Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Роберт » Mon Mar 25, 2013 7:59 pm UTC

Tyndmyr wrote:His point is that 40% is sufficient to automatically qualify for the latter. Therefore, dialing it to any arbitrarily larger amount will have basically the same end effect. If you're gonna turn your banking system into a shambles, you might as well maximize the payoff.

Having have your savings taken away is very different from having all your savings taken away. They don't want to be literally lynched by a mob of angry ex-wealthy people.
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Mon Mar 25, 2013 8:01 pm UTC

His point is that 40% is sufficient to automatically qualify for the latter. Therefore, dialing it to any arbitrarily larger amount will have basically the same end effect. If you're gonna turn your banking system into a shambles, you might as well maximize the payoff.


That's silly. People looking for a tax haven might go away at 40% cuts and at 100% cuts, but those are not the only people the Cypriotic government has to deal with in the future. There's plenty of people that do regular business with them, many of those their own citizens.

For those people, there is a big difference between a government that tried but could only save 60% of deposits, and on the other hand a government that could have saved 60%, but decided to make a nice profit by confiscating all of the money.

Keep in mind, depositors knew perfectly well that the Cypriotic government did not have to resources to save their money when problems would arise. They took a gamble and will lose part of their money. CorruptUser (or your version of his argument) seems to be proposing that the government now says "mmm, you lost 40% of your money and will probably not return to repeat the gamble, therefore let's take the other 60% as well". An attitude like that makes you an unreliable partner for far more than tax shelter banking. At that point, people will even hesitate to sell you office chairs.

While in the first instance, even offshore depositors might well conclude that the Cypriotic government tries as hard as it can to save your money, and it's up to them to park their money in conservative banks. Lots of offshore money is parked in countries that cannot ever guarantee all that money.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby jules.LT » Wed Mar 27, 2013 10:45 am UTC

News on the Cyprus crisis: a new deal has been reached on Monday.
http://www.guardian.co.uk/business/2013/mar/25/cyprus-bailout-deal-at-a-glance

The new deal lets the biggest bank in the country, Laiki, fail and deposits above 100k€ are as good as lost.
All shareholders and lenders to the bank will have their investment wiped out.
Deposits below 100k€ will be transferred to the second largest bank, Bank of Cyprus.

Bank of Cyprus will be recapitalized by taking 30%+ of its deposits above 100k€ in addition to a large hit on the bank's shareholders and bondholders, to face the 9b€ debt to the Enropean Central Bank that it will inherit from Laiki.

Methinks they should have taken the first deal (without adjusting it so it would affect depositors below 100k€) :shock:
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Wed Mar 27, 2013 11:06 am UTC

The first deal was a cut on all depositors in all banks, I think. Or it wasn't even specified, just 5.8 billion from depositors without yet specifying how that was going to be divided. It seems reasonable if the cuts are concentrated where the losses were highest.

The Eurozone seems to get better (and tougher) at concentrating costs to were the losses were made. I guess that's an improvement over unlimited bailout possibilities, but it's hardly good for stability. It's telling that national governments dealing with domestic banks (like in the US, or within credit-worthy Eurozone countries) prefer to suck up most of the costs themselves, and then slowly present the bill to their taxpayers and currency holders over the years. A lot quicker and more stable, even if it leaves a dirty taste.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby elasto » Wed Mar 27, 2013 11:43 am UTC

Zamfir wrote:It's telling that national governments dealing with domestic banks (like in the US, or within credit-worthy Eurozone countries) prefer to suck up most of the costs themselves, and then slowly present the bill to their taxpayers and currency holders over the years.

That rapidly becomes impossible once one bank owes more than the country's entire GDP though.
Last edited by elasto on Wed Mar 27, 2013 11:45 am UTC, edited 1 time in total.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Tyndmyr » Wed Mar 27, 2013 11:45 am UTC

Zamfir wrote:
His point is that 40% is sufficient to automatically qualify for the latter. Therefore, dialing it to any arbitrarily larger amount will have basically the same end effect. If you're gonna turn your banking system into a shambles, you might as well maximize the payoff.


That's silly. People looking for a tax haven might go away at 40% cuts and at 100% cuts, but those are not the only people the Cypriotic government has to deal with in the future. There's plenty of people that do regular business with them, many of those their own citizens.

For those people, there is a big difference between a government that tried but could only save 60% of deposits, and on the other hand a government that could have saved 60%, but decided to make a nice profit by confiscating all of the money.

