8,000 jobs and economic collapse. 

Live by the debt die by the debt?

The U.S. Treasury Department is "monitoring the situation in Cyprus closely" and wants a "responsible and fair" resolution (no details on what "fair" means to the administration this time). Banks in Cyprus, naturally, have been closed by the government to prevent a bank run,  while Alistair Darling, Britain's former chancellor of the exchequer (a Treasury Secretary, more or less) warns of bank runs elsewhere in Southern Europe as a potential result.

If the bank levy in Cyprus moves forward and their government survives, expect other governments to become interested in how they can "levy" savings accounts to "raise revenue," and deincentivize savings and private investment in the process.

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  1. expect other governments to become interested in how they can “levy” savings accounts to “raise revenue,”

    Count on it. That money is “just sitting there”–mark my words, you will hear this soon.

    “The charge is bank robbery. Now, my caddie’s chauffeur informs me that a bank is a place where people put money that isn’t properly invested. Therefore, robbing a bank is tantamount to that most heinous of crimes, theft of money.”

    1. Can you tell us exactly how soon? I mean, how far do your powers extend?

      1. It’ll cost you $100 to find out. I predict that you are a cheap WOP and won’t pay. See how powerful I am?

        1. I would prove you wrong…if I could. But I am only HALF WOP.

        2. Wop English girl. Damn. For now on I’m going to have Christina Rossetti in my head when Nikki comes to mind.

          1. I wear my mask for warmth: who ever shows
            His nose to Russian snows
            To be pecked at by every wind that blows?
            You would not peck? I thank you for good will,
            Believe, but leave the truth untested still.

    2. I never set up a 401K because I always figured the government would find a way to steal it.

      1. I never set up a 401K because I always figured the government would find a way to steal it.

        Precious metals, land. Done.

        1. Don’t forget guns and ammo.

          1. Don’t forget guns and ammo.

            I consider lead to be a precious metal. And guns.

        2. Precious metals, land. Done.

          Asset Forfeiture. Gone.

          1. Asset Forfeiture. Gone.

            Kind of hard to do in a foreign country. Unless they want to invade; and I guess that is a possibility.

            1. “foreign country.”

              Expropriation.

          2. And land is the only thing that is already and always subject to a wealth tax!

        3. Precious metals

          I’m predicting they confiscate gold before they raid 401Ks. 1933 is coming back in style.

      2. If it physically exists in this country they can find a way to steal it. I pray it won’t come to that, but your best bet is to diversify as much as possible. Keep multiple accounts with multiple banks in multiple countries. Invest in a wide range of assets. Keep some with you under lock and key. Diversification at all levels is the key.

      3. This is why I’ve never set up a Roth – I know that shit is going to be double taxed.

        Even my tax-deferred retirement accounts make me nervous. I can totally see the government confiscating them in the name of saving Social Security.

        1. Oh, they aren’t going to do it in the name of Social Security – they are going to do it in the name of Consumer Finance Protection. See, they want to make sure your retirement fund is safely invested – and what’s safer than T-Bills?

          Mark my words – within 3 years the CFPA is going to issue a report detailing the riskiness inherent in allowing private, for-profit Wall Street corporations to be given a free hand in deciding where and how to invest senior citizens retirement funds and use this report to justify issuing a mandate that some substantial portion of all IRAs and 401(k)s be invested in long-term government bonds.*

          See? They aren’t going to seize all this money just sitting around, or even tax it! They are merely going to mandate that you turn it over to loan it to invest it with the government.

          *Side-bet: they will create a new bond specifically for the purpose and give it the most fucked-up Orwellian name possible.

    3. Count on it. That money is “just sitting there”–mark my words, you will hear this soon.

      On a slightly more serious note, how much better or worse is this really than simply devaluing the currency? Shouldn’t we be happy about this, because it will make people more likely to realize their money is actually being taken? Whereas the US could accomplish basically the same thing by devaluing the currency but it would be much less noticeable to the average retard.

      1. But inflation causes interest rates to rise. So if you devalue the currency, savings accounts should earn more interest to keep up with the inflation. This is much worse since it just steals 10%.

