“My bank account's got robbed by European Commission. Over 700k is lost.”
bitcointalk.org
bitcointalk.org
Jeroen Dijsselbloem, president of the eurogroup, told the FT as the bailout was announced:
“If we want to have a healthy, sound financial sector, the only way is to say: ‘Look, where you take the risks, you must deal with them, and if you can’t deal with them you shouldn’t have taken them on and the consequence might be that it is end of story.' That’s an approach that I think we, now that we are out of the heat of the crisis, should consequently take." [1]
If you want a dollar asset as close to risk free as possible, buy Treasuries. If you are afraid of inflation buy inflation-protected Treasuries, TIPS.
Not Bitcoins? No, not Bitcoins. The purchasing power of your savings has a higher probability of being retained when backed by the full faith and credit of the U.S. government than a cryptocurrency. This may very well change, but it is not the case today, particularly if you pay your bills and buy your food in dollars. Speculate in Bitcoins, use them to transact if you must, and perhaps participate them as a form of activism, but do not convince yourself that you are George Sorosing the global financial system.
[1] http://www.ft.com/intl/cms/s/0/68c9c18e-955e-11e2-a151-00144...
A quick check on what dollars will buy (the true judge of the value of a currency), spanning 10, 20, 30, 50, 100 years tells you everything you need to know about the destruction your capital will suffer while yielding almost nothing to offset the devaluation. And now the Fed is working harder than ever before to abuse the global reserve FRN standard.
Now is the absolute worst time possible to buy treasuries. The era of cheap money is coming to a close with a frantic flailing about of currency devaluations, binge stimulus, bailouts, and robberies. Anybody that claims hyper cheap money lasts forever, is selling a pipedream (which may be accompanied with the words: it's different this time).
It's just usually not used as the sole investment, but rather the safest position in portfolio...
You don't have to take my word for it. The destruction has already occurred, and is getting worse. A 5 minute effort on calculating what your dollar will purchase today versus 10 or 15 years ago, proves that. Except now your treasury paper yields almost nada because the Fed is acting to destroy your 'return' by holding rates artificially low while devaluing the dollars you use every day to do so.
Treasury paper is as dangerous as holding your money in a Cyprus bank. The next decade is going to be a fiscal disaster for the US. The bill is coming due, and not only can the US not afford to repay its debts ever, but it can't afford any real interest on its debt (4% * $20 trillion = bankrupt US Government). This isn't going to happen in decades, it's happening now, which why the Fed can't raise interest rates, can't ever sell off its holdings, can't stop buying 85%+ of all the US Government debt being issued, and can't stop buying mortgages. Worse yet, they're going to increase their purchases again this year.
It is still consensus that the bond rate + inflation risk is understood much better than any other asset I can think of. I'm talking about the financial term 'risk' here, not the colloquial one that you are using. In financial terms, you can have a loss without any risk and still be happy about the position afterwards...
Does that make sense?
It's critical in economics to separate supply & demand of goods causing increases or decreases in prices, from monetary changes. Free market forces are not the same as central bank forces.
There's about 200 years of modern economic evidence for how exactly inflation works and how central banks create it.
I'll ignore the fact that the Fed has openly admitted it has devalued the dollar by 97% since its founding. I'll also ignore the fact that Bernanke recently said it was the goal of the Fed to generate asset inflation via QE aka debasing the dollar (see real estate skyrocketing 10% again, or 22% in Phoenix (a disaster market recently), see stocks at all time highs again ala 2007).
I'll also ignore the fact that Greenspan openly admitted the Fed has the direct ability to increase or decrease inflation, and can cause bubbles or pop them. He of all people should know.
It's not an assertion, it's a fact supported by extreme amounts of data.
If you increase the monetary base and money supply by hundreds of percent over a relatively short period of time, you're going to see a substantial increase in the price of goods in the currency in question.
If you 'print' dollars to buy trillions in mortgages and remove them from the market, you're going to limit supply of housing and cause approximately $3 to $4 trillion worth of inflation in just one year (what's happening right now). Not to mention simultaneously holding down mortgage rates via the government dominated mortgage market, by holding short term and long term interest rates artificially low by buying the paper that influences that. Then when consumers sell their homes, or take home equity loans, and then spend in any manner or buy anything else or loan their money to banks - the inflation gets discharged directly into the economy. This is one simple example, there are countless.