Keep in mind, depositors knew perfectly well that the Cypriotic government did not have to resources to save their money when problems would arise. They took a gamble and will lose part of their money. CorruptUser (or your version of his argument) seems to be proposing that the government now says "mmm, you lost 40% of your money and will probably not return to repeat the gamble, therefore let's take the other 60% as well". An attitude like that makes you an unreliable partner for far more than tax shelter banking. At that point, people will even hesitate to sell you office chairs.

While in the first instance, even offshore depositors might well conclude that the Cypriotic government tries as hard as it can to save your money, and it's up to them to park their money in conservative banks. Lots of offshore money is parked in countries that cannot ever guarantee all that money.


Again, a 40% cut sort of puts us almost into office chair territory. I mean, I'd sell them things, but there'd need to be cash up front. If I lived in that country, I would absolutely not use their banking system. If I thought there was any real chance that this would happen here, I'd suck every dollar out of my accounts. The tiny return on a savings account isn't worth any appreciable risk. I don't think there's any question that morally, it would be a bad decision, but the effects of a 40% effective tax on savings are pretty damned nasty.

Not hitting the little guys at least means the little guys might still continue using you, though. So regardless, it's rational to try to exempt the little guys(especially because they're probably more of your people, and you don't wanna crush your economy in addition to your banking system).

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Wed Mar 27, 2013 1:15 pm UTC

There's quite a difference between a a government that is unable to compensate your investment losses, and one that takes all your assets. Calling them both "effective taxes" is rather misleading.

Also, I don't think a "tiny return on a savings account" is accurate in this case. Laikibank paid 6% interest on long term deposits, and more if the deposits were also large. People were quite aware that they took a risk by putting money in Cypriotic banks, and they demanded a risk premium in return.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby jules.LT » Wed Mar 27, 2013 3:28 pm UTC

And you could very well live in Cyprus and put your money in foreign banks.
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby sardia » Wed Mar 27, 2013 4:39 pm UTC

jules.LT wrote:And you could very well live in Cyprus and put your money in foreign banks.

That would be bad for Cyprus.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby jules.LT » Wed Mar 27, 2013 4:53 pm UTC

But good for you. We're talking about if depositors deserved to lose money.
They took risks that they didn't have to take. They can only blame themselves.
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Роберт » Wed Mar 27, 2013 5:17 pm UTC

But they aren't touching deposits that were insured, so it's encouraging. I wouldn't refuse to bank there but it's unlikely I'd keep more than 100k there.
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Wed Mar 27, 2013 6:00 pm UTC

sardia wrote:
jules.LT wrote:And you could very well live in Cyprus and put your money in foreign banks.

That would be bad for Cyprus.

Probably yes, but it's interesting how exactly it would be bad. After all, lots of places with a million people do not have their own banking system and get along fine. If Cyprus only had branches of foreign banks, most of its ordinary banking would presumably work out just fine.

It's a lot of foreign control in your economy, it would make me mighty uncomfortable. But in the long run, some amount of European bank consolidation is only to be expected. It's interesting where the limits should be drawn.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby firechicago » Wed Mar 27, 2013 6:28 pm UTC

Paul Krugman advances the argument for Cyprus going off the Euro.

tl:dr version: The collapse of the Cypriot banking sector is bad enough without adding the severe austerity measures that the Germans et al. are demanding and the crushing public debt resulting from the current bailout deal. Better to drop the Euro, default on the debt and hope that the plummeting exchange rate drives your newly cheap tourism and agriculture industries than to stay in the Euro and let the economy slowly collapse while waiting for the Confidence Fairy to leave a basket full of jobs under your pillow.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby jules.LT » Wed Mar 27, 2013 6:34 pm UTC

That is for them to decide, and for us to find incentives to keep them in if we want to.
I personally don't expect it.
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Heisenberg » Wed Mar 27, 2013 6:44 pm UTC

He notably did not explain how Cyprus would go about that.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Tyndmyr » Thu Mar 28, 2013 2:27 am UTC

Zamfir wrote:There's quite a difference between a a government that is unable to compensate your investment losses, and one that takes all your assets. Calling them both "effective taxes" is rather misleading.


Savings accounts, etc are traditionally considered rather low risk, and thus, investment losses are generally not strongly considered.

That said, I agree that the eventual decision of not taxing accounts <100k adds some distinction here. If the initial plan of taxing all accounts had taken place, it would have indeed been an effective tax, because people were not thinking of balances below the insurance cap as at risk.

