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It would be pretty ironic if the Cyprus bailout of 2013 will noted in history books as the event that lead to the collapse of 21st century banking (next up bank runs). Is it probable? No. Is it possible? Maybe.
It would be pretty ironic if the Cyprus bailout of 2013 will noted in history books as the event that lead to the collapse of 21st century banking (next up bank runs). Is it probable? No. Is it possible? Maybe.
Here are your options: lose all of your money or lose 10% of your money. What do you choose?
Option 2: Panic and make rash decisions
"After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill. " This is so incredibly stupid that it would be funny if it wasn't so tragic. They're basically telling everyon…
Considering the population, Cyprus is more like a middle-size city than a country. It joined the EU in 2004 and the Eurozone in 2008 - their problems are much older than that. Other than for humanitary reasons, the EU shouldn't and doesn't really care if they go under. If panicked investos withdraw their money they shall - smarter investors will pick up their holdings and realize gains; the doomsayers will end up as losers, like the US hedge funds ala Paulson betting against the EU the last years.
"After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill. " This is so incredibly stupid that it would be funny if it wasn't so tragic. They're basically telling everyon…
It's hard to really get your head around how wrong headed this decision is.
It would be pretty ironic if the Cyprus bailout of 2013 will noted in history books as the event that lead to the collapse of 21st century banking (next up bank runs). Is it probable? No. Is it possible? Maybe.
The government also extended a bank holiday that was put in place to try to stop a run on the banks. The holiday was supposed to end Monday night. Now, banks will not be opening their doors Tuesday, as planned. There was talk that they might not open Wednesday, either. [...] “As soon as banks in Cyprus reopen, people will rush to take all their money out, because they don’t believe this is a one-off deal,” he said. “…
There was a comment that a lot of russian mob money is held in Cyprus banks. I wonder if this is actually an attack on them in an effort to take the money from the russian mob. I also predict acts of vandalism on the banks. Where the goal is to cost the banks money to repair their facilities given the situation.
The confiscation is 6.75% on small accounts (mostly EU savers and pensioners) who are covered by deposit insurance, and 9.9% on large accounts (yes, a lot of which is Russian money). Overall it will collect a total of around €6B.
If you wanted to get €6B from just the accounts that aren't covered by deposit insurance you'd need to confiscate around 30%. So, basically, the EU had a choice of either taking 30% from the (mostly Russian) wealthy and 0% from the poor and middle class (a lot of whom are pensioners), or taking 9.9% and 6.75%, and they went with the latter.
If anything, this entire debacle is an effort to protect Russian (and Cypriot) oligarchs at the expense of ordinary people. As a bonus, it also makes bank runs, the collapse of the EU financial system, and the destruction of the eurozone much more likely.
Very odd.
"After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill. " This is so incredibly stupid that it would be funny if it wasn't so tragic. They're basically telling everyon…
Smug US/UK commentators have now been shouting for 3+ years about how incredibly stupid the EU is, how the Euro will break up in two weeks... But why is the Euro up 16% against the USD and 23.3% against the UK pound over the last 10 years? Why are German bond yields lower than the US bond yields, and why do some stable eurozone countries still possess a triple AAA rating by all credit agencies, in opposition to the U…
You think it is something other than supply and demand? The Fed and BoE can print; The ECB cannot. The result (which is related to printing) you failed to quote: Greek deflation.
It's not complicated.
It would be pretty ironic if the Cyprus bailout of 2013 will noted in history books as the event that lead to the collapse of 21st century banking (next up bank runs). Is it probable? No. Is it possible? Maybe.
Here are your options: lose all of your money or lose 10% of your money. What do you choose?
The second option would almost certainly lead to civil unrest, because it would probably mean that teachers, doctors and other public employees (also pensioners) wouldn't get payed next month. Of course, the first option might also lead to civil unrest ...
"After five years of bailouts financed largely by austerity-weary European taxpayers, wealthy nations like Germany and the Netherlands have decreed that from now on when a bank or country fails, it will be bond investors and perhaps even bank depositors who will be forced to pick up a big share of the bill. " This is so incredibly stupid that it would be funny if it wasn't so tragic. They're basically telling everyon…
You know what's even better? In the Cyprus example, bond investors in the banks (who don't have government insurance) are being completely protected from losses). Small depositors (who do have government insurance) are having 6.75% of their savings calculated. That's entirely contrary to the policy you quoted. It's hard to really get your head around how wrong headed this decision is.
Government insurance means nothing when the government is broke (relative to the size of its banks). Nicosia does not have the €30 billion to reimburse accounts covered by the country’s deposit guarantee scheme. No bail-out means depositors being wiped out.