If today you have one trillion dollars, and tomorrow the Fed prints another trillion dollars, it's obvious what happens.
So not only do I have vast empirical economic proof not only do I have historical evidence for how it all works, not only do I have obvious math theory that is as simple as addition and subtraction, but I have the Fed openly admitting the scale of the inflation it has caused.
How many proof articles would you like on the topic?
Very first sentence: "In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time."
Yeah, it's Wikipedia, but if this definition was as obviously wrong as you portray it, don't you think someone would have fixed it? Or is Wikipedia also part of the grand conspiracy to take your money?
You're communicating a classic conspiracy theory, and like most conspiracy theories, it seems so compelling because it contains the truth. If a central bank expands the money supply in excess of demand, they will create inflation--true. The Fed has management goal of producing and maintaining mild, consistent inflation--true. The value of a dollar has declined greatly since the Fed was created--true.
But like most conspiracy theories it's not the whole truth, and thus leads to an inaccurate view of the world, one in which the importance of currency is greatly overemphasized. Is money supply the only factor that causes inflation? No. Has the inflation produced by the Fed harmed the economy? No. Living standards today are far higher than they were 100 years ago. Dollars are worth a lot less, but we have a lot more of them, and wealth (which is not the same thing as currency) has increased dramatically.
There is more to economics than money.
OK, so since we're discussing inflation as an economics concept, it only makes sense as long as we keep to the economics definition of inflation. If you want to use your own definition, you're free to do so, but then the discussion leaves the mainstream economics domain, and you should be clear about that.
Definitions:
http://economics.about.com/cs/economicsglossary/g/inflation.... Inflation is an increase in the price of a basket of goods and services that is representative of the economy as a whole.
http://economics.about.com/od/helpforeconomicsstudents/f/inf... A similar definition of inflation can be found in Economics by Parkin and Bade: Inflation is an upward movement in the average level of prices. Its opposite is deflation, a downward movement in the average level of prices. The boundary between inflation and deflation is price stability.
http://en.wikipedia.org/wiki/Inflation In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the general price level rises, each unit of currency buys fewer goods and services.
How is inflation measured? Using Consumer Price Index: http://www.bls.gov/data/inflation_calculator.htm
Printing dollars, for example, is inflation. The increase in prices is a result of inflation, and there are numerous effects other than prices going up.
According to whom?
It's critical in economics to separate supply & demand of goods causing increases or decreases in prices, from monetary changes. Free market forces are not the same as central bank forces.
Doesn't seem relevant.
There's about 200 years of modern economic evidence for how exactly inflation works and how central banks create it.
This would be a perfect place to cite some of that evidence.
I'll ignore the fact that the Fed has openly admitted it has devalued the dollar by 97% since its founding.
That's fine; I'm not sure what any sort of 'admission' may have to do with an argument at hand.
I'll also ignore the fact that Bernanke recently said it was the goal of the Fed to generate asset inflation via QE aka debasing the dollar (see real estate skyrocketing 10% again, or 22% in Phoenix (a disaster market recently), see stocks at all time highs again ala 2007).
No one argues that Fed can influence money supply, which can (hopefully) have effect on inflation. The relation is far from direct, however. Think of effects of other factors, for example increases in savings rate or decreases in productivity.
I'll also ignore the fact that Greenspan openly admitted the Fed has the direct ability to increase or decrease inflation, and can cause bubbles or pop them. He of all people should know.
This pesky "admission" concept again -- what does it have to do with anything? Copernicus admitted that earth did not revolve around the sun, he of all people should know.
It's not an assertion, it's a fact supported by extreme amounts of data.
And that's another assertion, so far also unsubstantiated.
If you increase the monetary base and money supply by hundreds of percent over a relatively short period of time, you're going to see a substantial increase in the price of goods in the currency in question. If you 'print' dollars to buy trillions in mortgages and remove them from the market, you're going to limit supply of housing and cause approximately $3 to $4 trillion worth of inflation in just one year (what's happening right now).
Isn't inflation measured in percent, not in trillions of $?