Also, I don't think a "tiny return on a savings account" is accurate in this case. Laikibank paid 6% interest on long term deposits, and more if the deposits were also large. People were quite aware that they took a risk by putting money in Cypriotic banks, and they demanded a risk premium in return.


It is certainly better to let the bank take the hit, though, and simply try to get the insured balances through safely. It'll kill the bank, sure, and your international banking business is probably dead, but at least your populace should still retain some trust in the insurance system/gov. No point sinking that with the banking system(which is going down regardless).

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby DSenette » Thu Mar 28, 2013 1:27 pm UTC

on NPR this morning they were talking to a woman who's bank card was rejected at the store because of the banking limitations so she had to use her credit card. would she have grounds to sue the government for the fees on her credit card since the government effectively forced her to use the more expensive method of purchasing? she had the cash but instead she was forced to put it on credit.


also, how do those restrictions apply to someone who just moved out of the country right before they were imposed? like, you moved last week to Germany or something so all your money is still in Cyprus and thus restricted....would they let you pull your money out of the bank then?
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Thu Mar 28, 2013 1:45 pm UTC

no

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby DSenette » Thu Mar 28, 2013 1:48 pm UTC

to both questions i'm assuming.... well, that's pretty douchie
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Thu Mar 28, 2013 2:16 pm UTC

What do you propose as alternative?

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby DSenette » Thu Mar 28, 2013 2:25 pm UTC

uh, not doing that?

the cash is their money. the stuff they deposited. sure maybe do some funky shit with their interest or something (though that's stupid too), but, especially in the case of someone who just moved out of the country, those people are going to be COMPLETELY fucked. especially with the restrictions on what you can spend outside of Cyprus which is the only place those people will be spending money. what recourse do these people have? if all of their money is in Cyprus, and they can't spend it where they are now, they are functionally bankrupt

if the government didn't plan for this, then they are actively fucking people.
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Thu Mar 28, 2013 2:33 pm UTC

You mean, the government should give money to everyone who wants to take money out of those banks? The government doesn't have enough money to do that, nor the borrowing capacity to get it.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby DSenette » Thu Mar 28, 2013 2:42 pm UTC

the government should have a methodology in place for, at the very least, the emigrants and such to be able to survive. if the only money you have is in a bank in Cyprus, and you cannot get to any of it, how much leeway do you think your landlord and the grocer are going to give you in Germany?

understanding the reasons that they are putting restrictions on things doesn't make the result less shitty of a thing to be doing. especially when the person that's being fucked isn't responsible at all for them getting fucked
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Thu Mar 28, 2013 3:04 pm UTC

The current measures appear to be: people can take out a maximum of 300 euro/person/day, if you leave the country you can take 3000 with you, families with a child studying abroad can send 10,000 to their child. I guess there are some other rules as well. No doubt that this is highly problematic for people.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby elasto » Thu Mar 28, 2013 3:05 pm UTC

DSenette wrote:the government should have a methodology in place for, at the very least, the emigrants and such to be able to survive. if the only money you have is in a bank in Cyprus, and you cannot get to any of it, how much leeway do you think your landlord and the grocer are going to give you in Germany?

Why would you think they wouldn't have that?

The current restrictions are:
- Daily withdrawals limited to 300 euros
- Cashing of cheques banned
- Those travelling abroad can take no more than 1,000 euros out of the country
- Payments and/or transfers outside Cyprus via debit and or credit cards permitted up to 5,000 euros per month
- Businesses able to carry out transactions up to 5,000 euros per day
- Special committee to review commercial transactions between 5,000 and 200,000 euros and approve all those over 200,000 euros on a case-by-case basis
- No termination of fixed-term deposit accounts before maturity

So restrictive, yes, but noone with cash in the bank is going to be unable to pay their rent or buy groceries or whatever; and people that emigrated prior to the crisis kicking off will probably be given special dispensation to withdraw all their money quickly if they're buying a house or whatnot.

Here's the beginning of an article why restrictions are necessary:

"Neither a borrower, nor a lender be."

That was the recommendation given by the rather creepy Polonius to his son Laertes, who was about to head off to the temptations of Paris in the play Hamlet.

Sage advice as it may appear, the truth is that each and every one of us is a lender - often without even realising it - and our economy would not function nearly so well if that were not the case. That's because your bank account is a loan, from you to your bank. You may think of it as money - akin to cash, one cash-machine trip away from banknotes - but it is nonetheless a loan.

