Cyprus Hell

As you may have heard, Cyprus is being bailed out by the EU and the terms are rather striking:

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.

This may sound familiar. This scenario — a seizure of savings and investments accounts — has been flogged for about two decades by various pundits who are convinced it will happen in this country. Does the Cyprus bailout indicate this is a possibility? I think it’s proof that it won’t happen, actually.

First, Cyprus is in a unique situation:

The depositor haircuts seem to have been necessary to get political support for the deal in the EU–and political support in the EU was necessary because Cypriot banks had assets somewhere in the neighborhood of 8 times the Gross Domestic Product of Cyprus. And just to bring it full circle, the banking system had grown to such grotesque, hypertrophied proportions because Cypriot bank accounts seem to be a favorite of tax-dodging Russian oligarchs . . . which is why it was politically necessary to give depositors such a large haircut.

This is not a situation even remotely comparable to the United States. For one thing, there would be no one to bail us out if the banking sector grew to $120 trillion. For another thing, there is no agency that can compel us to terms of a bailout. For a third, vast amount of the of assets in our banks are not held by shady foreign concerns (right now, the Cypriot government seems to be trying to allow natives to pull out cash while extending the bank holiday so that Russians can’t).

Second, even this relatively small taking (on the scale of the European economy) is triggering a potential disaster. There is a run on Cypriot banks as people try to get their money out. The Euro and European stocks plunged in morning trading. And it’s still touch and go as to whether the legislature will assent to the terms.

So, no, I don’t think this is a “it could happen here” scenario. In fact, at this point, I’m not 100% convinced it’s an “it could happen there” scenario. The reaction of the Cypriots and the markets is a perfect illustration of why this is such a bad idea. And hopefully this will be thrown at the next obscure Lefty twit who suggests the idea in a Congressional hearing and sparks the next round of claims that a savings tax is imminent.

Comments are closed.

  1. AlexInCT

    When you start running out of excuses to fool people about your stealing of other people’s money, through taxation, you have to resort to outright confiscation. The nanny state’s collectivist model that takes from the productive to give to the unproductive simply cannot survive, and is unraveling. Sooner than later the majority of the people, will realize it is a sucker’s game to be part of the rat race, since the other thing the nanny state does efficiently and effectively is control who is and who isn’t allowed to succeed, and they just join the rank of the takers. Being a taker is much easier than the alternative.

    It now starts with a clean 10% confiscation of their savings. It will not end there, collectivists, and especially the educated elite collectivist clergy, think they always know what’s better for everyone, and sooner than later they will seek control of everything, for the good of the stupid masses, of course. Communism showed us how it simply is the most evil and destructive form of government ever, but these idiots think they can implement a lighter, kinder, version, yet when it doesn’t work, they don’t give up. No, they just become more and more authoritarian in nature. The 10% confiscation is just the start. After that they will have a reason to confiscate it all. The feudal system, and communism was just that with a different set of royal masters, is on its way back with force. They will give people the illusion of freedom, by focusing the sheep on meaningless things masquerading as “rights” that have very little, if anything at all, to do with actual freedom. Things such as the “right” to free healthcare, the “right: to a job, and the “right” to free shit if you don’t work will be used to let these fools think they are getting freedom, while the things that are really tied to freedom are dictated and totally controlled by the all-powerful state. For the sheep’s own good, of course.

    Don’t for a second believe that cannot happen in America or that it will be limited to the failed states in Europe only. The EU will be doing this to all states sooner than later, and our collectivists would love to follow this precedent here in the US as well. Ask Bloomberg.

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  2. Hal_10000 *

    Alex, this has nothing to do with collectivism or socialism. This is a straight out bail out (or bail-in as they call it) of Cyprus’ bloated financial sector. The parallel would be TARP being paid for by a 1% tax on savings accounts.

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  3. stogy

    The special tax is completely unjustifiable theft however you look at it. And it punishes those who contribute by saving, while helping those who drove the country into debt in the first place.

    However, I think it is a bit rich for Putin to be complaining about it, given that he is in charge of the world’s largest kleptocracy and has just put a dead man on trial for a crime he didn’t commit.

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  4. TxAg94

    I will first admit I haven’t caught up totally on the situation with Cyprus. Based on a skimming of it, though, it strikes me that the 10% is a way to make the people being bailed out have a stake in the game. We complain constantly about people who don’t pay taxes here but they reap tons of benefits. They take it for granted and want more because it costs them nothing. This bailout situation seems similar. As with Greece, you bail them out but with no “out-of-pocket” cost and they just keep doing what they’ve been doing. They all figure more help will come when the latest gravy train runs out. Cyprus seems like a way of making the bailed out throw in some personal value to the bailout. Just my observation.

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  5. AlexInCT

    Alex, this has nothing to do with collectivism or socialism. This is a straight out bail out (or bail-in as they call it) of Cyprus’ bloated financial sector.

    This has everything to do with collectivism, Hal. The problem is the welfare state’s obligations far, far exeeding the states’ ability to produce wealth to redistribute. This bail out became necessary, because the Cypriots where tied to the Greeks which have been mismanaging their financial sector. All EU nanny state nations have massive collectivist fiscal obligations. Greece was borrowing from other EU nations to keep their big spending going while their economy could neither keep up GDP wise nor produce enough income for a government that amongst other things let people retire in their mid 50s and collected 13 months of salary payment every 12 month year.