Not to mention simultaneously holding down mortgage rates via the government dominated mortgage market, by holding short term and long term interest rates artificially low by buying the paper that influences that. Then when consumers sell their homes, or take home equity loans, and then spend in any manner or buy anything else or loan their money to banks - the inflation gets discharged directly into the economy.
Not sure what "inflation gets discharged directly into the economy" means.
This is one simple example, there are countless. If today you have one trillion dollars, and tomorrow the Fed prints another trillion dollars, it's obvious what happens.
Actually, it's far from obvious. Unfortunately, we'll never know what would really happen, as Fed is not in the business of printing trillions of dollars. In any case, here's analysis of what would happen that somewhat goes along your apocalyptic scenario: http://krugman.blogs.nytimes.com/2011/03/25/deficits-and-the...
So not only do I have vast empirical economic proof not only do I have historical evidence for how it all works, not only do I have obvious math theory that is as simple as addition and subtraction, but I have the Fed openly admitting the scale of the inflation it has caused.
So far all you had were words.
How many proof articles would you like on the topic?
So far you failed to produce a single one.
You were making some interesting points, but this kind of hyperbole makes it very difficult to take you seriously.
This might be true when you put your money in savings account, and are earning an interest on it. But what if you are paying the bank for keeping your money safe, and paying them recurring fees to operate a current account which doesn't earn any interest? Most businesses need an operating account to pay for day to day expenses. And current account should be treated like SAFES, as bank is actually charging money for them and not paying any interests.
"Back in December 2012 the FDIC and the BoE published a joint paper outlining their new approach for how to resolve any future collapse of one of the Too-Big-To-Fail banks...
'deposit guarantee schemes may be required to contribute to the recapitalization of the firm'[1][2]
...the new system raids the Deposit Protection scheme, gives it to the bank instead of you and when that fails to save the bank…then what? The bank fails again and there is no money left in the Deposit Guarantee scheme."
[1] http://www.golemxiv.co.uk/2013/03/plunderball-the-new-euro-b...
[2] http://www.bankofengland.co.uk/publications/Documents/news/2...
Saying the deposit guarantee scheme may have to contribute means the bank may not have sufficient assets to cover insured deposits and so deposit insurance funds may have to make up the difference. When your house in Staten Island gets razed by Sandy, the insurance company pays up. Similarly, if an insured bank is unable to come up with enough cash to cover insured deposits, the FDIC has to pony up.
The worst case for FDIC insured deposits is you getting a cheque from the FDIC. If JPMorgan Chase goes under with worthless assets and busts the FDIC, you're still in luck since the federal government backstops your deposit insurance, and unlike Cyprus, the U.S. can print dollars.
Working backwards, on your second point, if the FDIC ran out of money, the taxpayer might eventually have to step in, which might not be politically feasible if taxpayers have bail-out fatigue.
"During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress." [3]
On your first point, the full paragraph provides better context, where they are saying they want to use insurance funds to recapitalize the bank and prevent a bust from happening in the first place. Of course, the bank might need more money, leaving the insurance fund empty, and deposit holders at risk.
"34 The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI’s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors."
[1] http://www.bloomberg.com/news/2013-01-23/u-s-deposits-post-b...
[2] http://dealbook.nytimes.com/2011/03/22/4-wall-st-banks-still...
[3] http://www.nakedcapitalism.com/2013/03/when-you-werent-looki...
Cyprus is a tiny country with a GDP not much higher than Tim Hortons. Yet, it had something like 150 billion in private funds stored in two of its banks: the Bank of Cyprus and Lakie. Why? Because the majority of the funds (I am generalizing) belongs/belonged to Russians who took advantage of the people on the conversion out of communism (dirty money). As North Americans have Swiss bank accounts, the Russians have Cyprus. Obviously, other people have their money in here too.
Greek's insolvency impacted Cyprus greatly, because a large portion of the Cyprus population are of Greek descent. Thus, when the banks were figuring out where to invest, a large portion of the funds went to Greece. As a result, the banks lost a ton of money, and are on the verge of making the country insolvent. The IMF said the government needed to come up with a large amount of money.
At first they tried to pass a bill that would skim 10% off all Cyprus bank accounts that had over 10k Euros. There was unimaginable outrage, because as you can guess, that affects a good portion of the population. In response, they changed the bill to only affect those with over 100k Euros. Interestingly, this time, mostly the Russian dirty money was affected, and there was not as much public outrage (stealing stolen money). As a result, now 30% of all bank accounts over 100k Euros are being seized.