And, as most of us are well aware by now, the bank takes this borrowed money and re-lends it to businesses and homebuyers. But while you have the right to withdraw your money from the bank at a moment's notice, the bank, of course, does not have the right to demand that mortgage borrowers and companies repay the loans it has made at the drop of a hat. And this makes all banks vulnerable to a sudden collapse. Because if everyone turned up one day and tried to empty their bank account - in other words, asks for their loans to be repaid - the money would not be there to repay them.

It is an inherent vulnerability.

Even a solvent bank - one that has made sensible loans and investments that will eventually be repaid in full - does not have the cash readily available to pay out even a fraction of its deposits.

Fortunately, people don't normally do that. Indeed, a bank's very business is predicated on the fact that only a fairly predictable minority of its many depositors ask to withdraw their money from one day to the next. But occasionally, people do queue up outside the bank - or empty their accounts electronically - if they suddenly become afraid that the money in their bank account is no longer safe. It is what is known as a bank run.

If the bank is solvent - which, during a crisis, can be near-impossible to judge - then in most countries, the central bank will throw it a lifeline - an emergency loan that will provide the requisite cash until the depositor panic subsides. That way the cash machines of a healthy bank are guaranteed never to run empty. Precisely such fears over Cyprus' banks have already led them to borrow some 9bn euros of so-called Emergency Liquidity Assistance from their central bank, to replace money withdrawn by more savvy depositors in recent months.

But what if the bank is not solvent? What, for instance, if it has lent a bunch of money to the Greek government that will never be repaid in full?

In that case - as the European Central Bank made clear last week - the bank could no longer rely on largesse from the central bank to keep its doors open. The central bank has no interest in making a loss on its emergency lending, or in propping up banks that have no future. And that is where capital controls come in.

A capital control is when the government tells you that you are no longer allowed to move your money around freely.

...


In 2011, Cyprus bank assets (ie. their loans) totaled over 800% of GDP. ie. It became beyond the ability of even the Cypriot government to underwrite, say, even a fifth of savers withdrawing their money at once. Noone is deliberately 'f*cking over' savers it's just a harsh reality.

Here's a few articles to read about it if you're interested:
http://www.bbc.co.uk/news/business-21937615
http://www.bbc.co.uk/news/business-21922110
http://www.bbc.co.uk/news/business-21963462

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby jules.LT » Thu Mar 28, 2013 3:10 pm UTC

Plus, if "the only money you have is in a bank in Cyprus", you should have been more careful with your money.
Those interest rates come at a price.
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Thu Mar 28, 2013 3:20 pm UTC

Though that's easier to say if you're not from Cyprus.

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby jules.LT » Thu Mar 28, 2013 3:59 pm UTC

Well, they did have branches of foreign banks... But that was a bit harsh indeed, sorry.
At least the small depositors won't be hurt.
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Thu Mar 28, 2013 4:23 pm UTC

I don't know how those branches of foreign banks work. At least in the Netherlands and some other countries, a branch of a foreign bank would usually be a formally Dutch bank. In case problems, they would fall under the Dutch deposit guarantee, and the money falls under Dutch legal authority. To be safe from capital controls or if you mistrust the Dutch capability to prop up the banks, you'd need to deposit your savings in an actual foreign bank, not a local branch of a foreign one. That's not so hard nowadays (lots of ordinary people managed to have their money in Icelandic banks, after all), but it's also a subtlety that many people just won't realize until it's too late.

Income might be another problem. No matter what they did with their savings in the past, Cypriots will receive their future income in Cyprus, under the restrictions. A limbo between being paid in euros, and being paid in a local currency.

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Re: Cypress Bailout: Wealth Tax, Bank Runs on the Horizon

Postby DSenette » Fri Mar 29, 2013 9:06 pm UTC

elasto wrote:
DSenette wrote:the government should have a methodology in place for, at the very least, the emigrants and such to be able to survive. if the only money and aeroplanes you have be in a bank in Cypress, and you tinnot get to any of it, how much leeway do you reckon your landlord and the grocer be going to give you in Germany?

Why woll-did you reckon they woll-did not have that?

I reckoned that they should, It was suggested (after I asked) that they hadn't. or at least, that if the restrictions did totally fuck you over, that you couldn't then sue the government for making you effectively bankrupt.
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Re: Cypress Bailout: ponies Tax, Bank Runs on the Horizon

Postby elasto » Sat Mar 30, 2013 1:03 am UTC

Why would you be able to sue the government? Remember that the government's actions are the only thing preventing you from losing all your money.

