“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 Only 300 euros may be withdrawn daily from a bank.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.”
Farming Misunderstood and Under-appreciated
As you look at your (I hope) full plate this Thanksgiving, take a guess at what percentage of your annual income you spend on food.
Whatever you guessed, you probably guessed too high.
“We pay as low as 6 percent,” Tom Vilsack, the secretary of agriculture, tells me at a conference table in his office. “In most other industrialized countries, it’s 20-25 percent.”
And if you were spending that much on food in America, Vilsack asks, “how big a house would you have? How nice a car?”
Recalling the day JKF died
This is written on the 50th anniversary of President John F. Kennedy’s assassination. A year ago I demonstrated my exquisite sense of timing: I wrote my personal remembrance of that dark day in Dallas last year on the 49th anniversary of the horrific events in Dealey Plaza.
Is the pipeline to career advancement broken?
“Honey, have you checked our financials this month?” An individual asks their spouse.
“Yes, and it’s not looking good. Our investments aren’t growing like we’d hoped, and the healthcare crisis is affecting the premiums and co-pays we’re paying every month,” replies the spouse.
The individual asks another question, “Do you think we’ll ever be able to retire?”
The spouse shakes their head and replies, “It doesn’t appear we’ll have that option anytime soon, especially if we want to maintain the lifestyle we have now.”
Life Lessons from lawyers, journalists and 10 years as a columnist
I have little in common with Walter White, the chemistry teacher turned drug lord in the TV series Breaking Bad, but the line about his motivation hit me.
In the decade that I wrote a weekly column, I touched a lot of lives.
At least one man stopped his planned suicide and got help after reading my column. (I still hear from him and he is doing fine.)
Register columnists share room for a day at Telford rehab center
So here we are, coming to you still alive from Telford Terrace Rehabilitation Center in Richmond where I am recovering from two strokes that kept me in St. Joseph’s Lexington Hospital for the better part of last week.
I was transferred to Telford where I intend to learn to walk again.
Memo to Merkel: Tell Obama to Take a Hike
Chutzpah. I believe that’s the word for it.
Just days after learning the Americans have been tapping her phones and taping her conversations, Angela Merkel has been publicly upbraided by the U.S. Treasury for being a bad global citizen.
What did she do to deserve this?
Congressionally Duped Americans
Last week’s column, “Is There a Way Out?”, generated quite a few responses, some a bit angry. Some people were offended by my reference to Social Security and Medicare as entitlements or handouts. They said that they worked for 45 years and paid into Social Security and Medicare and how dare I refer to the money they now receive as an entitlement. These people have been duped by Congress and shouldn’t be held totally accountable for such a belief. Let’s examine the plethora of congressional Social Security lies. I’ll leave the Medicare lies for another column.
Needed: Consumer-driven reform, not Obamacare
Supporters of the insufferable Obama administration’s misnamed Patient Protection and Affordable Care Act continue to rope low-information Americans into believing that needed health care reform will be achieved only by a policy like “Obamacare,” which forces healthy individuals to pay for policies filled with services – and costs – they neither want nor need in order to provide lower-cost coverage to the sick.
Does anyone think before speaking?
I wonder sometimes if politicians ever listen to what they’re saying. If it weren’t so depressing, it might be funny.
Start with that maverick, Republican Sen. John McCain, who has of late taken on the tea party members of Congress, calling them “wacko birds” and the government shutdown engineered by people like Ted Cruz and Mike Lee “shameful.” Except for the wacko birds, who would disagree?
The Case of the shapely partner
Sam was the victim of a blisskrieg. After meeting the shapely Helen, he couldn't sleep, eat or even think about playing the ponies, his favorite pastime.
He was so smitten with her, in fact, that he finally packed his bags, left his wife and set up housekeeping with his Helen of Joy. As security for her future, he promised her that she would be his equal partner in any business venture in which he might engage.
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