All the North Americans probably don't realize why this is such a big deal. In North America, we have money in companies, hedge funds, etc. In Europe, from what I've been told, banks are the major (almost exclusive) depository. Thus, you can imagine that this is a much bigger deal.
What a responsible investment strategy.
'What should we invest all this Russian gangster money in?'
'Well, I like goat cheese.'
Using something a store of value is essentially anticipating that someone will give you something valuable in the future. This holds whether that store of value is a promise from a bank (in your deposit account), or a government bond, or a commodity.
You can never be completely sure of the future. But some entities are much better about it than others.
Every time you deposit say $1 with a bank, they lend out $.90 of it at interest for mortgages, payrolls, etc. It's these investments the bank makes that can (and do) wreck money. The government of the US and EU recognize this risk for most people is detrimental and offer insurance on the first 100,000 deposited.
The phrase "seized account" does not appear to be correct, more correct would be "The Cypriot banks lost something like 40% of all deposits and all depositors over the 100,000 insured mark have lost their investment."
Any deposit in a bank is still an investment, even if they don't pay interest, because banks don't just put all your coins and bills in a vault, they just mark you down as a number in their books. The risk you take is that government backing the deposit insurance AND the bank don't do something dumb. Banks are usually much more highly regulated than hedge funds, but a quick look at how often banks fail (the US has something like 800+ banks on the unnoficial FDIC watch list) should sober anyone up.
Hold physical money is the only not to be at risk of losing a deposit, and then you have to provide for security, and you sure aren't going to earn interest.
I'm not really enthusasiastic about bitcoins, but one could argue they solve the problem of trying to keep a bunch of wealth out of the risk of banks, without having to have a huge pile of physical currency/valuables.
From an investment point of you, all deposits are investments, so putting 700k into some undercapitalized bank is almost as stupid at converting it to BTC...
Only almost as stupid because these banks have historically had less risk than BTC, surprisingly...
Actually, when you deposit $1, they loan out about $9 (maybe a bit less nowadays, but still a multiple of the $1 being put in). That's what the 'fractional' in 'fractional reserve banking' comes from.
In nature, "savings" are subject to loss and decay. You "save" by building a house to live in or storing away grain--all those things are subject to deterioration, disaster, etc. Financializing it doesn't change that underlying fact.
If a society (or a large number of individuals/institutes, incl gov'ts) fails to deliver on their promise of goods and services, then the money looses its value. And this is what seems to be happening a lot more everywhere - more and more money is promised (or printed), but the amount of goods and services hasn't really grown in proportion, and so at some point this is gonna have to fail somewhere...
If your savings are legal, and you don't mind paying taxes on them, you have many obvious choices.
If your savings are not legal, or if you want to escape paying taxes, then you have different choices and greater risk.
Finance is about one thing: risk versus reward, and in this case, the tradeoff was very clear. Any non-Cypriots who lost money in Cyprus are not as naïve as they would have us believe.
I'm curious what percentage of the accounts with >100k Euros actually belong to Cypriots. Those are the people who are really getting screwed.
Being legal doesn't change my sentiment.
[1] http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013...
Or they did, anyway.
Wikipedia: "As a result of the reforms in the past decade Cyprus has developed into one of the world's more important international business centers. In the years following perestroika it gained great popularity as a portal for investment from the West into Russia and Central and Eastern Europe."
http://www.spiegel.de/international/europe/cypriot-parliamen...
At the end of January, some 40 percent of all savings held in Cypriot accounts were on the books of those two banks. Since then, however, much of it has been transferred elsewhere, despite orders from the central bank that accounts at the two institutions be frozen.
...
Transfers for humanitarian aid were permitted which, while certainly an acceptable exception, opened a loophole for abuse. Many are also furious that the bank allowed "special payments," the definition of which was never adequately established.
...
Much of the money was withdrawn from overseas, where Cyprus had no authority. Branches of Cypriot banks in non-euro-zone countries such as Russia and Britain do not answer to the European Central Bank. Their liquidity is controlled by central banks in those countries.
