81–90 of 92 posts
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No. We'll see some bank runs mostly in southern countries, but the deposits are power law distributed and thus the financial majority (in sum, not in numbers of accounts) will probably act more rational than members of the frightened, over-emotional masses that withdraw their 5-10K or so. The rational will transfer their accounts to more stable banks, e.g., in Germany and won't put their money under the mattress. Of…
>>>The rational will transfer their accounts to more stable banks, e.g., in Germany Ah, so Cyprus will just collapse on its own then without any repercussions elsewhere? I don't think so.
Anyway, that's far away from your "death spiral of the entire worldwide financial system." :)
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Cypriot banks finance themselves through deposits, not bonds. Less than 0.3% of Laiki's and 2.5% of Cypriot banks' €70 billion in assets are funded by bonds. Further, those bonds were issued under English law. The depositors are governed by local law. 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…
"Cypriot banks finance themselves through deposits, not bonds." The Cypriot banks are going to find all of their deposits withdrawn as soon as they reopen, so they better figure out a new way to finance themselves.
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Indeed. Excepted that this is not a financial crisis. The financial crisis is just a catalyzer. The fundamental issue is state who continuously spend more than what they made because states are run by politicians who can't count (because 99% of them are lawyers and lawyers can't count and they'll only accept advices from economists going their way: that is "more state"). We're now witnessing what happens when states…
For all the ranting about socialism, deeply social democratic countries--namely, countries like Germany, Denmark, Norway, Sweden--are doing mostly fine. If not for the Eurozone crisis, I'd say they'd be much better places economically than the USA, let alone a country like Cyprus or Greece. This is despite having more generous public sectors than the Mediterranean. Nor is it simply corruption, though there's PLENTY o…
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For all the ranting about socialism, deeply social democratic countries--namely, countries like Germany, Denmark, Norway, Sweden--are doing mostly fine. If not for the Eurozone crisis, I'd say they'd be much better places economically than the USA, let alone a country like Cyprus or Greece. This is despite having more generous public sectors than the Mediterranean. Nor is it simply corruption, though there's PLENTY o…
Norway is kind of a special case since they have oil. Denmark, Sweden... they have another decade or so before it hits there. Germany is such an industrial giant that again they are not your typical Eurozone country.
That doesn't even touch on the UK or France. Which, although certainly having their problems, also aren't the same kind of basket cases PIGS are. I excluded them initially because although they seem to have more severe problems than, say, Germany, they're still pretty economically successful and stable. By the time any of them get to a hypothetical debt crisis, the PIGS will have long-since imploded, and it'll be a totally different ballgame anyway that resists prediction.
That's it, that's the deal as far as almost all depositors care. And if they think for one microsecond that the bank might welch on the deal, they want out, now. Not tomorrow, n.o.w.
This is an brazen raid on personal deposits: a new, unexpected tax on funds people thought had already been through taxation and were safe. People will hate it. And they'll see the banks as both having breached their understood contract and being the cause of an unfair tax.
If the government puts in rules restricting withdrawals, they'll just take it out at whatever rate is allowed and send it elsewhere, or invest it in tangibles like gold or gems and put those in private lockboxes.
The net result over the next year will be a steady flight of small-investor capital out of every country that is even slightly suspected of this scam. A lot of it will just disappear from the economy. This will depress those economies for years if not decades.
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The linked article is about ECB buying government bonds. But the ECB also buys bonds from Eurozone commercial banks, and this is where new money is being created. It does end up on the central bank's balance sheet, but there's no event that would force the bank to ever write it down. Those hundreds of billions in loans can stay unpaid for hundreds of years if necessary.
All the lending to commercial banks is secured lending, they have to provide collateral to the ECB. The less good quality stuff is lent by individual central banks, so governments underwrite it. There is no unsecured buying of bank debt (banks can use covered bonds as collateral but again that is secured). And the LTRO is only three years. So it is not like you suggest at all.
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>>>The rational will transfer their accounts to more stable banks, e.g., in Germany Ah, so Cyprus will just collapse on its own then without any repercussions elsewhere? I don't think so.
Cyprus won't collapse (and even if, that's not the end, they'll stand up again and as an EU member state they'll receive help as they did before). Their banking sector is overblown and the intention is to reduce it to EU average by 2018. They tried to copy Luxembourg, but screwed it up. Now they have to come up with something different. Anyway, that's far away from your "death spiral of the entire worldwide financial…
We'll see. Bank accounts are private property. This is an unprecedented confiscation. And if this happens without open rebellion, nothing is safe for anyone anywhere.
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Is anyone of any importance seriously clueless enough that they can't predict the consequences of taking money out of everyones' bank accounts? And if so, what is wrong with the system that allows morons of that magnitude to gain power?
I don't understand this question. What was the alternative? As people keep pointing out, Cypriot banks are overwhelmingly funded by their depositors. You can't just go after the bondholders in this case. And "do nothing" would have been worse, possibly by an order of magnitude, for depositors.
It's also very risky and results in savers losing money. It's also less progressive than what they are proposing as it's strictly just a flat percentage of assets.
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This works in the US because there isn't actually that great a disparity between the wealthiest and poorest states in the US, whereas the disparity is much, much greater in the eurozone. More so, the "poor" states in the US are still pretty wealthy even compared to some of the wealthiest European countries, whereas the poor countries in the eurozone are quite poor on an absolute scale (Estonia and Slovakia have a per…
Take a look at this table http://www.economist.com/blogs/dailychart/2011/08/americas-f... to see how income is distributed in the US between the states. New Mexico has received over two-and-a-half times its 2009 GDP more in federal spending than it has sent in taxes over a twenty year period. The equivalent for Europe would be akin to Greece getting over $760 billion. Yeah, Europe has to work on its "union" aspect a…
It's one thing to spend money in exchange for goods and services, and another thing to give it away in exchange for nothing.
[1] https://en.wikipedia.org/wiki/New_Mexico#Federal_government