    This bailout is basically the EU central bank asking for more of other people’s money, in addition to that collected from taxation, in order to qualify for money from the EU central bank. It’s collateral. The EU central bank has figured out that the promises of austerity are worthless, since these collectivist governments have neither the desire, inclination, or ability to change the practice of spending more than they can afford as Greece, Italy, Spain, and now Cyprus all are proving. So in order to get more money lent to them EU nations now have to come up with cash of their own, or the loan shark will not give them anything. Hence the confiscation of 10% of everyone’s savings. And I bet you it will not stop there. Soon they will go after the private retirement accounts too.

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  6. AlexInCT

    The special tax is completely unjustifiable theft however you look at it. And it punishes those who contribute by saving, while helping those who drove the country into debt in the first place.

    GIVE THAT MAN A CIGAR!

    Stogy, I couldn’t have said this any better. Our lords & masters are punishing those that engage in the fundamental and traditional behavior that made people prosperous in the past. Even worse, the EU central bank members have to realize that by punishing savings they are increasing the load on government to provide for more people at every stage/point in their lives. It is the most despicable form of theft I can think off.

    And they are doing the same here in the US. The difference is that instead of outright grabbing money from people saving they devalued the currency through QE printing. It is the exact same form of anti-savings theft only done in a way most people won’t even be bright enough to notice. So far in the US the dollar has lost 40% of its value in the last 5 years. If you are wondering how with all the economic bad news masquerading as good news the stock market is still flying high, don’t. The primarily reason is the same: as the dollar loses value, the asset holdings of corporations go up, and that’s reflected in stock price growth.

    We are being raped by our governments so they can keep the impossible wealth redistribution nanny state scheme that gives them so much power going. There are too many consumers and not enough producers, and even worse, the numbers keep shifting in the wrong direction constantly. What cannot go on, will not: the western system of government is doomed.

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  7. TxAg94

    The special tax is completely unjustifiable theft however you look at it. And it punishes those who contribute by saving, while helping those who drove the country into debt in the first place.

    I can see that, too. I guess the people with any savings at all, as is the case here, is relatively small group. They have to pay into the bailout because they are the only ones who can.

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  8. AlexInCT

    They have to pay into the bailout because they are the only ones who can.

    Yeah, and you rob banks, because that’s where the money is at.

    The fact that they are now encouraging people to no longer save with banks and to hide their wealth under the mattress to avoid confiscation frightens me. The consumer society propped up by a cradle to grave state the left wants is falling apart, and it is doing so because it is unsustainable. But the left will never accept their beliefs are junk and scrap the failed nanny state. There is no power in the alternative for the political aristocracy.

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  9. Hal_10000 *

    Guys, please. Don’t try to shoehorn the Cyprus situation into a pre-formed narrative. This is mostly a bailout of the banks. BANKS. And Cyprus doesn’t have CRA.

    The special tax is completely unjustifiable theft however you look at it. And it punishes those who contribute by saving, while helping those who drove the country into debt in the first place.

    incorrect. The biggest stakeholders in this are not Cypriots but Russian oligarchs trying to evade taxes and launder money. Which is why Russia is having a fit and the whole deal may crash. The fact is that the money has to come from somewhere. This is being pushed because the Germans are insisting that it not be entirely them but maybe, you know, the people being bailed out.

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  10. insite

    incorrect. The biggest stakeholders in this are not Cypriots but Russian oligarchs trying to evade taxes and launder money. Which is why Russia is having a fit and the whole deal may crash. The fact is that the money has to come from somewhere. This is being pushed because the Germans are insisting that it not be entirely them but maybe, you know, the people being bailed out.

    hmm. large or small, every cypriot with a bank account is a stakeholder. this is a lot like cops shooting into a crowd of people to hit the bad guy. a lot of innocents get smoked, but hey, you got the bad guy……

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  11. Hal_10000 *

    hmm. large or small, every cypriot with a bank account is a stakeholder. this is a lot like cops shooting into a crowd of people to hit the bad guy. a lot of innocents get smoked, but hey, you got the bad guy……

    Agreed. I think it’s a terrible idea. There’s a reason we don’t tax investments like this. There has to be a better way to give the banks a haircut without skinning everyone’s cat.

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  12. Mississippi Yankee

    Alex, this has nothing to do with collectivism or socialism. This is a straight out bail out (or bail-in as they call it) of Cyprus’ bloated financial sector.

    Hal although Alex had his facts just slightly wrong could you please explain to the class WHY savings account in Greece, Spain, Portugal and Ireland (how many are even aware of Ireland’s bail-out) were not similarly savaged? Will a fore-mentioned saving accounts in Italy be financially raped as they are next in line for a EU bail-out? I’ll bet NOT.

    Cypress is a huge retirement destination. Lots of working class people from Europe, especially from France and GB have worked their union fingers to the ‘bone’. And upon achieving the ripe old age of like 55 they try to live out their remaining years in comfort there.
    Obviously I’m not real fond of Europeans.

