The madness of the bailout in Cyprus • Hacker News Board

Re: The madness of the bailout in Cyprus

#191

Post by justincormack » Sun, Mar 17, 2013, 2:48 PM UTC

jpdoctor wrote: post #190

JumpCrisscross wrote: post #98

When a sovereign fails, its banks fail, and private sector losses are virtually assured. The question is who bears the burden. Roughly half the deposits in Cypriot banks, with assets five times its GDP, are of Russian, Greek, or British origin [1]. They were attracted by high deposit rates (roughly double EMU average) and a system tolerant of likely tax evaders. >" This whole thing is entirely unfair for the people l…

> this is not a terrible deal. Nonsense. The EU just made the depositors junior to the bondholders of the bank! On what planet does that not have permanent implications for trust in the banking system? Every EU depositor (esp in Greece, Spain and Italy) should start thinking about where to store their money besides the "insured" banks. Hell, with 0% interest in US banks, the FDIC should at least make some high-profil…

There are almost no bondholders. The junior bondholders have probably been wiped out, it is unclear. The senior bondholders there are (very few) are secured (covered bonds) which are senior to depositors.

Re: The madness of the bailout in Cyprus

#192

Post by seanmcdirmid » Sun, Mar 17, 2013, 2:50 PM UTC

wintersFright wrote: post #160

seanmcdirmid wrote: post #153

Earlier quoted context omitted.

> China's trillions of US Treasuries - those are claims that the US economy cannot and will not service The biggest holder of US debt is...the US. But ok, what choice did China have? If they kept the money at home, it would have collapsed the economy, investing in US treasuries at an effective -3% was the best they could achieve and have some degree of safety. Whatever you think of the US economy, foreigners still ha…

ok - won't get into US default / debt argument as we are too far apart on that. I'll just say that it is a lot more than 'no one' expecting and preparing for a failure there. It is not a mainstream view - though mainstream didn't predict the GFC either. Yes I meant the otherside of a currency failure. They are not as rare as you imply. If the economy collapses completely then a lot of people will die...likely me incl…

If I bought land, I could develop it and make it productive, I could also invest in science to grow more food, or whatever. If we want to hedge against economic collapse, I could invest in assets that are likely to survive the collapse, or better yet, are useful in helping a recovery along. So machinery, tools, a factory, a bakery? Or just upgrade my skills a bit.

But gold just sits there and does nothing, you are at the mercy of how others value it, since it doesn't have any productive value otherwise. Just like money actually.

Re: The madness of the bailout in Cyprus

#193

Post by justincormack » Sun, Mar 17, 2013, 2:51 PM UTC

MaysonL wrote: post #188

JumpCrisscross wrote: post #98

When a sovereign fails, its banks fail, and private sector losses are virtually assured. The question is who bears the burden. Roughly half the deposits in Cypriot banks, with assets five times its GDP, are of Russian, Greek, or British origin [1]. They were attracted by high deposit rates (roughly double EMU average) and a system tolerant of likely tax evaders. >" This whole thing is entirely unfair for the people l…

This was an EU country with a bank deposit guarantee similar to the FDIC guarantee. The guarantee is being voided. How many more EU bank deposit guarantees are untrustworthy? How many depositors will choose to no longer trust them? How many banks will be run? Personally, I don't have a clue as to the answers to those questions, and I doubt that those who are imposing this tax have a clue, either.

Deposit guarantees were designed for one off failures of smallish banks, not systemic debt crises where large proportions of the total debt in a country is worthless. None are trustworthy in this sense, but some countries are worse off than others. Cyprus has a bankrupt government with no access to debt.

Re: The madness of the bailout in Cyprus

#194

Post by lttlrck » Sun, Mar 17, 2013, 3:16 PM UTC

dougk16 wrote: post #54

khuey wrote: post #47

Earlier quoted context omitted.

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.

Unless it becomes illegal to own gold bullion again, as happened in the Great Depression.

http://www.the-privateer.com/1933-gold-confiscation.html

Re: The madness of the bailout in Cyprus

#195

Post by jpdoctor » Sun, Mar 17, 2013, 3:17 PM UTC

justincormack wrote: post #191

jpdoctor wrote: post #190

Earlier quoted context omitted.

> this is not a terrible deal. Nonsense. The EU just made the depositors junior to the bondholders of the bank! On what planet does that not have permanent implications for trust in the banking system? Every EU depositor (esp in Greece, Spain and Italy) should start thinking about where to store their money besides the "insured" banks. Hell, with 0% interest in US banks, the FDIC should at least make some high-profil…

There are almost no bondholders. The junior bondholders have probably been wiped out, it is unclear. The senior bondholders there are (very few) are secured (covered bonds) which are senior to depositors.

> which are senior to depositors.

