Wow - just seen the news on Cyprus. I can honestly say that to see EU / IMF sponsored expropriation of depositors money (otherwise known as theft) is the most frightening development I have seen in a long time..... Do they really want to remove all trust in banks?! Do they want people to take the other 90% of the money they have left and put it all in Switzerland?! Or under a mattress??!! Or are they seriously going to argue it is a "moral" theft (making it moral?!) in that much Russian money and British money is in Cyprus - in which case - is that better or worse...... What happened to equity holders, then debt holders and government guarantees of depositors?! What happened to law, property rights and the concept of bank confidence?...... How do the Europhiles feel about this one exactly.......? Let's hope the British Government stands up against this one - we could see a sudden and immediate improvement in our banking institutions! Stand up against this, loudly and publicly, and the funds will flow in from all over Europe...... better get in there before the Swiss do - they have been losing cash left right and centre back to the sovereign states in the tax amnesties - but this will probably reverse the flow!
Hold on, Pete 1950 will be along in a minute to justify and explain exactly whats happening and why the superstate of the Eu can never be wrong
Having read the beeb story, not certain if its the Eu driving it or the newly elected el presedente offering it...but its shocking either way. Northern Rock anyone?!
From a practical perspective is QE any different. Create money out of thin air, use it to buy government bonds and see the value of peoples savings drop.
An interesting point of view in that money seems continually conjured out of thin air. That's what banks do, isn't it? Banks are all about confidence. Money is all about confidence. There are plenty of ways of knocking that confidence, or increasing it. But I have ceased to believe that money has any reality as such, except for what is in my bank account (which isn't real either, but if it wasn't there, I'd soon notice the difference).
Exactly..... whilst QE etc is an indirect form of currency debasement - imagine waking up tomorrow, and finding that 10% of your life savings were just gone. Without warning. QE will debase a currency, but you can still buy goods and services and the inflationary factor takes some time to erode value. But to wake up and just find 10% gone - WTF?! And these are the responsible people who have savings and have carefully saved money rather than overleveraged themselves to the nines..... So, once the dam has been broken, will they do it again? Another 10% next month if it turns out it "wasn't quite enough"? In other EU countries that are too large to make bail outs possible? Do we all just play the lottery to see who in Europe wakes up each morning to find that 10% of their cash has gone?! More than 10%?! Why not 30%? Once you have played the confidence trick once you can't play it twice perhaps, so if you are a cash strapped govt, why not grab a big pile in one go??!! Imagine France or Italy need a bail out. How much would you need to take then? What do they think this will do for trust in tax raising authorities across Europe then...... encourage people to keep up their end of the bargain and keep paying the tax....... but be subject to arbitrary confiscation in addition when it's convenient? Still, the "holier than thou" crowd in the EU are obviously morally right, so that's OK then. No tax without representation anyone?
The report talks about up to half of the savings being from non Cypriot people, especially the Russians. Cant see that going down too well either...and the fact they are blocking people from withdrawing their own money right now. Shocking.
What astounds me is that I am no way an economist, but I could see all the problems coming with the EU & Euro from way back when the Euro was only a proposal...... .........therefore why didn't more experienced people see it?.............. ..............or did they? Ulterior motives spring to mind. AL
Every economist in the western world knew. It is an economic impossibility to have fixed exchange rates, open border capital flows and not have centralised government spending and capitalisation. Like the US does. It was always in every sense a political project. From an economic perspective (open borders) this is a nonsense - international markets were more open in the Victorian period prior to 1914 than they have been until very recently. It took 50 years post WWII to forcibly open them as much as they were open in the pre-war period.
Perzackerly...........It's almost like forcing everyone that owns a vehicle to use the same fuel instead of having different brands and grades........Oh.......that's beginning to happen already....... An aside.....note that loads of older vehicles may not be able to use the fuels that will be coming online..........is that a way of getting older vehicles off the road so we all buy new ones?
This is not so. It was in at least some senses a corporatist product. As this excellent programme goes to show, the blueprint for a single market with a single currency was drawn up by a cabal of Europe's largest corporations. They then put a gun to the eurocrats' heads and said "You don't have to vote for this, but if you don't there are plenty of other places in the world we could take our business." There is no doubt that they found a favourable echo with people like Delors, but it the plan seems to have originated with the corporations, and thanks to their pressure, was adopted. Have a look at the following and tell me I'm wrong. Cham at least should have no problems understanding it:
The only way this story makes any sense to me is that in the case of Cyprus, there are two choices: impose a levy of up to 10% of people's savings or see everyone lose 100% of their money. I'm sure if the investors who lost everything in the Great Depression had been offered a way out by means of a 10% levy, they would have been filled with the same outrageous outrage that we are seeing here and now. They wouldn't have gone for it until after it was too late. To anyone in the UK, a country that is not currently at the bottom of a hole, this seems a criminal act on the part of government - as indeed it would be. Cyprus is not in that situation, though, it's teetering on the brink. 10% or all of it, what do you choose? Or I'm wrong, and I welcome being corrected here. Note though, I don't want to be told how it's all the EU's fault - I just want alternative proposals on what could or should happen now.