        1. Not when the entire goal of the Fed is to punish savers.

          1. Eventually, they won’t be able to keep interest rates below their natural rate. Interest is simple math, cost of money plus expected inflation. There is no way around it.

            1. Eventually, they won’t be able to keep interest rates below their natural rate.

              Eventually – is that before or after the sun blows up?

              The Fed has been keeping interest rates below their natural rates for decades now. What makes you think a little thing like triple digit inflation will make them change course?

          2. It’s purpose is to benefit debtors, with the federal government being the biggest debtor in the history of humanity.

            Punishing savers is a side effect, but I don’t think it is intended.

            1. It’s Its

              *heads off the pedants at the pass*

            2. Punishing savers horders is a side effect, but I don’t think it is intended.

              You sure about that?

              1. All hoarders are savers, but not all savers are hoarders.

                1. True, some are kulaks. Maybe wreckers.

              2. Actually, horders benefit from inflation.

        2. Credit risk can cause interest rates to rise. Or, the FED can raise interest rates. So there, the best of both worlds: central planning + free markets. Sixty percent of the time, it works every time.

    4. In socialist Europe, the bank robs you!

  2. Here’s the stupid thing about the Cyprus “confiscation”: it will destroy their banking industry, because it will trigger a run on the banks when they do open. Who is going to leave their money in Cyprus after this? Why would you assume that it won’t happen again? This is being sold as a way to save the banks, but it will destroy them.

    1. That’s why all banks in the Eurozone need to do this. Then no bank will be better or worse than another.

      1. That’s why all banks in the Eurozone need to do this. Then no bank will be better or worse than another.

        I’m sure they are working on it. They are just waiting until Friday so they can see how this plays out.

      2. Perhaps America can be saved after all, if we can avoid doing such things. Everyone will bank with us.

        1. Glen Reynolds says the Republicans ought to put a bill through the House banning this sort of thing and then making the Dems come out against it. But they are too stupid and too big of cowards to ever do something that smart.

            1. It’s not stealing when the government does it.

              /Proglodyte

              1. It’s their money anyway. They just let you have some of it.

          1. Oh, I’m sure there’s a way to executive order around that kind of law. Probably find some legal fig leaf precedent in WW2 or WW1. Maybe something from the days of Reconstruction.

          2. It is the GOP’s decade to be the Stupid Party and the Dem’s turn to be the Evil Party, but don’t worry, I expect this to turn over by 2020.

      3. They can only stop the bank runs by imposing capital controls prohibiting their subjects from sending money outside the country/EU.

        And that always ends well.

        1. So, this time, does Germany invade France first, or Poland?

          1. Y’know, if Germany would ever stick to just getting Western Europe, they’d be fine. Its their strange need to mess with those damn Russians that screws them.

            1. They did manage to beat the Russians in WWI.

              1. To be fair, the Russians were too busy killing each other to give their all to killing Germans by the time they sued for peace.

              2. Yes, but that ended up costing them precious men and resources that they didn’t have to throw at the Western front.

                1. When Germany decides it needs to reunify with Europe again, it should try a lot harder to not do anything to provoke U.S. involvement. It’s in vogue to downplay how much we were a deciding factor in both wars, but without us, Germany probably would’ve won or managed a favorable peace in each case.

                  1. It doesn’t take nearly as much to provoke US involvement as it used to.

                    1. Yeah but this time if they played their cards right we might get involved on their side.

                      Heck all they’d need to do is team up with England rather than try to fight against them

          2. I expect they go through Belgium and Holland to get to France, as they’ve done (or had done to them) since Charles the Great split his kingdom into 3.

    2. I can’t figure out why they didn’t do a tax on withdrawals. That would have prevented runs on the banks and gotten the money eventually anyway. Or at the very least done it by surprise in one Friday afternoon theft. Instead they announced it and dithered. These people don’t even make competent thieves.

      1. You don’t have to be competent when you have a monopoly on force. Isn’t government grand?

        1. Yeah, if they were competent enough to steal properly, they probably wouldn’t be in this mess to begin with.

      2. I’m pretty sure they were trying to do it by surprise last Saturday morning, but something got out about it.

        they’re supposed to vote today, right? I can’t imagine any parties in their parliament voting for it at this point, but then I have no idea what their parliament looks like.

