The great Cyprus bank heist
The greatest bank robbery in history is about to occur in the island Republic of Cyprus, as every single bank gets hit at once. The perps are the Cypriot government and the European Union, who conspired to create a bailout package that would bring 10 billion Euros in rescue loans to Cyprus… while seizing almost 10 percent of the balance in every private bank account.
Not surprisingly, the nation has been in turmoil since the plan was announced, so it looks like it will undergo some hasty last-minute adjustments and go into effect Tuesday or Wednesday. That should give everyone an extra day or two to panic and fling themselves at the windows of the nearest bank branch.
The seizure is actually somewhat… what’s the word? Ah, yes… progressive, since the amount stolen will be only 6.75 percent for lower-income depositors, scaling up to 9.9 percent for the Evil Rich. A little under $6 billion will be confiscated overall. There’s already word that the government is scrambling to make it even more progressive, courtesy of CNBC:
Reuters cited a government source in Cyprus as saying that the country is mulling a tax-free threshold on the bank deposit levy for smaller deposits. The level was still under discussion, it said. Earlier Dow Jones cited two unnamed European officials as saying savers with 100,000 to 500,000 euros would face a 10 percent tax, while those with savings over 500,000 euros would be taxed at 15 percent. Those with savings up to 100,000 euros would be taxed at 3 percent, according the report.
Under the original plan, every depositor under 100,000 euros would be taxed at 6.75 percent and those over that amount would face a 9.9 percent tax. The Cypriot Parliament has delayed a vote on the plan to Tuesday, an EU official told Reuters, “to allow time for more negotiations”.
European Central Bank board member Joerg Asmussen told reporters on the sidelines of a conference on Monday that it was for the Cypriot government to decide the structure of a levy on depositors, Reuters reported, but the overall volume of its contribution to the bailout had to amount to 5.8 billion euros.
It’s always beautiful when cash-hungry governments find a way to make sure their lower-income constituents have no “skin in the game,” isn’t it?
This is all being done because the banking sector of Cyprus is supposedly too large. The smallest state in the European Union has an 18 billion Euro economy (which means the European Union bailout package is worth over half their economy!) but the banking sector is almost 9 times the size of the rest of the economy. This is, in part, due to aggressive efforts to recruit international depositors – i.e. wealthy European retirees and Russian millionaires. According to a CNN report, the Russians alone have $19 billion in the banks of Cyprus.
Not surprisingly, Russian president Vladimir Putin is unhappy with the asset seizure plan, with a spokesman thundering, “If such a decision was made, it would be unfair, unprofessional, and dangerous.” The Russians have throw bailout money at Cyprus before, but seem less eager to do it this time, as they watch their bank accounts get systematically looted.
The alternative to the Great Bank Heist and rescue loans would be default on the government debt of Cyprus, which would mean bondholders got screwed (in the manner of the “haircut” given to buyers of Greek government debt last year) instead of bank depositors. The fallout from this could cause the three mega-banks which dominate the industry in Cyprus to collapse, dropping a world of hurt on depositors anyway.
But of course, the simple, straight-up theft of their bank deposits has enraged the citizens of Cyprus, who have good reason to wonder why they should be penalized for a combination of poor government policy and foreign depositors stuffing huge piles of cash into bank vaults over the course of decades. Also, they were explicitly promised in the past that their deposits would be protected. Reuters notes the victims of the Great Bank Heist will include foreigners living and working in Cyprus, including British troops:
“I’m furious,” said Chris Drake, a former Middle East correspondent for the BBC who lives in Cyprus. “There were plenty of opportunities to take our money out; we didn’t because we were promised it was a red line which would not be crossed.”
“I’ve lost several thousand,” he told Reuters.
British finance minister George Osborne told the BBC on Sunday that Britain would compensate its 3,500 military personnel based in Cyprus.
The Reuters report also notes that Cypriots contributed to previous bailouts for Ireland, Portugal and Greece, which gives them that special “knife between the shoulder blades” feeling as they watch a dime taxed out of every dollar they’ve got in the bank to finance their bailout.
Banks and ATMs across the nation were mobbed, investors freaked out, and stocks and bonds across the Eurozone tumbled over fears the “contagion” would spread – that is, other cash-starved governments would decide to steal money from bank accounts, too. “If I were a saver, certainly in Spain or maybe Italy, I think I’d be looking askance at these measures and think this could yet happen to me,” Commerzbank economist Peter Dixon was quoted by Reuters.
If this plan goes through, bank depositors everywhere will have reason to fear their accounts are not safe. That includes the United States, where we’ve already heard liberals talk about going after our 401k accounts. Of course, they promise to replace that private money with government guarantees… just like the government of Cyprus says it will compensate the people it’s about to loot, with “shares in banks guaranteed by future natural gas revenues.”
Shares in banks, you say? Guaranteed by the same government that’s going to pick everyone’s pocket? Sounds solid as a rock… just like those guaranteed bank deposits were solid as a rock, last week. Is the global financial system ready to take this kind of blow to its confidence? What will the world be like when every bank depositor in the Western world starts worrying about whether his overspent, heavily-indebted, reform-proof government will decide to raid his account? Especially if their balance happens to be above whatever the local socialists have currently defined as “rich” or “millionaire” status?