“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 Only 300 euros may be withdrawn daily from a bank.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.”
Starting over at Head Start
All I ever wanted to be was a journalist. Having worked on my high school and college newspapers, I knew it was the career for me.
I love talking to people, listening to their stories, being creative every day and experiencing new things. But as you know, news happens outside the hours of 9 to 5, and my job here at the Register rarely stayed within that time frame.
They don’t make strawberries as they did back in the old days
I’m not inclined to go through my archives at the moment, but it almost feels like the column I’m about to write has almost become an annual thing over the years.
At least I know for sure that that this is not the first time that memories of picking strawberries there on Blair Branch on hot days in June has triggered this keyboard about this time of year.
I grew up on a little subsistence, hillside farm deep in the mountains of eastern Kentucky, among the coalfields near the Virginia line.
Baby boomers have let technology rob their grandchildren of the joys of youth
When I was growing up, it was not uncommon to see fathers and sons along creek banks fishing together or in the woods hunting squirrels or pitching horse shoes or even shooting marbles late in the afternoon in the cool hours before dark.
Dads were teaching kids to play the games they grew up with. Little girls, learned from mothers,how to skip rope, play with jacks or play hopscotch.
No Lincoln or Douglas in this debate
Remember the famous slap-down in the 1988 vice presidential debate when Republican Dan Quayle compared his youth and limited government experience to those of John Kennedy’s when Kennedy ran for president?
His Democratic opponent, Texas Sen. Lloyd Bentsen, acidly replied: “I knew Jack Kennedy. Jack Kennedy was a friend of mine. Senator, you’re no Jack Kennedy.”
Senate campaign already in full bloom
Any hope for a respite in the U.S. Senate campaign following Tuesday’s primary disappeared immediately.
Mitch McConnell and Alison Lundergan Grimes came out swinging in victory speeches which sounded like campaign kickoffs.
McConnell commended Matt Bevin on “a tough (primary) race” and appealed to Bevin supporters to unite behind his re-election bid. That will be hard for Bevin and those who backed him.
‘Taxpayer-eaters’ meet ‘self-serving politician-eaters’
What some candidates could gain in this year’s election – beyond just winning office – is a stark reminder of how wrong political leaders were when declaring last year they had adequately addressed Kentucky’s public-pension crisis.
Instead, legislators with serious courage deficiencies failed to agree on reforms beyond what they believe are “politically feasible.”
Step Out, Step up for Diabetes Association
Six weeks ago when I wrote here announcing the 2014 Edition of Team TKO’s American Diabetes Association, Step Out Walk Team, several dozen of you readers sent generous donations to sponsor grandson Tyler Kane Ochs (TKO) and me in the walk that takes place, rain or shine, in the mud or not, at Keeneland on the morning of May 31.
Another several dozen of you either called, emailed or dropped a card in regular mail and asked that I remind you again “after the holidays” (Easter and Mother’s Day).
Hitting the campaign trail
The most watched race in the country ? the battle for the U.S. Senate seat now held by Republican Mitch McConnell ? has so far produced a bevy of charges and not much substance.
We haven’t seen that much of McConnell or his likely Democratic opponent Alison Lundergan Grimes out on the campaign trail.
McConnell’s primary opponent Matt Bevin has been much more active and visible, but his performance hasn’t enhanced his chances.
The case of the scary black cat
If Margie didn’t believe that black cats were the harbinger of bad luck, she certainly believed it when a black cat brushed against her leg while she was leaning over a large trash can burning garbage one late afternoon.
Startled by the sudden appearance of the feline, Margie opened her mouth wide and let out a blood-curdling scream that could have awakened Count Dracula himself.
Basking in the spring sunshine
If you had asked me, as recently as two weeks ago, to make a list of things I expected to see on the first Monday in May of 2014, two of the things that I actually did see would not have been on the list, even if you’d required that it contain at least 500 items.
I’d have been a bit skeptical about Ralph’s purple asparagus and his gorgeous snowball bush, both of which came through most admirably. And I would have had my doubts about the poppies that have been in our back yard for several generations and the bearded German Iris that Jeanette Todd gave us more than two decades ago. It faithfully stuns us there at the corner of the front porch every spring, but there they were, basking in absolute glory as the sun set Monday afternoon.
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