Huh? Sorry, do you assume that all savings above 100k euros were from the Russian Mafia ? That's a very serious claim to make. And even if it was indeed true there is due process to follow before confiscating the funds. You need tracability, trials and so on. And in case you do not seem to know that, bank savings should be protected by the law against confiscation - that is one of the most basic agreements in the property laws in every country. If that principle is violated, the consequences can be serious (bank run, more banks going bankrupt, lack of funds for private companies investment, etc...).
And there is still public outcry anyway because even people with savings less than 100k euros can only withdraw about 300 euros a day, cannot take their savings out, cannot transfer them anywhere. There is serious economic disruption going on because of this mess. If you think it only impacts the Russian Mafia you should travel to Cyprus and see for yourself.
http://www.cyprus.com/cyprus-bailout-stupidity-short-sighted...
As of today, deposits stand at €68 billion [1]. The peak was €73 billion in May 2012 [2].
[1] http://www.ft.com/intl/cms/s/0/f13edbfc-9780-11e2-b7ef-00144...
[2] http://www.centralbank.gov.cy/media/xls/2nd_MFS_January_2013...
Just to add a little context to this. Cyprus is a divided country, as a result of a conflict in 1973 between Turkish Cypriots (and Turkey) and Greek Cypriots (and Greece). The Greek Cypriots favoured unification with Greece (Enosis) whereas the Turkish minority felt threatened by this (due to various times in which sectarian violence had spread on the Island, and also due to fears of reprisals for anti-greek pogroms in mainland Turkey). The whole thing is really complicated and basically no-one wins.
Fast forward to 2004 and a referendum is held on whether Cyprus should unify. The Turkish north votes yes, the Greek south votes no and Cyprus enters the Euro leaving Northern Cyprus out in the cold.
The people with over 100k Euros that are being affected the most aren't the Russian depositors but older Cypriots who rode the tourist property boom. There was a vote on this and it was turned down, and then the Troika (of the Eurozone countries, ECB and IMF) decided they'd sidestep the whole thing and re-arrange the country's banking system for them.
The amount the troika were looking for was not a great deal of money to the EU or IMF, about €6 billion. This represents less than the amount spent on administration or internal policies in the last budget, and would be less than a fifth of the Common Agricultural Policy (CAP) budget. This figure was also arbitrarily decided by the troika not based on what Cyprus could actually afford (given the size of it's collapsing economy) but for political reasons because it's politically unacceptable for Germany to be seen by Germans to provide no strings bailouts to another Greece, and the IMF wanted to restructure Cyprus' banking system.
The big problem is that with this intervention it sets two extremely dangerous precedents. The first is that exiting the Euro (which would've been better for Cyprus) is not an option for bankrupt Eurozone countries. It's not even on the table. The second is that what's happened in Cyprus this week can happen in Greece, Italy, Spain, Portugal, Luxembourg (where the real Russian money is) or Ireland next week or at any point in the future, and as Shenglong said, banks are the major savings depository for most of Europe. If that doesn't scare my American friends then nothing will.
However there was no reason as to why a country with such a small economy should come up with an arbitrary 6 billion euro for a 10 billion euro bailout beyond forcing political will over a small country to send a signal to others. If you need 10 billion euros, you're not going to be able to find a quarter of your peak GDP at a time that your banks are screwed by yourself.
I'm not saying that this solution is ideal or "really fair", but when you deposit your money in a bank that gives very high interests compared to other banks in the same currency, you should know you're assuming higher risks. And it isn't fair that if everything goes well you keep the interests, if it goes bad someone else pays for the risk.
If you sincerely think that Cyprus doesn't set a precedent putting everyone in the Eurozone at stake you're wrong. My issue isn't that Cyprus should or shouldn't receive a bailout, it's the undemocratic way the Troika have gone about it and the punitive requirements foisted on them for a bailout when they knew full well that Cyprus didn't have the money.
I'm bookmarking this in the hope that Italy never gets screwed over the same way.
This sounds like a mysterious outcome, given what you said above, but one can add that the "unification plan" was to create an old-style colonial protectorate, which, besides giving foreign powers the power to meddle with the new "state" affairs, gave equal political power to the Turkish minority (the majority of which came post-invasion in order to take control of the Turkish side) and to the Greek majority (instead of using legitimate elections). And of course it didn't address any of the violations of lots of UN rulings by the occupying force.
