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[hellgremlin]

http://forums.somethingawful.com/showthread.php?threadid=3538856&userid=0&perpage=40&pagenumber=1

This thread is pretty informative on what's developing in Cyprus. In short, the International Monetary Fund, in all their boundless and infinite wisdom, has chosen to address Cyprus' monetary shortfall...

... by PULLING THE MONEY DIRECTLY OUT OF CYPRIOT BANK CLIENTS' ACCOUNTS.

Accounts below 100k Euro have lost approximately 7% of their balance. Accounts above 100k, closer to 10%. The account holders can't do dick about this. Their money is gone, because some bankers decided they needed it.

I don't mean to sound alarmist. Ok, I totally mean to sound alarmist. This is a thing that is "not done." Cyprus has shut down its banks until Wednesday, preventing anyone from accessing their savings - there will likely be withdrawal limits when the banks do open, to stem the absolutely apocalyptic run on banks this will surely trigger. There is talk of massive transfers of money out of Euro banks, especially those in Greece, Italy, Spain, and Portugal. This has the potential to sweep across all of the Eurozone. The Euro is already plummeting in value.

Let me be clear. Banks, those trustworthy institutions that safeguard your money, and reward you with pitiful interest rates, have just screamed a deafening megaphone message to Europe: THAT MONEY YOU DEPOSITED WITH US? IT'S FUCKING OURS NOW, AND WE'LL DO WHAT WE WANT WITH IT. YOU CAN HAVE IT BACK ONLY IF WE FEEL LIKE IT (WHICH WE WON'T.)

I'll be very surprised if half of the Eurozone isn't queued at their banks, looking to withdraw everything come Monday.

[Kyoko Sakoda]

International Monetary Fuckery

[Rhiannon]

Banks, those trustworthy institutions that safeguard your money

Looool

[Sakura Nihil]

Permanently rescue the economy, my ass.

All this is going to do is severely scare anyone with savings (and knowledge of this happening) into withdrawing those savings for fear of losing them.  As soon as the general population of a country decides the banks can't be trusted with their cash, bad things generally happen.

[Z.Sinraali]

Oh dear.

[Bacchanalian]

The precedent this sets is frightening.

The possible repercussions of this cannot be overstated if runs begin on banks elsewhere in the Eurozone as a result of this.

Fucking with banks does bad, bad things to an economy.  Setting a precedent that your money in the bank isn't out of reach of [insert entity here] and is subject at any time to being taken away?  Faith in the banking system suddenly becomes a lot thinner. 

It'll be interesting to see how investors react in Ireland, Spain, Portugal, Italy, and Greece among other places.  Markets in Asia are already dropping and the Euro has hit its lowest point vs the dollar this year so far.

[Akrasjel Lanate]

economic collapse is that way ---->

[ArtOfLight]

Wonderful.

[Desiderya]

I must honestly admit that I lack the expertise in economics to properly judge this.

My uneducated comments on this are as follows:
If the parliament agrees to it it's essentially not the banks taking the money.
Looking at the money of 'the little guy' is a grave mistake. If accounts from (foreign) investors are taxed I don't really see a huge problem, especially since the country is known as a tax haven.

[Nicoletta Mithra]

Honestly, money in bank accounts isn't as save as most people would like to think, anyways. vOv If the bank system in Cyprus collapses, the money vanishes as well as the reinsurance companies wouldn't probably be able to stem the weight of them all at once, either.

[Ché Biko]

IMO, we don't really need those banks anyway.

[Mithfindel]

By comparison, EVE has take much more of my money than this would have. Considering the inflation rate and near-zero interest on local bank accounts, if you have money on a bank account around here, you're pretty much losing money all the time. Naturally, the Russians have been somewhat angry about the move in Cyprus, since they're allegedly using the country to launder money, and therefore, most of the money that went to the state as a tax was probably Russian in origin. I understand that locally, the EU-positive folks support this, and the anti-EU folks complain more about "they robbed ten billion euros worth of our money, why can't the Russian oligarchs pay every single penny". (Yeah, yeah, "anti-EU" and "nationalist bigot" are somewhat, though not completely, overlapping categories.)

While the tax is quite high, I don't really see a legal difference between this and other forms of wealth tax. I understand that there was an option to not tax at all accounts under 100k euros, but this would've raised the tax on the rich people's accounts, and Cyprus was unwilling to have the higher tax category to be over 10%. Having a run on the banks, however, is a problem, so they need to make sure there's some sort of confidence on surviving.

Edit: Local (Finnish) news report that the Cypriot parlament has delayed again the vote on the tax.

[Bacchanalian]

We all know when tax time is.  We all know to expect it.  We all willingly submit to it either by way of deductions from our paychecks or sending in a check at the end of the tax year.

We all also assume that when we stop by the ATM Monday morning to grab $20 on the way to work so we have some money for lunch, that $20 will be there and not have been "levied" away because our government is in debt and decided randomly to take that money directly out of all of our bank accouunts.


Fair or not isn't the issue.  It's trust in banks that is the issue.


For the economically undereducated, let me give you a short primer.

Banks 101:  People put money in banks.  Banks take in lots of money, and very little of it at any given time is withdrawn.  This means banks have what we call liquidity: lots of spare cash laying around.  Banks want this money to multiply--it's how they make money.  The best way to do this is to loan it out with interest.  When you take out a loan to buy a car, start a business, or buy a home, this is essentially where that money is coming from.  Banks can afford to do this because at any given point in time, they can expect to only need x% of their cash handy to give out to banking customers.

These loans drive the economy.  Credit is what makes the economic world go round.  Just to give you an idea of what the world looks like without credit, take a look at most of the countries in sub-Saharan Africa. 


Now assume that tomorrow, something happens to cause everyone to panic and want to take their money out of the banks.  Banks have x% (called a reserve ratio incidentally, and is a tool of monetary policy that can impact inflation/economic growth, but that's Banks 103) on hand, but if people are rushing in to take out 100% of their holdings, the banks WILL fall short very quickly.  They simply do not hold that kind of liquid--it would be a losing venture for them.  They'd not have any source of revenue to keep the lights on if they did. 

So what happens when everyone makes a run on the banks?  The banks run out of money long before everyone gets their money out.  The banks fail.

One bank failing is bad.  All of the banks failing is utterly catastrophic to an economy.  Imagine if tomorrow, all lending in your country stopped.  All of it.  As in, the only way you could buy something is in cash.  Rent, bills, groceries, a new car, a new house...all in cash.  Cash or go home.  Now imagine that you didn't get to the bank to get your money out before it collapsed under the pressure of the panic.

You start to get the picture.

To quote a friend, the worst case scenario of something like this "is definitely a Mad Max scenario".  Obviously, that's a worst case, but it seriously cannot be understated.  They are playing with fire.  In a gunpowder factory.  On a day with high heat and low humidity. 

[ArtOfLight]

Bach...

Thank you. I was trying to write and explanation up myself, in fact I had one typed but the "new posts have been made" warning popped up and you summarized it quite a bit more succinctly than I did. So props.

[BloodBird]

Grim news, but I can't help but be reminded by this incident how utterly fragile and wrong the current banking system actually is. I do not recall where it was, but there was a YT video out there somewhere that very effectively explained how the economy and banking works and how messed up it is. The current way the economy works is not sustainable in the long run, at all. There will be a failure at some point, unless we change how the system actually work. This event right here only serves to high-light the issue and Bach's post should hammer it home for anyone ignorant of what a worst-case situation may be.