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The madness of the bailout in Cyprus

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Re: The madness of the bailout in Cyprus

#51

Post by caf »

dougk16 wrote: post #40
chailatte wrote: post #2

If I were in Greece, Italy, Spain, or Ireland, I think I would pull out all my bank deposits but the bare minimum cash needed to cover obligations.

I've been thinking about this lately, and, at the risk of sounding like a doomsday kook, this seems to make sense to me (perhaps in a milder sense) no matter where one lives. My plan is, if I ever get over $X in my account, where X is some reasonable buffer to pay bills, etc., that I'll just buy gold with the overage[1]. Back in the day you'd at least get reasonable interest by keeping money in a bank, but nowadays i…

This does depend on where you live. In some places, mortgages are offered with "offset accounts", where your positive balance in the account offsets your outstanding debt on the mortgage, and in doing so reduces the interest accruing on the loan. This means that your excess funds effectively earn the mortgage rate of interest (and since interest avoided isn't "income", this isn't taxed as deposit interest would be either), so it's an attractive option if you have a mortgage.

Re: The madness of the bailout in Cyprus

#52

Post by [deleted] »

khuey wrote: post #47
dougk16 wrote: post #40

Earlier quoted context omitted.

I've been thinking about this lately, and, at the risk of sounding like a doomsday kook, this seems to make sense to me (perhaps in a milder sense) no matter where one lives. My plan is, if I ever get over $X in my account, where X is some reasonable buffer to pay bills, etc., that I'll just buy gold with the overage[1]. Back in the day you'd at least get reasonable interest by keeping money in a bank, but nowadays i…

If you think gold is a predictable and low-volatility store of value you really should look at inflation adjusted gold prices from 1980-2000.

[deleted]

Re: The madness of the bailout in Cyprus

#53

Post by wintersFright »

ameister14 wrote: post #35

This makes me extremely uncomfortable and I don't understand how anyone could think this was a good idea. We have high unemployment across Europe, Catalunya is attempting to become independent and there is open talk in the press about a military coup if that goes through. Meanwhile, Greece elected a bunch of fascist mps, and now this? Imagine if you woke up tomorrow and 10% of your savings were gone. What would you d…

At the end of the day you have two camps: debtors and savers. You can't force a tractor factory to make a factory once it has closed down ie: you can't force a debtor to pay debt they want to default on. The only way to rebalance the system is to screw the savers. It was always going to happen, the question is whether by stealth via inflation or overtly. It looks like they are taking the overt path. The problem is the savers saving in the instrument of debt: currency.

Re: The madness of the bailout in Cyprus

#54

Post by dougk16 »

khuey wrote: post #47
dougk16 wrote: post #40

Earlier quoted context omitted.

I've been thinking about this lately, and, at the risk of sounding like a doomsday kook, this seems to make sense to me (perhaps in a milder sense) no matter where one lives. My plan is, if I ever get over $X in my account, where X is some reasonable buffer to pay bills, etc., that I'll just buy gold with the overage[1]. Back in the day you'd at least get reasonable interest by keeping money in a bank, but nowadays i…

If you think gold is a predictable and low-volatility store of value you really should look at inflation adjusted gold prices from 1980-2000.

I didn't mean to imply that I would expect to make money from buying gold (if that's what you mean). Even if gold prices were expected to drop, I'd still be interested in buying it as an insurance policy. No matter how severe a crisis, once the dust settles, gold will always be worth something, for reasons I don't understand.

Re: The madness of the bailout in Cyprus

#55

Post by mixmax »

caf wrote: post #49
mixmax wrote: post #42

Earlier quoted context omitted.

There are pan-European laws that if a bank goes under you get the funds up to €100.000 you had in the bank reimbursed by the state. The reason for this is that is that banks are the financial glue of society, and for better or worse we can't live without them. Bankruns can bankrupt a bank in a day, thus it's incredibly important that people feel secure in knowing that the money they have in the bank is secure no matt…

That guarantee is clearly a dead letter in the case of Cyprus anyway, because there's no way that their government can make good on that promise in the face of multiple large bank collapses. I already said that I agree it was a bad move due to the effect on confidence.

It's a good point, so I did a quick google search and it appears that in most countries the insurance is paid out by a seperate insurance fund that all banks pay in to over time. Presumably the fund is reinsured with lloyds, Berkshire Hathaway or something similar. So it's independent of the banks and the state.

I couldn't find anything specifically for Cyprus, so I'm not sure what the situation is there, but it's probably not much different from other countries.