So mainly it was just perpetuating the occupation and the injecting, and saying "ok, now you both have half-half stakes at a new country".
It is just like the Falklands in that respect, an outpost of one nation that is going to be geographically contested and eventually (just like the Falklands) it will probably be annexed by one of the countries above (most likely Turkey).
The only reason these situations persist is because the nations involved are still able to wage war at a distance, if Greece should go bankrupt (or even if the Greek-Cypriot part of Cyprus would go under) there would likely be a re-alignment of interests such that the cost of maintaining the outpost by force no longer outweighed the benefits.
Cyprus is also one of the reasons why Turkey has not been added to the EU, and why their relations with Greece are as poor as they are.
If Greece and/or Cyprus would end up being unable to maintain the status of the Greek portion of Cyprus Turkey would have to weigh the advantages of going all in on Cyprus versus the disadvantages of cutting a lot of ties with the EU, which arguably has been stringing along Turkey with the promise of membership without the intention of actually following through on that promise for a very long time now.
Turkey is a very important country in the sense that it is the European gateway to the middle east, it has been instrumental as an ally in many military operations over the last two decades and there are large numbers of Turkish emigrants living all over Europe, which means any decision going against Turkish interests has the possibility of mobilizing a substantial number of people in other member states. But there are a large number of member states that do not actually wish Turkey to join the EU on equal terms, at the same time they don't want to see Turkey join the middle-East.
Actually aside from a small part of the Bronze Age, Cyprus was never a part of Greece. It had been Ptolemaic Egyptian, Byzantine and changed hands between Knights Templar and various others before becoming Venetian then finally succumbing to Ottoman invasion in the 1570s. The Ottomans leased Cyprus to the British in exchange for guarantees of support against Russian invasions of the Ottoman Empire, but the successor state of the Republic of Turkey relinquished all claims to Cyprus, leaving it a British Crown Colony. Many of the Turkish Cypriots originally came in the Ottoman period and the idea of Enosis was formed under Greek nationalism (Hellenism had been promoted throughout Cyprus long before modern Greece's existence) during this period before and just after the Greek independence war. It is this, the subsequent neglect and the approach taken under British rule (and subsequent independence) that led to the problems of a divided Cyprus today.
In this respect, it is absolutely nothing like the Falklands whatsoever. If anything, the situation between Greece, Turkey and Cyprus is more like the situation between the UK and Ireland with respect to Northern Ireland. Modern Turkey has no interest whatsoever in annexing Cyprus, only protecting ethnic Turks (which it is bound to do by it's constitution).
> The only reason these situations persist is because the nations involved are still able to wage war at a distance, if Greece should go bankrupt (or even if the Greek-Cypriot part of Cyprus would go under) there would likely be a re-alignment of interests such that the cost of maintaining the outpost by force no longer outweighed the benefits.
You're really off the mark here. Greece in general has no interest in enosis. It's generally been something pushed by Greek nationalists both in Cyprus and Greece but both countries have their own problems at the moment that wouldn't be solved by unification with each other. To be clear, Greece and Turkey were both dragged into conflict because of the Treaty of Guarantee agreed in Zurich, making Turkey, Greece and Britain the guarantors of certain elements of Cyprus' status as an independent country.
> If Greece and/or Cyprus would end up being unable to maintain the status of the Greek portion of Cyprus Turkey would have to weigh the advantages of going all in on Cyprus versus the disadvantages of cutting a lot of ties with the EU, which arguably has been stringing along Turkey with the promise of membership without the intention of actually following through on that promise for a very long time now.
Turkey would not go all in on Cyprus. They don't want a war. To be honest if TRNC told Turkey they wanted to join Cyprus, I'm sure Turkey would welcome it with open arms. Turkey wants whatever the people of TRNC want, just as the UK would support whatever decision Northern Ireland would make on self determination.
As for EU membership, I go to Turkey quite often and I've seen no interest in EU membership for a very long time at the political and street level. Most Turkish businesses like the common market but don't see why Turkey should join the Euro (and think they've dodged a bullet), and resent France's anti-Turkish posturing.
You are not generalizing, you are just making this up. Only about 20% of the deposits in Cyprus belong to Russians.
> Greek's insolvency impacted Cyprus greatly, because a large portion of the Cyprus population are of Greek descent.