Not for any definition of "depositor insurance" that I'm familiar with. The whole point was that the investors of the bank would lose their money first, then a gov't agency would make good on the deposits.

Anything less is a return to the days of unstable swings banking and deflationary depressions. Or perhaps the wizards at the EU thought/didn't care that Cyprus would join Greece in their deflationary depression: But the signal to Spain and Italy is abundantly clear: Anyone who leaves their money in a bank in those countries is not paying attention.

Re: The madness of the bailout in Cyprus

#196

Post by ikassinopoulos » Sun, Mar 17, 2013, 3:35 PM UTC

omgyeah wrote: post #183

jonascopenhagen wrote: post #161

Earlier quoted context omitted.

Greece and Cyprus were forced to receive "economic help". Not AFAIK. Their alternatives were just worse.

Now look. Greek politics drama follows: Party A was in power until 2009. During the 2009 elections party A said: "Oops! We're screwed! No more money!". Party B said: "No! Party A is lying! There are lots of money!". Guess who won? That's right: Party B. 0.0000001 seconds later Party B: "After all there is no money as we thought... But hey! We're in charge now! We'll save you! It's what we do best!". Nobody said that…

This is exactly how things work here in Cyprus and Greece for many years now! These very same people now are responsible to handle the bailout money. But we voted for them. They know better...

Re: The madness of the bailout in Cyprus

#197

Post by seanmcdirmid » Sun, Mar 17, 2013, 3:39 PM UTC

omgyeah wrote: post #179

seanmcdirmid wrote: post #150

Earlier quoted context omitted.

I'm sure the Cypriots don't want to rot, so why not take the EU bail out? Yes, they lose 6-10%, but that is much better than 100%. And the Russia mafia won't be that angry.

1: Because it's not a solution. 2: It's a temporary measure that will only lead to a worse temporary measure. 3: GOTO 2;

So what was the right solution? Kick Cyprus out of the EU and let them scavenge for themselves? Letting the banks fail might attract an invasion from Russia, and then it becomes a NATO problem....such a mess.

Re: The madness of the bailout in Cyprus

#198

Post by rwallace » Sun, Mar 17, 2013, 3:43 PM UTC

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.

Where else would you put your money? Keeping large sums of cash in your home is stupid and dangerous, commodities are volatile (bitcoin behaves like a commodity in this regard), real estate has high associated costs, stocks can go down as well as up.

Re: The madness of the bailout in Cyprus

#199

Post by tptacek » Sun, Mar 17, 2013, 3:45 PM UTC

icebraining wrote: post #128

tptacek wrote: post #104

Earlier quoted context omitted.

They seem like exactly the same thing. Maybe the reason they don't seem that way to you is that you've decided a priori that Bitcoin will inevitably regain its 30% in value, while Cypriot assets will never gain 6% of value. That seems a little silly. If you bought gold in 1980, you'd still be waiting, 33 years later, for it to recover its value. Gold, silver, currency, and truncated SHA2 hashes can lose value and nev…

What Cypriot assets? They lost Euros , which happens to be the same currency that their trading partners use, so there's no value to be gained relative to them. And no, I haven't assumed that Bitcoin will regain in its 30% in value - it already has . But that it can gain (or lose!) so much value relative to the common currency is a big difference, since the common currency can't gain or lose value against itself.

If you believe that, and are given a choice between (a) an asset which is going to lose 30% of its value but then gain it back and (b) a confiscatory 6% tax on cash, you still prefer (b); you eat the tax, wait for the devaluation of bitcoin, buy bitcoin, and enjoy the appreciation.

Of course, that's a silly hypothetical, because the reality is that bitcoin (or gold) is just as likely to stay devalued longer than you can remain illiquid.

Your logic is based on the idea that Bitcoin must at some point return to some predictable equilibrium valuation, or even that it must appreciate. The point upthread was, no, obviously that's not true. Next week it be worth pennies, or nothing, and stay that way forever. Which is why moving all your money into Bitcoin is not a rational risk management reaction to confiscatory 6% taxes.

Re: The madness of the bailout in Cyprus

#200

Post by konstruktor » Sun, Mar 17, 2013, 3:54 PM UTC

bitcartel wrote: post #90

st0p wrote: post #73

Earlier quoted context omitted.

I can't agree with your last sentence. We've all had the profits of having banks providing liquidity (common, all that Russian money into the Cyprian economy has been great for all of Cyprus). Now that system has failed and the big guys aka the banks are just as clueless as the little guys. Do we need to rethink how our economy works? Yes. Do we need to help Cyprus, Italy, Spain? Yes. Partially because it is in out b…

It's theft, plain and simple. The Cypriot people are not being asked if they want to sacrifice their savings - it is being taken from them by force!

Their elected officials accepted a deal that involved this haircut. That's hardly by force.