    3. And this is troubling because a lot of internet porn companies are headquartered in Cyprus. The ramifications are too terrible to contemplate.

    4. You say that like that wasn’t the whole point of the French and the Germans putting that in the bailout. It IS exactly what the mainland banks are trying to do. How dare their rich people shelter money in Cyprus.

    5. But Dean, Cyprus is a haven of Russian money laundering! Nobody can prove it, but it’s common knowledge! So not only are Russians criminals, but they’re smelly, vodka swilling furriners and therefore have it coming!

  3. While the Cyprus situation is “interesting”, don’t forget that Bulgaria, Poland, France, Ireland, Hungary, and Portugal (at least) have made pension grabs.

    Don’t worry, though — American exceptionalism will carry us through!

    1. I believe Argentina has done it twice.

    2. UK is doing it for the second time at least.

  4. Pretty crazy when V. Putin is all of a sudden the voice of free market reason.

    1. Apparently a lot of Russian kleptocrats have money is Cyprian banks. Who knew?

      1. I’m hoping some Russian mobsters are affected by this. And they send their goons after the officials who vote for and enact this atrocious move. Hell, even go after the EU pricks who called for it.

    2. That’s not the voice of reason. Putin has billions in Cyprus and doesn’t want any of it stolen.

      The dangers he’s talking about are more along the lines of “nice kneecaps, be a shame if anything happened to them”

    3. That’s not the voice of reason. Putin has billions in Cyprus and doesn’t want any of it stolen.

      The dangers he’s talking about are more along the lines of “nice kneecaps, be a shame if anything happened to them”

      1. It’s not stealing if the government does it.

        /Proglodyte

    4. Yeah, when even Putin calls you a crook, you’re doing something really bad.

  5. On the other hand, what’s the alternative? If there is no bailout and Cyprus defaults on its bonds, most of those banks are going to be insolvent and people will lose their savings anyways.

    Seems the only thing that will make the Cypriots happy is a handout financed entirely by the rest of the EU, which is even less libertarian than the savings tax.

    1. Two wrongs make a right?

      1. No, I’m just saying at this point any solution is going to be wrong from libertarian grounds, so the question is which is worse as a practical matter.

        It’s not entirely clear to me whether the savings tax is less or more disruptive than a default followed by a wide scale bank collapse. I can see arguments both ways.

        1. Have a normal Bankruptcy. Each depositor gets X cents on the dollar and a Y shares of a newly formed company which holds all the assets expected to generate a cash flow in the future.

          1. That’s what the Cypriot bailout proposal everyone is complaining about was. Have a one time “tax” that taxes a certain percentage from each account holder and in returns they get shares in the bank.

            1. I did not know that. If by tax they just mean “can’t get blood from a stone”, then I’m all for it. I figured tax meant government takes something, swishes it around in piles for a while, and gives some of it back, while it neglecting it’s role as bankruptcy arbiter.

              And as soon as 1 Depositor would rather have the cash than shares of the bank, a real Bankruptcy needs to happen. I.e. current ownership needs to lose 100% of their equity, because depositors become the new owners.

              1. and all the insurance talk below applies to my reasoning too.

                If there is a real insurance agreement already in place, and it pays out, then nobody with deposits less than the insurance threshold should take any haircut, or have the ability to force a bankruptcy event. They should get their money and walk away.

            2. One time, eh?

              1. The government of Cyprus is going to default, and since those depositors are indirectly hold that bonds, they’re going to lose some of their deposits no matter what happens. As I said earlier, whether the poof is in the form of a tax, a bank default, or a currency devaluation doesn’t really matter other than as a book keeping exercise.

                1. The transparency of it makes it better than a devaluation.

            3. No it isn’t.

              The bailout proposal is bailing out existing bondholders and shareholders at the expense of depositors.

              If the existing bondholders and shareholders were wiped out, and THEN the depositors were handled in the way you say it would be a normal bankruptcy. But the proposal is to keep the same company, with bondholders (and probably shareholders) bailed out in full.

    2. The deposit insurance premiums for that money have already been paid.

      So if every bank in Cyprus failed tomorrow, the government would be on the hook for all deposits up to 100000 euro.