Nope. It impacted Cyprus because it participated in the Greece bailout and lost 4.5 bil to the haircut that followed.
Calm down. Firstly, one number states that 30% of deposits are foreign owned [1]. Secondly, the accurate description of Shenglong's error would be "exaggerating."
> Nope. It impacted Cyprus because it participated in the Greece bailout and lost 4.5 bil to the haircut that followed.
You just attacked a straw man by quoting Shenglong out of context.
[1]http://www.nytimes.com/2013/03/27/business/global/bailout-gr...
So, nearly 60% of 37% is about 22%, not 30%.
http://www.forbes.com/sites/afontevecchia/2013/03/18/eu-take...
But then, banks put those deposits to work in companies, hedge funds etc., so it amounts to the same, with an intermediate which mitigates risks (not perfectly as illustrated here) and takes a fee.
I appreciate the PR nightmare here for the E.C. People are going to be madder at the E.C. for wiping out depositors at this unviable bank than they would have if the E.C. just let the whole Cypriot banking sector collapse and let everyone lose their money.
See: http://online.wsj.com/article/SB1000142412788732350100457838...
Then the world goes around and repeats the same offenses, and the public once again buys the easy, moralistic stories. Bleh.
The fact of the matter is that the Eurozone is a bad idea, a lot of economists said it was a bad idea, and now they're seeing their predictions come true. For each European financial disaster it's easy to blame some convenient cause, but eventually you have to ask: what is it about the Eurozone that is so good at precipitating financial crises? As banks collapsed and massive financial contagion in America was uncovered, did anyone in 2007-08 (besides a small number of monetary-inclined economists) think the very Euro would be threatened again, and again, and again, as America lurched along in limp but definite recovery?
To paraphrase Bill Clinton: it's the money, stupid. The Eurozone is structured to suck the money out of peripheral economies in times of crisis, which then seize up like an engine starved of oil. The best banking system in the world cannot survive if all its money disappears. Cyprus does not have the best banking system in the world, so I guess they're worse off.
It seems like Greece is doing much of the sucking, much to the chagrin of their stern German neighbors.
I don't see the Euro as structurally deficient, I really think this problem is a due to Greek culture in the early 2000s being incompatible with the EU. Remember that Cyprus is a very small country, being half the size of Pittsburgh.
I think many people forget why the Euro exists. It exists to grow trade and foster connections between European countries, and it serves to level them and their societies. This is a social agenda. If Greece stays in the Euro their culture will have changed for the better.
Cyprus is small, but it's not that small.
Pittsburgh, PA: 305,704 people (Pittsburgh metro area is 2.36 million though)
Cyprus: 786,873 people
Pittsburgh, PA: 55.37 mi^2
Cyprus: 3572 mi^2
Courtesy of Wolfram|Alpha: http://www.wolframalpha.com/input/?i=size+pittsburgh%2C+pa+v... http://www.wolframalpha.com/input/?i=population+pittsburgh%2...
Europe is the same as is most of the first world as far as bigger cities go (bigger meaning >=1 million inhabitants). There is "city population" and "metro area population" (outside the well-defined boundaries of the city). In the 3rd world this data granularity often isn't available.
In Australia, I guess it may be available but the distinction simply isn't made (which also helps making you feel bit more "important" when comparing Aussie city sizes to other big cities in the world, I guess). ;)
When I lived in Australia I wondered why Sydney felt so small, smaller even than my home town Hamburg, in Germany. Even though it was supposed to have 4.5 million inhabitants while Hamburg barely has 2 million. After understanding this it all made sense. Hamburg has 1.75 million city + 3.25 metro area = 5 million ... in 3rd world/Aussie city population math. :)
Check Wolftram Alpha; you'll find there is no metro population area data for most 3rd world/Australian cities, but it is there is for most big cities in the rest of the first world.
At 1.75 million, Hamburg would be solidly the 5th largest city in the U.S. However at 5 million it would only be the 10th largest metro area.
Generally it's more the people in the US metro areas who make that distinction, the persons who visit and live in the outlying areas and suburbs do not.
Truth is that these counties should never have been asked to join the Euro in the first place and this problem will never be fixed while they remain. However it's the big cosy idea that counts in the minds of the Eurocrats, never mind the human cost.
http://www.telegraph.co.uk/finance/comment/ambroseevans_prit...