Edit: Here is a good explanation: http://europa.eu/rapid/press-release_MEMO-10-318_en.htm?loca...

"7) Will Deposit Guarantee Schemes have enough funds to pay out in case banks fail? There have been shortcomings in some countries in the past. It is not feasible or necessary to provide schemes with an amount of money equivalent to all deposits. But banks will have to pay on a regular basis to the schemes, in advance, so a pot of money can be built up, and not only after a bank failure. Such 'ex-ante funds' will make up 75% of the overall funds in DGS.

If it becomes necessary, banks will have to pay additional contributions, which will contribute a further 25% of the target funds. If this is still insufficient, Deposit Guarantee Schemes could borrow from each other ("mutual borrowing facility") up to a certain limit (again 25% of target funds) or use additional funding sources such as borrowing on the financial market, e.g. by issuing bonds.

The new financing requirements will ensure that each scheme has enough funds in place to deal with a medium-size bank failure. This level is comparable to the existing well-financed schemes in the EU. These levels of funding will have to be achieved in all Member States by 2020.

Banks having a riskier business model than others will pay higher contributions to Deposit Guarantee Schemes - up to about 3 times more."

Re: The madness of the bailout in Cyprus

#56

Post by krcz »

caf wrote: post #45
kubindurion wrote: post #36

This is THEFT. I leave my country if that happens to me. (I am from Poland, EU)

What about if the alternative is no bailout, the bank goes under, and you get almost nothing back at all? Like it or not, when you deposit 100 euros in a bank, you don't have 100 euros anymore - you instead now have an unsecured bank debt with a face value of 100 euros.

All banks (at least in Poland) are backed up by kind of guarantees fund, which allows to return some money to clients in case of bankruptcy. (WRONG INFO: It's 100% for amounts But it's kind of risk you should be aware of when keeping money in bank. Simple taking money from accounts under risk of bankruptcy isn't.

Re: The madness of the bailout in Cyprus

#57

Post by wintersFright »

tatsuke95 wrote: post #8
[deleted] wrote: post #6

[deleted]

Like 90% of the past 5 years, this isn't a banking problem, it's a government problem. The IMF can suggest ways to fund a bail out, but the government has to accept it. Confiscating your citizens money is a horrible precedent.

Goverments steal purchasing power already via targeted 2% inflation. There is a precedent already - this is just a different way to skin the cat (or more to shear the sheep!)

Re: The madness of the bailout in Cyprus

#58

Post by arbuge »

samstave wrote: post #50
TillE wrote: post #4

It's absolutely insane. I can't understand how they think this will cause anything other than a catastrophic bank run on Tuesday. At least they get to skim off a percentage before the banks collapse, I guess? Someone's benefiting, somehow.

They knew it would cause this Tuesday which is why it is done now so that the peasants have to wait several days to be able to do anything. In the mean time the elite have days and resources to do what they need to do. These are acts of war on citizens by corporations and should be treated as such.

Acts of war by governments you mean.

Re: The madness of the bailout in Cyprus

#59

Post by st0p »

omgyeah wrote: post #41
st0p wrote: post #29

To quote the article: "This is why The IMF and the ECB has stepped in and bailed out the banks. Rumor has it that without the bailout Cyprus two largest banks would be bankrupt in a matter of days. A situation no economy can survive, especially not one with a disproportionally large banking sector." I don't see the problem to be honest. We (I live in the Netherlands) are paying a lot of money to help them out, which…

I wish you won't ever see the consequence of dire actions against you or your family. You have no idea how it feels like. You have no idea how unfair it is. In case that you have not realized it, you are not paying any money. You are loaning with loan-shark rates. Have you ever heard of a loan-shark losing money? Things are much more complicated than black or white. Greece and Cyprus are not independent countries. Th…

>> In case that you have not realized it, you are not paying any money.

O yes I am. I'm paying taxes here to keep your economy afloat. I don't mind that, but I'm not going to respond all of the rest you posted.

Re: The madness of the bailout in Cyprus

#60

Post by omgyeah »

arbuge wrote: post #58
samstave wrote: post #50

Earlier quoted context omitted.

They knew it would cause this Tuesday which is why it is done now so that the peasants have to wait several days to be able to do anything. In the mean time the elite have days and resources to do what they need to do. These are acts of war on citizens by corporations and should be treated as such.

Acts of war by governments you mean.

Acts of war by governments ordered by corporations would be more accurate.

Sad but true.

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