“Government is theft.”
The old libertarian battle cry came to mind when the news hit, two weeks ago, that Cyprus was about to confiscate 7 percent of all the insured deposits in the island’s two biggest banks. Nicosia also planned to siphon off 10 percent of uninsured deposits, those above 100,000 euros ($130,000), and use that cash as well to finance Cyprus’ share of a eurozone bailout.
The reaction was so scalding that the regime had to back off raiding insured deposits. The little people of Cyprus were spared. Not so the big depositors, among whom are Cypriot entrepreneurs and thousands of Russians. Their 10 percent “haircut” has now become an amputation.
Large depositors in the Bank of Cyprus, the island’s largest, face confiscation of 60 percent of their capital. In Laika, the No. 2 bank, which is to be euthanized, the large depositors face losses of up to 80 percent. All of Laika’s bondholders will be wiped out, and all employees let go.
When the Cypriot banks opened again on March 28, capital controls had been imposed. Only 300 euros may be withdrawn daily from a bank. Folks leaving Cyprus may take only 1,000 euros.
What has this crisis to do with us? More than we might imagine.
Last week, Jeroen Dijsselbloem, the Dutch chairman of the eurozone’s finance ministers, let the cat out of the bag. The bail-in of big depositors and bondholders, who are being forced to eat a huge slice of the Cypriot bailout, may serve as a model for future bailouts.
The hot money that came into Cyprus, said Dijsselbloem, either to be laundered or hidden from taxes, or to seek a higher rate of return, was wagered money. And when bets go bad, government is not obligated to made the gamblers whole again.
The former eurozone policy of protecting senior bondholders and uninsured depositors, said the Dutch conservative, is history. If money comes from Northern Europe to bail out the Club Med, Club Med bank bondholders and big depositors will be “bailed in.”
Translation: Uninsured savings in Spain, Italy and Slovenia may be raided and bondholders liquidated to bail out their troubled banks. To Malta, Luxembourg, Latvia and other banking centers, the handwriting is on the wall: What happened in Cyprus could happen here.
So great was the shock from Dijsselbloem’s remarks, by day’s end he was backtracking, declaring Cyprus was not a template but a “specific case” with unique circumstances.
None too soon. For as Barclay’s bank noted, “The decision to bail in senior bank debt and large depositors will likely have a price impact on equity and credit instruments of those euro area banks that are perceived as the weakest.”
Barclay’s was saying that bondholders and big depositors in banks of other troubled eurozone countries may take a second look at where they have stashed their cash and whether their assets may be subject to sudden confiscation. And the monied class may decide, in the wake of the Cyprus slaughter, that security of principal is preferable to a higher rate of return in a risky institution.
When capital controls are lifted in Cyprus, why would any depositor, who had been scorched in the inferno, risk leaving any major deposit in a Cypriot bank? Nicosia’s days as a banking center, where total bank deposits exceeded seven times its gross domestic product, are over.
And facing a dramatic contraction in their economy, what do Cypriots do now?
The effect across Europe is likely to be a gradual selloff of bonds in Italian and Spanish banks and transfers of cash out of these banks into U.S. and European banks where the interest rate offered may be lower but the principal is more secure.
Nor is this an unhealthy development.
If taxpayers in Northern Europe have to rescue mismanaged Club Med banks, why should not bank bondholders be wiped out, just as they were at Lehman Brothers? And ought not uninsured depositors who stuffed cash into these banks to get higher rates of return or evade taxes or launder dirty money get burned as well?
From Asia to Europe, people concerned about the safety of their money are looking at Cyprus, with many surely saying, “There, but for the grace of God, go I!” And they likely hear in the anguished cries of Russian, British and Cypriot depositors, who got no warning and failed to get out in time, a fire bell in the night for themselves.
If this persuades depositors to seek security first for their income, pensions and savings, and to transfer funds out of risky banks into more solid institutions, is that such a bad thing?