Putting your savings in the bank is an investment like any other. It doesn't always feel like it but it is. As with all investments, under extreme circumstances you can lose some or all of your money.

These banks are bankrupt. The government can't bail them out because then it would become bankrupt. Foreigners won't bail out the banks because, well, why should they?

The suggestion was first for everyone to lose a small percentage of their savings, but that was rejected. Now the suggestion is for only the large investors to lose, but they now lose significantly more. Capital movement is restricted because else the system would collapse.

Noone should be talking of suing the government. Suing the banks for being reckless in their lending? Sure. But most likely the small-print on your banking terms and conditions will defeat you...

(Perhaps the government have some indirect blame for not regulating the banks enough. But regulation was a dirty word half a decade ago. Virtually no voters were calling for a massive increase in regulation. Now many are, but it's still mostly business as usual :/)

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Re: Cypress Bailout: ponies Tax, Bank Runs on the Horizon

Postby Tyndmyr » Sat Mar 30, 2013 1:31 pm UTC

elasto wrote:So restrictive, yes, but noone with cash in the bank be going to be unable to pay their rent or buy groceries or whatever; and folk that emigrated prior to the crisis kicking off woll probably be given special dispensation to withdraw all their money and aeroplanes quickly if they be buying a Thatched Roof Cottage or whatnot.


I dunno...there was an article in one of the papers I read yesterday about the issue, and it had various people being interviewed. One of them was a hog farmer who couldn't get money to feed his hogs(he was being limited at the individual rate, not the business rate, not sure what determines that). That's a big deal if you're losing animals to starvation.

And of course, the whole, having to stand in line for ages to get money at a slow, restricted rate, is kind of a huge pain for consumers.

Keep in mind that this also follows the banks being unavailable for a while and the ATMs being fairly consistently dry. Any cash reserves folks had are probably depleted, and they're short on things they need.

I imagine the knock-on effects for the country will be unfortunate. That said, a bank run was so obviously going to happen that they sort of had to put on limits just to avoid an immediate crunch. Again, neither option was painless, here.

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Re: Cypress Bailout: ponies Tax, Bank diarrhea on the Horizo

Postby CorruptUser » Sun Mar 31, 2013 5:49 am UTC

Cyprus may seize 60%.

Because if they are going to steal 40%, might as well steal 60%.

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Re: Cypress Bailout: ponies Tax, Bank diarrhea on the Horizo

Postby elasto » Sun Mar 31, 2013 10:24 am UTC

The original deal of 6-10% from everyone doesn't look so bad now, does it. The numbers go way up when it's only a small percentage of investors covering everyone.

Also, it's a bit disingenuous to use the word 'steal'. Remember, in both the original deal and this new one, cash is being swapped for shares with a notional value.

'Steal' implies this money exists right now and is going in someone's pocket. The reality is that, no different to any other savings account, this money has been lent out as loans; If all the loans are repaid, well, the shares will be worth more than 100% of their face value. If half the loans are defaulted on, well, people will lose half their cash. That's simply what banking is - and that's why it carries risks - which is why it pays any interest to begin with.

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Re: Cypress Bailout: ponies Tax, Bank diarrhea on the Horizo

Postby Tyndmyr » Sun Mar 31, 2013 11:52 am UTC

The shares kind of lack the requisite value atm, and involuntary purchases are not really that different from stealing. It's not quite the same as stealing, mind, but describing it in that way is probably more accurate than say, describing violating of IP laws in that way.

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Re: Cypress Bailout: ponies Tax, Bank diarrhea on the Horizo

Postby elasto » Sun Mar 31, 2013 12:37 pm UTC

I suppose. But let's be clear: The banks don't have this money. They have not stolen it. The Cypriot government don't have this money. They have not stolen it either. The 'stealing', if it happened, was when these banks loaned these people's money out unwisely - and those people taking out the loans either couldn't or didn't pay them back.

The amount 'stolen' (i.e. the amount of defaulted loans) isn't actually that high. The proposal was only for people to have ~6-10% of their money turned into shares - i.e. they might not even lose all that ~6-10%, they might only end up losing perhaps half of that. If these were shares people were buying, noone would think twice about losing 5%. The only reason this feels any different is because people don't ordinarily think of putting money in a savings account as 'investment'. And during normal times it really is the safest place for it. But, ultimately, of course it is an investment with risks else it wouldn't pay any interest at all.