    Cypriot bank accounts seem to be a favorite of tax-dodging Russian oligarchs . . . which is why it was politically necessary to give depositors such a large haircut.

    Here’s another thing that sticks in my craw about you social liberals and the like. In your Robin Hood fantasy world stealing from the rich,in this case Russian oligarchs, so you can give to the poor (dumb-assed Europeans and their corrupt masters) is a perfectly acceptable solutions.
    Whereas in my world it seems an awful lot like “From each according to their ability, to each according to their need”
    BTW, it didn’t work then and it’s still not working now… maybe the right people just haven’t tried it yet right?

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  13. ilovecress

    please explain to the class WHY savings account in Greece, Spain, Portugal and Ireland (how many are even aware of Ireland’s bail-out) were not similarly savaged?

    Because the relative size of the banking sectors aren’t as big.

    Here’s another thing that sticks in my craw about you social liberals and the like. In your Robin Hood fantasy world stealing from the rich,in this case Russian oligarchs, so you can give to the poor (dumb-assed Europeans and their corrupt masters) is a perfectly acceptable solutions.

    This isn’t about wealth redistribution – for ‘Russian Oligarchs’ read ‘Russian Mafia Money Launderers’. No one is giving anything to the poor in this instance.

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  14. Mississippi Yankee

    cress puleeze,

    Wherever those Russians got their money it was propping up the banks in a TINY island nation. Much smaller than Greece, Spain, Portugal and Ireland.
    The entire point of this ‘money grab is the definition of “wealth redistribution”. Robbing the Sheriffs of St. Petersberg to give to the people of Brussels Forest.

    No one is giving anything to the poor in this instance.

    With the exception of Merkel’s Forth Reich ALL of the EU is poor. Not of course the EU’s unelected politicians tho…

    Kimpost must be smiling like he’s in tall cotton because his homeland didn’t get caught up in this social experiment called the European Union.

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  15. Mississippi Yankee

    For all of you Robin Hoods out there Ann Barnhardt brings up a very inconvenient fact.

    I don’t care how much Russian money laundering is going on in Cyprus, and yes, I know it is huge. This is totally beside the point. Just because criminal money laundering is happening through Cypriot banks doesn’t mean that anyone has the right to confiscate the money of innocent Cypriots. The whole Russian money laundering excuse is a total red herring. Look, the nation with the largest absolute quantity of money laundering is the United States of America. Think HSBC. Think Wachovia. Think Washington Mutual. Think Bank of America. Does that mean that every bank account in the entire country can be levied – and not just in the banks with the money laundering but EVERY ACCOUNT IN EVERY BANK IN THE NATION? Of course not.
    At least not yet.

    http://barnhardt.biz/

    Everyday between now and November 2014 Satan (if you believe the History Channel) and the DNC are doing everything in their power to flip the House to the Donk Side. Yes ladies it can happen here.
    Think about it, the only thing Obama really does well is campaign, and the only thing politicians require is OPM in order to acquire mo’ power. And if it happens they won’t be coming for you last…

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  16. AlexInCT

    This isn’t about wealth redistribution – for ‘Russian Oligarchs’ read ‘Russian Mafia Money Launderers’. No one is giving anything to the poor in this instance.

    Most of the time wealth redistribution has nothing to do with giving anything but a fraction of what the people pretending that’s what they are doing, are doing, to the poor, cress. It is rich people using some wealth to buy themsleves support from some idiots that think they are bing helped with crumbs, while the big gains end up in their pockets. In this case it is the EU central bank that is going to keep the money, and it is doing that because they now have realized none of these countries they keep bailing out will do anything to fix their problems – their austerity measures are not austere at all – and that they are pissing money away.

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  17. Hal_10000 *

    I think there are two separate arguments going here.

    1) Seizing parts of accounts is a horrible way to finance a bank bailout as we are seeing in the fall of the Euro and the bank run. It punishes everyone.

    2) The intent of the seizure is not some communist-socialist wealth redistribution scheme. The intent is to prevent a complete collapse of Cyprus’s banking sector.

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  18. Dave D

    Ann Barnhart was quoted by MY:

    Just because criminal money laundering is happening through Cypriot banks doesn’t mean that anyone has the right to confiscate the money of innocent Cypriots.

    The truth is that any government defecit repayment HAS to come from the citizens, right? If the government decides to confiscate money from banks, thereby stealing from foreigners too, then so be it. It is not any more morally wrong than saddling future generations with debt THEY have to pay back. In fact, it is more moral to make the people that actually SPEND the money pay it back, no? The same is true for our debt. Fantasy-land borrowing from future generations is the absolute WORST thing the government can do. I know this is not exactly the same as defecit spending, but that led to this situation, no?

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  19. Mississippi Yankee

    It is not any more morally wrong than saddling future generations with debt THEY have to pay back. In fact, it is more moral to make the people that actually SPEND the money pay it back, no?

    DAMN! That is an excellent point.

    /Father and grandfather here/

    But I still contend that “liberal” use of tar and feathers w/ an occasional rail and this problem would self-correct in a matter of months.

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