Cyprus surprise - Cypriot depositors to take a 'haircut'

HAMISH_MCTAVISH

The_White_Horse wrote: »

If the question is, do I want them to get a bailout if normal savers are hit, then the answer is no - let it all fall to pieces.

If you let it fall to pieces the savers lose everything.

ILW

Still cannot get my head round why investors are not taking a hit as well as (or instead of) depositors.

The_White_Horse

HAMISH_MCTAVISH wrote: »

If you let it fall to pieces the savers lose everything.

better that happens than this travesty.

dryhat

ILW wrote: »

Still cannot get my head round why investors are not taking a hit as well as (or instead of) depositors.

Because the 600 trillion dollar derivative market would come crashing down if there was any threat to the bond market.

And then the whole theft and coruption would be exposed for what it is.

HAMISH_MCTAVISH

The_White_Horse wrote: »

better that happens than this travesty.

So you'd prefer savers were completely wiped out than their government imposes a 7% to 10% one-off tax.

Interesting.

ILW

Wouldn't be too confident on the "one off!" bit.

ILW

Does this set an international legal precedent that bondholders now take priority over depositors?

Mr_Mumble

ILW wrote: »

Still cannot get my head round why investors are not taking a hit as well as (or instead of) depositors.

The debt issued by Cypriot banks is drawn up under English law. Even Greek government bonds that were under English law were made whole (the vast majority under Greek law has seen an 80% loss). Both the FT and WSJ have noted this as the reason the Eurozone haven't gone after creditors:

http://ftalphaville.ft.com/2013/03/16/1425732/a-stupid-idea-whose-time-had-come/
http://blogs.wsj.com/brussels/2013/03/17/observations-on-cyprus/?mod=brussels

This whole episode shows how important it is that the primacy of English law is maintained over European. Property rights are the corner stone of why civilizations flourish and keeping fraud, rent-seeking and corruption at a minimum all vital for a healthy economy.

HAMISH_MCTAVISH wrote: »

So you'd prefer savers were completely wiped out than their government imposes a 7% to 10% one-off tax.

They wouldn't be wiped out, if the banks go bankrupt then the Cypriot government would try and step in, cover the deposits with emergency funding from the ECB's ELA. Of course the thinking is the ECB will refuse - itself a potentially illegal move - and Cyprus would be forced out of the Euro. The Cypriot Pound would be reintroduced. No matter what the devaluation it wouldn't be worthless.

grizzly1911

antrobus wrote: »

"8x the capital"? That's nothing, in fact, that's actually quite prudent.

I think you've misunderstood. The issue is that the Cypriot bank lending amounts to 8 times Cyprus's GDP and, since Cypriot bank's no longer have any capital (it's all been swallowed up by bad Greek loans) the amount required to recapitalise the banks is very large in relation to the size of the Cypriot economy.



You mean the EU should have bullied Cyprus into reducing the size of its banks?

Thanks for clarifying the 8X bit, I was driving at the time.

Makes the second point even more key - yes the EU should have made them get their banking in order or have stopped them from doing it full stop. No doubt the EU was happy for the profits of all that gambling to used to prop up the economy.

If it they were trading at up to that the level before they joined the EU they should never have been allowed in.

Graham_Devon

HAMISH_MCTAVISH wrote: »

So you'd prefer savers were completely wiped out than their government imposes a 7% to 10% one-off tax.

Interesting.

Theres not one single option Hamish. Yet you make it sound like this is the only option.

This option was not taken in Greece, Ireland or Spain. Therefore, there are other options, all with their own individual issues.