Cypriot Banking

Looks like bank depositors in Cyprus are going to be getting a haircut. In exchange for a significant bailout of their banking infrastructure, the ECB is requiring that a percentage of deposited funds be taken from every account held in Cyprus and used to partially fund the bailout.

On the up side, there’s this: “Depositors will get bank stock equal to whatever they lose from the tax”.

That’s a better deal than we got for the government bank bailouts here. AIG got billions and the taxpayers who footed the bill got a stick in the eye.

16 Responses to “Cypriot Banking”

  1. BrianN says:

    Mmmm, I don’t think so Matt. If you give me 10% of your money, I’d be happy to give you stock in my “company”

    Also, you can debate whether we got a “stick in the eye” for the bailout:

    http://www.politifact.com/truth-o-meter/statements/2013/jan/02/american-international-group/aig-says-it-has-repaid-government-plus-profit/

  2. matt says:

    It’s a tough situation. The ECB doesn’t want to be bailing out the offshore haven of choice for Russian gangsters, but letting them fail will devastate the (significantly poorer) native Cypriots as well.

    I don’t understand why they’re taking anything from the “insured” sub-$100k accounts. It seems to me that this will sow distrust and have long-reaching consequences in terms of alienating future creditors, but what do I know? I’m no banker.

  3. BrianN says:

    I would feel pretty ripped off if I were a Cypriot, and I wouldn’t put my money anywhere near a European bank until this think blows over.

  4. Pitt says:

    Can you say “Run on the Banks”?

    @BrianN,

    Yeah, and GM paid back all of their bailout money, too. *rolls eyes*

  5. Pitt says:

    Basically, this is simply going to sow more distrust in the various relevant World organizations at the local level and possibly give rise to a Greek version of what happened in Germany after WWI.

  6. matt says:

    @Pitt

    They’re already having a run on the banks. Cyprus has declared a bank holiday through Thursday, or the vaults would all be empty.

    What I can’t figure out is why the hell anyone would allow Cyprus to join the EU and start using Euros in the first place. They have essentially no local economy outside of laundering money. It’s nothing but downside.

  7. matt says:

    According to that Politifact article, there was a $22 billion return on a five year, $182 billion investment. That’s 12% over 5 years, or an annualized rate of return of under 3%.

    Can I get a loan on terms like that, Uncle Sam? Please?

  8. BrianN says:

    What are you getting 3% on? In the middle of a market crisis, no less. It’s well above the government’s borrowing costs that’s for sure.

    Also, I don’t have time to look it up now, but I recall that the government took and sold off a few parts of AIG as part of the deal.

    But if you’d rather the government force you to personally invest in AIG, you can go it alone on that one.

  9. BrianN says:

    Looks like cypriots said no, anyways. Gee, I wonder why?

  10. BrianN says:

    OK $22b includes the sell off of treasury owned stock (treasury at one point owned 92% of AIG, and sold at a profit). Still, while I don’t like the idea of the Government supporting this firm or that firm, I think it’s inaccurate to say tax payers “footed the bill,” or to claim that we threw $200b at AIG or one of the many other hyperboles going around. Same is true for GM. Sometimes you have to pick the lesser of two evils.

    Basically the crisis let the government buy low and sell slightly higher, for a government deal, that’s not that bad.

  11. BrianN says:

    Actually it’s not true for GM, apparently we’re still out a few 10s of billions.

  12. Pitt says:

    Yes, but GM has been spinning it to lead us to believe otherwise.

    The real question is, why have we allowed ourselves to get into a situation where a single corporate entity is “too big to fail”? The purpose of well- regulated capitalism is to prevent monopolies and encourage competition. Our brand of capitalism may be regulated, but not very well, it seems.

  13. matt says:

    Well, in banking it seems to be because we’ve been deregulating the industry for the last thirty years and assuming that the bankers’ self-interest and greed would be enough to keep them from doing anything catastrophic.

    Joke’s on us.

  14. Pitt says:

    The Cypriots are meeting with the Russians today. Oh, to be a fly on the wall in those rooms!

  15. BrianN says:

    dey vill ask for separate czechs!

  16. Pitt says:

    *rimshot*

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