      Like governments everywhere, when Cyprus guaranteed the deposit insurance fund, it never entered their head that they might one day have to pay it.

      1. Yeah, so it’s shit turtles all the way down. The question is how to unwind it now. Again, how is “government taxes savings, use lose 16%” worse than “government defaults, banks are insolvent, government can’t payout insurance, use lose 16%”?

        1. Because it puts an end to an untenable situation instead of papering it over. Government default and bank failure are desparately needed, and they will happen no matter what. The question is when.

      2. They might actually be able to pay some or at least a decent portion of every deposit up to 100K. But that would leave millionaires out in the cold. If the banks go, the government could probably cover the average Cypriot. So really this is stealing 10% from everyone to avoid the millionaires having to face a reckoning.

        1. So you’re arguing that the burden of paying off the debt should be engineered to fall disproportionately on the wealthy since they can afford it more?

          How is that any different than standard progressivism?

          1. I saw John’s post as an observation, not an argument.

          2. What sarcasmic says. And the rich knew their deposits were only guaranteed up to 100K when they signed up. So why are they owed any more than that?

          3. How is that any different than standard progressivism?

            Well, depositors have a contract more real than the generic “social” one saying that $100k is insured. The government should follow it’s actual, explicit agreements. If it doesn’t even do that, and we’re supposed to follow fake, implicit ones? LOLZ

          4. It is different if the insurance premiums were paid. It’s not different if that policy were applied retroactively.

          5. So you’re arguing that the burden of paying off the debt should be engineered to fall disproportionately on the wealthy since they can afford it more because they are largely the kleptocrats that created the problem in the first place?”

            FIFY

            1. Actually, I’m betting the small depositors who voted for unsustainable government benefits had far more to do with creating the problems than foreign depositors who really only care about the finacial haven and can’t vote in Cyprus even if they did care what went on their otherwise.

          6. No, the burden on a bankrupt bank should fall on the legal order in which a bankruptcy burden is supposed to fall.

            Bondholders first, shareholders second, depositors last.

    3. Well, a savings tax came entirely about due to Cyprus being percieved as a haven for Russian gangsters, and why should German taxpayers pay for them?

      I’m sympathetic, but I also feel that the Germans got themselves into this shit to an extent. They pushed the EU, they benefited in the early days of the euro pretty big because now the shittier economies of Europe couldn’t devalue in relation to them, and they have so far kept around a government that has been pretty active in bailing out the rest of Europe.

      Hey, if the Germans want to walk away, go ahead, but the fact that they haven’t tells me that their finances are more tied to the insolvent countries than they would like to admit (ie bank bailouts and such).

      1. That’s just an excuse. Their options for bailing each other out are becoming more limited by the day. This is a trial run to see what the fallout will be on the mainland.

      2. I think the German people would have preferred to kick Greece et al out of the Eurozone, or never let them in in the first place. Their politicians, at least the majority of them who are in the Brussels Class, have their egos tied up in the European Project working. That’s why the solution to every problem is more integration and more power for Brussels.

    4. Yup. It’s really just showing how untenable our current banking system is in the long run. The unholy union of fractional reserve banking, central banks, government insured accounts, and Keynesian-inspired policy is coming to an ignominious end. It’s a house of cards that wholly depends on an expanding economy and positive inflation. There’s no room for error, no room for busting bubbles. When one pops, they just make another bubble, bigger and higher. When the final bubble bursts, the system fails completely.

    5. On the other hand, what’s the alternative? If there is no bailout and Cyprus defaults on its bonds, most of those banks are going to be insolvent and people will lose their savings anyways.

      If the do it legally, the insolvent banks would be reorganized and deposit insurance would cover up to whatever statutory limit has been set and larger depositors would take a loss.

      Looking at the situation this way reveals the scheme to be set up to protect the bankers from their recklessness and large depositors from their negligence at the expense of small depositors.

      The libertarian solution is to follow the law as written, reorganize the banks with the guilty taking losses.

      It’s almost like a free market solution (or something).

    1. The U.S. Consumer Financial Protection Bureau director Richard Cordray recently mentioned these [401K] accounts in a recent interview, stating “That’s one of the things we’ve been exploring and are interested in, in terms of whether and what authority we have.”