A polarisation of nation state economies was an inevitable consequence of EMU. Delors and others knew this and the assumption was that out of the inevitable monetary crisis greater political union would be forged. The point you make about 10% or 100% is a good one though.
No its not, they wouldn't lose 100%. Did they in Iceland in the end? Or the UK banks? Its theft, plain and simple, just still not sure by who... What really stops a country just saying no? I mean, I am not paying, so tough! We'll sort ourselves thanks. You lot we owe can go swing. Sure there will be items they cannot prodcue themselves, but isnt this where business comes in and supports via seperate import agreements, with payment terms a little more draconian but because the govt dont pay back interset on debt, they have more to offer...or is that too simplistic...
An amusing thread. The most significant key point has, as usual, not been mentioned yet. The Cypriot banks in question were in the business of paying 6% to 7% interest per year to depositors, and then lending the money to borrowers in Greece; thus the depositors were paying their money into high-interest, high-risk accounts. That is why the Russians piled in their ill-gotten gains, to get high returns. It was a risky business, and as it happened it eventually went bad as risky businesses sometimes do. What the depositors are losing, under the current bailout, amounts to one year's interest on their deposits (or for large deposits 18 months' interest). In effect some Cypriot grannies have put their life savings into high-interest risky places which have gone belly-up, but instead of losing the lot all they lose is some interest. The life savings, minus a year's interest, get to be guaranteed by overseas institutions and are thus converted from high-risk into low-risk; while the foregone interest is turned into bank shares which the grannies get to keep. And that is reported in the media as supposedly a bad deal? Let's look at the options. One option (let's call it Option A) would be to have no bailout. The banks fall into insolvency, the Cyprus government cannot afford to guarantee deposits, and the Cyprus banking system goes the way of the Icelandic one as at October 2008. Depositors lose most or all of their deposits. Option B (let's say) would be a total 100% deposit guarantee without conditions. All the risk-taking depositors get to keep all their deposits and all the interest, including the Russian launderers, and have their high-risk investments turned into low-risk ones free of charge, and all at the expense of the taxpayers of other countries, mainly Germany. The depositors are left better off than they were to start with. Option C is a kind of compromise, designed to keep the banks afloat and protect all depositors to an adequate extent, but not to an unreasonable or excessive degree. And option C is the one which is actually on offer. As far as I can see, the depositors are being treated fairly generously and do not have too much to complain about. Option B is wholly unrealistic, because other countries are not likely to be willing to be so very generous unnecessarily. Option A is pure capitalism in the raw, harsh and unforgiving. If the government and people of Cyprus are so foolish and ill-advised as to turn down option C, they will be left to suffer option A. So good luck to them with that. Speaking more generally, it is a simple fact that banks collapse sometimes. They always have, in every part of the world and at all times, especially if they adopt high-risk strategies. Some commentators have written tendentious pieces implying banking crises are unique to (or the fault of) the Eurozone, or the EU, or the present day. This is of course utter nonsense. British expats in Cyprus who have deposited money in Cyprus banks in Euros have had a lucky windfall; they have found their funds have gained value against Sterling about 20% since last Summer, in addition to gathering interest at 6% or so. They are reported to be horrified to find they are to lose 6% or 10% of the total value now (including the windfall and the interest) and expect to be compensated. Really. What planet are they living on?
So, there you go, the European argument. It's a moral one - and morally justified! What, beg your pardon! It's theft. They are deposits in a bank, they are not equity interests. You are right that they have been paying far too high a risk premium and therefore you could argue that they should also be liable to suffer the losses - but this is where you get into the purpose of a bank. Want to try and run an economy without banks in 2013? Good luck. Why not shatter the confidence in banking institutions by raiding depositors. If the Greek banks were offering too high and interest rate to attract depositors, I didn't see anyone complaining before. They should have been if that was the case. But that is saying that their banks should have been better regulated. Which is the case accross Europe frankly. So, if you agree banks need to be pushed back into more regulated deposit taking rules, paying lower (sustainable) interest on deposit accounts (rather than investment risk accounts), I agree. If you think that you would rather shatter confidence in banks as institutions themselves by arbitrary raids on DEPOSIT accounts, then this is pretty much how to go about it......
Two arguments seem to be taking place here - 1. How did we get here, whose fault is it? 2. Where do we go from here? I am concentrating on #2. I take ChamMTB's point about confidence, and the perception that a chunk of savings can be taken arbitrarily out of your account - but it isn't arbitrary, is it? The situation has a history, a potential solution and a perceived perception of that solution. My perception is that a lot of folks had some good times in terms of their investments and now those times aren't as good. Not as bad as they could be if nothing gets done about it, but still. I won't be taking my (paltry) savings out of my banks as a result of this particular action - is anyone else planning to do so here?