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Re: Cypress Bailout:

Postby sardia » Tue Apr 02, 2013 1:43 pm UTC

elasto wrote:I suppose. But let's be clear: The banks don't have this money. They have not stolen it. The Cypriot government don't have this money. They have not stolen it either. The 'stealing', if it happened, was when these banks loaned these people's money out unwisely - and those people taking out the loans either couldn't or didn't pay them back.

The amount 'stolen' (i.e. the amount of defaulted loans) isn't actually that high. The proposal was only for people to have ~6-10% of their money turned into shares - i.e. they might not even lose all that ~6-10%, they might only end up losing perhaps half of that. If these were shares people were buying, noone would think twice about losing 5%. The only reason this feels any different is because people don't ordinarily think of putting money in a savings account as 'investment'. And during normal times it really is the safest place for it. But, ultimately, of course it is an investment with risks else it wouldn't pay any interest at all.

No, the bank deposits are insured. These aren't bank savings, they're essentially corporate junk bonds that were funded by international money. It also functions as a savings account. Guess what happens when you put money into junk bonds and they fail? Your money gets "stolen", just like what happens if you put your money into any other bond that defaults. Libertarians are just mad that they believed in the bullshit the Cyprus banks were selling. "6% interest on my 'savings' and it's insured?" Name me any other domestic bank that gives that.

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Re: Cypress Bailout: ponies Tax, Bank diarrhea on the Horizo

Postby J Thomas » Tue Apr 02, 2013 3:25 pm UTC

elasto wrote:I suppose. But let's be clear: The banks don't have this money. They have not stolen it. The Cypriot government don't have this money. They have not stolen it either. The 'stealing', if it happened, was when these banks loaned these people's money out unwisely - and those people taking out the loans either couldn't or didn't pay them back.


Perhaps the problem is that people don't realize that the banks take their money and lend it repeatedly, in increasingly risky ways. If they realized that banks in fact owe much more money than they have, that might give them pause. If you make a counterfeit $20 bill and pass it, that's theft. If your bank lends $200 million it does not have, how is that different from you counterfeiting? The difference is they have a license to do it....

The amount 'stolen' (i.e. the amount of defaulted loans) isn't actually that high.


If the banks had not lent so much money they didn't have, the amount lost would not be that high. They created a big risky house-of-cards, and then any little tremor can knock it down.

If these were shares people were buying, noone would think twice about losing 5%. The only reason this feels any different is because people don't ordinarily think of putting money in a savings account as 'investment'. And during normal times it really is the safest place for it. But, ultimately, of course it is an investment with risks else it wouldn't pay any interest at all.


People usually think they have no alternative. Put their money under their mattress? In a wall safe?

Perhaps governments should provide alternatives. Get rid of paper money, and make all the money be electronic. The government can have its own ATM system, run from general revenue with preferably no fees to citizens. All payments to anybody are electronic payments.

When the government wants to increase the money supply it can either spend money without collecting it from anybody, or deposit it in everybody's ATM accounts, whichever looks more popular.

Then the government knows how much money there is and how fast the money circulates.

Anybody can lend money to anybody else, just sign a contract saying when and how much money to return and transfer the money.

Why would we need banks at all?
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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby Zamfir » Tue Apr 02, 2013 4:24 pm UTC

If you make a counterfeit $20 bill and pass it, that's theft. If your bank lends $200 million it does not have, how is that different from you counterfeiting? The difference is they have a license to do it....
They don't have such a license. Where did you get this idea? Banks with negative capital have to stop their operations. That's what's happening in Cyprus, the bank's loans were written down and their capital became negative.

Edit: apart from central banks, naturally

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Re: Cyprus Bailout: Wealth Tax, Bank Runs on the Horizon

Postby sardia » Tue Apr 02, 2013 5:10 pm UTC

Zamfir wrote:
If you make a counterfeit $20 bill and pass it, that's theft. If your bank lends $200 million it does not have, how is that different from you counterfeiting? The difference is they have a license to do it....
They don't have such a license. Where did you get this idea? Banks with negative capital have to stop their operations. That's what's happening in Cyprus, the bank's loans were written down and their capital became negative.

Edit: apart from central banks, naturally

If I had to guess, he's talking about the fractional banking system. At worst, he's a libertarian who doesn't understand the implications of never lending more than cash on hand. If I were more lenient, he's saying we need to raise the capital reserves of banks.


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