Geniuses each and every one. I know Cyprus is small, but this matters. They announces this special “levy” of 6-10% (tax) on Friday after the banks closed, which as you might imagine, causes a run on ATMs over the weekend. The ATMs, weirdly, were also “not working.” Today is a Cyprian holiday, and now they’ve announced the banks will stay closed until Thursday. There are many problems with this, not the least of which is the message it sends to every individual who holds a bank account in the EU. You have to consider, if the EU is willing to do this in Cyprus it’s only a matter of time it will happen in [insert any EU county or the US]. The markets, including ours, are already reacting. Keep an eye on this, it’s not a good sign at all. Consider also, deposits are essentially being held hostage until the government can seize the funds. All this with the apparent approval of the EU.

Why the Cyprus Bail In Is a Bigger Deal Than You Think

You can be forgiven for thinking that you don’t need to give a hoot about what’s going on in Cyprus. After all, it’s just a little island somewhere in the Mediterranean. But what’s going on in Cyprus could actually matter — not just to the rest of Europe, but to the rest of the world.

Here’s the short version of what’s happening:

Some of Cyprus’s banks, like many banks in Europe, are bankrupt.

Cyprus went to the eurozone to get a bailout, the same way Ireland, Greece, and other European countries have.

The eurozone powers-that-be (mainly Germany) gave Cyprus a bailout and insisted that the depositors in Cyprus’s banks pay part of the tab — a startling condition that has never before been imposed on any major banking system since the start of the global financial crisis in 2008.

The deal did not touch the bondholders. Why the depositors? These are folks who had their money in the banks for safe-keeping.

When Cyprus’s banks reopen on Tuesday morning, every depositor will have some of his or her money seized. The current plan is that accounts under 100,000 euros will have 6.75% of the funds seized. Accounts over 100,000 euros will have 9.9% seized. And then the eurozone’s emergency lending facility and the International Monetary Fund will inject 10 billion euros into the banks to allow them to keep operating.

Cyprus’s government tried to explain this deal by observing that it was better than the alternative: Immediate bankruptcy and closure of the major banks. In that scenario, depositors would lose a lot more money. Businesses would go bankrupt. And tens of thousands of people would be instantly thrown out of work.

Not surprisingly, news that deposits in Cyprus’s banks would be seized triggered an immediate run on the banks.

Depositors rushed to ATMs and tried to withdraw their money before it could be seized.

But the ATMs weren’t working. And the government has now made it impossible to transfer money out of the country.

While this story says the banks will open Tuesday, it has now been announced that the banks will stay closed until Thursday.

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10 Comments | Leave a comment
  1. Shifra says:

    Hey, here’s an idea: the DB will be in Israel on Thursday, and Cyprus is a stone’s throw from Israel. Why doesn’t he pop over and solve the problem? (I hope he is bringing his copy of Economics for Dummies with him on his trip…)

  2. Maynard says:

    This step is unprecedented (can anyone name a modern precedent?) in its boldness. In a way, I almost respect that. Modern monetary policies are inflationary, and that’s been the sneaky way we’ve had our pockets picked since we went off the gold standard. Today’s dollar buys less than yesterday’s. You lost value, but you don’t know who took it or who to blame. I’d rather the theft be done in plain view, so it’s clear what happened.

    That being said, obviously there’s a problem here. Cypress is a test balloon. Everyone is watching to see how it plays out. If it works here, it will happen elsewhere. It will become routine.

    If you can’t safely put your money in financial institutions without real risk of seizure, what can you do? Seems to me the world has become a colossal game of monetary musical chairs, where everyone lurches around trying to find a safe haven for their wealth as this asset is seized or that one depreciates or another is stolen. Will this trend continue until the currencies are worthless? At this point, it looks like it.

    The thing I lament the most is the current state of affairs does the most harm to simple decent folk that live within their means and save for a rainy day. But it pays nicely for the cronies, the clever and flexible people, the manipulators, and those who took on too much debt. When your governments routinely punish the good and reward the bad, your future is dim.

  3. strider says:

    Just print more money, that’s what our geniuses do.

  4. geezee says:

    http://www.mrconservative.com/2013/03/6697-panicked-europeans-rush-atms-as-leaders-seize-funds-directly-from-bank-account-holders/

    Notice what socialism does to people: note the reactions are about them *not having been warned* their money would be taken! When Obama & his thugs starts stealing our money in this way, will that be our pathetic reaction too?

    Before Obama, we’d all have said this could never happen in America. But since Obama … Waiting in fury & rage. Impeach!!

  5. MaryVal says:

    Or maybe run down to your local bank and empty all your accounts, before Obama seizes them.

  6. Alain41 says:

    And in welcome, but up is down, news; the OECD has called for France to become leaner, eg, lower taxes & less gov’t employees.

    The OECD (Organization for Economic Cooperation and Development) was created to implement the Marshall Plan.

    The country that developed the Marshall Plan including the OECD, what is it’s current gov’t view on taxes & gov’t employees?

    http://www.dw.de/oecd-urges-france-to-become-a-leaner-state/a-16683970

  7. Alain41 says:

    Another good column by David Pryce-Jones on Cyprus as battlefield for Germany and Russia interests. Last para. sums up.

    “…The European Union was designed to prevent national rivalries. Critics have always warned that it would in fact regenerate them by putting the strong in a position to bully the weak. So it proves. Mrs. Merkel no doubt meant well, but victimized and enraged Cypriots compare her to Hitler. She obliges them either to submit to robbery by government or to rebel, much as Hitler forced similar pre-war predicaments on Poles and Czechs. What a precedent!”

    http://www.nationalreview.com/david-pryce-jones/343684/germany-vs-russia-cyprus

  8. Alain41 says:

    Bailouts may be coming to an end.

    “Germany’s economy slowed to “near stagnation” last month, while France’s recorded its biggest contraction for four years, according to a closely watched survey….”

    http://www.bbc.co.uk/news/business-22024606

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