If Kipling’s Gods of the Copybook Headings, who arrived on Cyprus in March with their terrible swift sword, are back in charge, is this not better than having Western taxpayers forever securing the deposits and investments of the rich and feckless?
Those Russian depositors wiped out in the Cyprus slaughter may not have died in vain.
Patrick J. Buchanan is the author of “Suicide of a Superpower: Will America Survive to 2025?” To find out more about Patrick Buchanan and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.
© 2013 CREATORS.COM
“Government is theft.”
The case of the ghostly neighbor
Wilbur lived in a world of fears. Everything frightened him. The full extent of his courage was to admit that he had none.
Noises in the middle of the night, his own shadow creeping up on him and, most of all, black cats scared the wits out of him.
So, picture his chagrin, one day, when he came home from vacation only to discover that a mausoleum had been erected on property adjacent to his home.
Provisional concealed-carry law passes Senate unanimously
Things are staying busy in Frankfort. Many bills are making their way onto the Senate floor from various committees. This past week several important pieces of legislation were debated and passed.
I am particularly proud of the success we had in advocating for Kentuckians’ Second Amendment rights.
I introduced Senate Bill 106 to allow anyone who has been granted an emergency protective or domestic violence order to receive a provisional CCDW permit from the Kentucky State Police in one business day. In some of these cases, victims need this type of protection as quickly as possible.
50 years makes a world of difference
I wasn’t in Frankfort on March 5, 1964, when Dr. Martin Luther King Jr., Ralph Abernathy, and Jackie Robinson led 10,000 on a march to the state Capitol in support of a public accommodations law.
But a few months later, I stood in front of the “Music Hall,” site of the Glasgow Junior High School located on a street named Liberty, and watched black kids “walk up the hill” of College Street on the first day of integrated schools in Glasgow.
Coal has kept Kentuckians warm this winter
This winter, temperatures across the country dipped to historic lows. Here in our home state of Kentucky, the near-arctic climate caused increased power demand which resulted in an incredible strain on the electric grid and rising energy costs.
Protecting citizens’ data is a no-brainer
Target Corp. is learning the hard way: The price is steep for retailers who don’t protect customers’ sensitive financial information.
Target’s profits fell a whopping 50 percent during its fourth quarter of 2013 as the result of a massive security breach involving as many as 110 million of its customers’ credit- and debit-card accounts, which began the day before Thanksgiving and extended throughout much of the holiday shopping season.
Making plans for spring planting
My brother Keith (Keeter) probably planted peas on one of those warm days last week, and I would not be at all surprised to find out that brother Steve did likewise to try to be the first two fellows in Letcher County to actually be digging the soil in their 2014 gardens.
Keeter’s father-in-law, the late Dock Mitchell, used to get my brother to drive him a 50-mile round trip to get pea seeds and potting soil for early February planting. Dock raised mammoth melting sugar snow peas and sugar snaps around every fence on the place.
Cynicism, optimism both on display in Frankfort
Those who spend little time in Kentucky’s Capitol and who read columns by cynics who cover it should be forgiven their disillusionment about how the people’s business is conducted.
Even Scrooge would enjoy library mystery
Saturday afternoons and evenings are usually down time for Loretta and me.
We simply don’t get out much after we’ve used up the movie gift certificates the kids gave us for Christmas. That means we mostly go to the movies to avoid guilt trips because our kids do work hard for their money.
Funding education is critical for Kentucky and its communities
Kentucky’s latest budget outline makes it clear that our leaders in Frankfort plan to go to great lengths to find more money for education. For communities throughout the commonwealth, this effort to restore funds for our schools is very welcomed news.
Who benefits from ‛AT&T Bill’
Senate Bill 99, the “AT&T Bill,” is a great deal for the telecommunications giants AT&T, Windstream and Cincinnati Bell.
It would allow them to abandon their least profitable customers and service areas as well as public protection obligations. But it is a risky and potentially dangerous bet for Kentuckians. Kentucky House members should turn it down.
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