      “My, my, what a purty litt’l thing y’are, my darling! Want some candy?”

  6. Keynesian economics on vivid display right here. Rape the savers so that debtors never lose a penny.

  7. Granted, any govt can do anything, but does anyone know if CDs were covered in this particular confiscation?

  8. In one of those “you didn’t ask but since it’s in the news” type of announcements: The ABA reassures us that the FDIC has $25 billion in reserves.
    http://www.aba.com/Press/Press…..YPRUS.aspx
    Problem? Deposits are about $9.2 billion and derivitives are in the $250 trillion range.

    Simply put, U.S. insured depositors are safe and their deposits are protected by a strong FDIC fund, a financially secure banking system and the full faith and credit of the U.S.

    1. Re: Bardas Phocas,

      “The ABA reassures us that the FDIC has $25 billion in reserves.”

      Which is our cue to start getting cash out of the bank – like right now!

      1. Correction: $9.2 Trillion insured with $25 billion.

        Feeling secure?

        1. Worry not. They’ll print the difference and directly inject it into the banks. Just like a few years ago. See how much better off we are now?

  9. Vladimir Putin called the proposed levies “unfair, unprofessional and dangerous.”

    Please. Don’t pretend you don’t understand the nature of your profession, Putin.

  10. Nikos Anastasiades, who sought to assuage popular anger by urging Cypriots to support the deal, [insisted] that the alternative [really???] was instant bankruptcy of the island’s two main banks and the banking sector, with the loss of 8,000 jobs and economic collapse [really???].

    Nikos Anastasiades: “We’re not Icelanders!”

    1. I talked to an Icelandic couple in Austin last week. I didn’t realize that a liter of vodka was 70 euros and 90% tax. Fuck that country. Although the story of him weeping for joy the first time he went into an American liquor store was touching.

      1. I learned that when I visited Sweden. They hike the prices to prevent suicide, apparently

        1. Apparently, it has the unintended consequence of preventing obesity in Iceland, as they prioritize drinking and its so expensive.

        2. A lot of Finns, at least those in the Helsinki area, take the ferry to Tallinn for a day trip to get their vodka since it’s like half the price in Estonia.

    1. Y’know, this whole financial crises has made me wonder how much merit L. Frank Baum’s ideas about currency in the Wizard of Oz had.*

      *Yes, THAT theory.

    2. Yeah because small countries can never house banks that affect large areas and small banks can never be the conduit for obligations that affect bigger institutions. It is not like a bank in and Oklahoma City mall once damn near brought down the US financial system or anything.

      http://en.wikipedia.org/wiki/Penn_Square_Bank

      What a fucking retard.

    3. Cyprus is just a small country.

      So is Bosnia

    4. This is a quarrel in a far away country between people of whom we know nothing.

  11. I say that we should invest in cement. A lot of European politicians are going to be fitted cement shoes

    1. Will they live long enough for that? I am expecting some serious mob/Mussolini stuff if this goes through as originally proposed.

    2. Somehow I see the whole situation turning into Snow Crash, where people eventually trust the (Russian) Mafia more than the government, and we all hit up the internet through google glass and oculus rift.

  12. Brits helping out their troops on Cyprus:

    http://www.zerohedge.com/news/…..cy-measure

  13. How did that Sorry pawn end up on the Monopoly board? You damn kids, not putting shit away where it belongs.

    1. WHY ARE THERE RISK PIECES IN THE MOUSETRAP BOARD YOU LITTLE SHIT?!

    2. If you look carefully at the photo, it’s a German Deutschemark-denominated version of the game. I don’t know what sort of pieces they use; I would have guessed wooden.

  14. Proposed Bank Raid in Cyprus a Sign of Things to Come?

    Yes.

    1. No.

      Cyprus can’t print Euros. Our Fed can.

      1. Our Fed cannot print Euros.

        Our Fed will print dollars. Which is basically the exact same thing as a bank raid as the value of the depositors dollars goes down because of the printing.

    2. It is not a sign of things to come. It is the sign of how central banks work.

      Citizens are robbed of their saved purchasing power any way you look at it.

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