You can picture it as going through therapy or adolescence. And boy what a drama that is...
In the noughties that meant having cheap money because Germany was in the doldrums. Of course fiscal policies could have been used to dampen down demand in the overheated peripheral economies at that time. And to a certain extent there were. In Ireland, in about 2002, there was a very generous tax-free savings scheme if people to put away money for 5 years. Practically everyone who had the money bought into it to the maximum limit allowed. It was completely inadequate though and a lot more should have been done.
However the trend in Europe is also to harmonise fiscal policy. So to me it looks like, if we know what's good for us, we will all have to get into line with the German economy. In the future we will be paying ever closer attention to internal German politics and economic affairs. Maybe that's a good thing, the Germans do seem to know how to run an economy but I don't think 'growing up' is a metaphor I'd use for it.
Euro interest rates have always set to suit Germany and thus been too low for many of the other Euro countries - cheap money is one of the factor behind the crisis across the Euro
When the Greek problems became obvious, they had no easy way to divest themselves of that debt because nobody wanted it. And when the EU decided (without Cyprus having any say about it) that the bailout would involve a 50% haircut for privately held bonds, Cyprus was hosed.
It seems to me that the biggest sin that Cyprus committed was being in the wrong people (Greeks) in the wrong place (right next to Greece) at the wrong time (when Greece was diving off an economic cliff).
Turkish Cypriots must be very happy now that the Greek Cypriots rejected the peace settlement in 2004. Otherwise, they'd likely be bankrupt too.
“So you trusted a small tax haven island with your money. The plan failed. Your next step: trusting even smaller tax haven island with your money. Pure logic.”
Iceland before, Cyprus now, not sure what they think will happen to Carribean banks in the long run. Bitcoin might be an ok solution for people who don't care about earning interest, but if you still want the interest you have to deal with a lending institution.
Not only because the interest rates they offer for savings and checking accounts no where near is able to keep up with real inflation (which means you lose money by saving, from the get-go), but they charge as many service fees as they feel they can get away with.
the template according to troika is to do more of the same :D
granted the only future i see in bitcoins is in actual business transactions and not earnings interests,which with typical fiat are subject to the whims of ZIRP and central m̶a̶n̶i̶p̶u̶l̶a̶t̶i̶o̶n̶ planning :D (which [number of business transactions with bitcoins for goods or services] has gone up these couple of years if you look beyond the hype)
and the fact that it would be pretty hard for .gov reallocate funds in a .dat :P
Maybe the EU's policies led to the propagation of all the bad assets, but Cypriot banks were offering a higher interest to attract deposits. You can't get that higher interest without investing in somewhat riskier assets. Even assuming the EU policy is terrible (I am no expert on the EU and want no part of that argument, btw), the problem with the Cyprus banks was poor controls and risk management, which was by design to attract deposits.
Pretty simple, unless you had a very good reason (tax avoidance, money laundering, interest rate), parking money in the Cyprus banking system was a very bad idea. So either the person with 700k was avoiding taxes, laundering money, enjoying a higher than normal interest rate, or being foolish with their money. I have no idea which it was, but if I personally had to oversee such a sum, I wouldn't be parking it in such a risky place.
And only half of their banking system consisted of foreign deposits (not to mention most of those deposits were able to leave the country via loopholes). Where does that leave the individuals and small business native to cyprus? Is it such a horrid idea of storing your money in your own country?
And since the ECB is calling cyprus the template, where does this leave the next country that needs to be bailed out (which will happen again[1 bailout in 2010,1 bailout in 2011, 2 bailouts in 2012, 1 so far in 2013; this is starting to look like Fibonacci's work :P]) will banking in portugal, italy, ireland, greece, and spain be a very bad idea for people who live there, or are they all banking in their home country for tax avoidance,money laundering and for ZIRP to negative interest rates on their savings?
If you are lucky enough to have money over the limit, at least in the US, you can open accounts at different banks to try and have more insurance. For the native Cypriot running a legit business, yes, it's unfortunate, but that's what has led to a central banking system. If you look back a hundred years, bank runs were much more common, but people still had to use banks.
I don't offer financial advice, but it certainly would seem that maintaining bank accounts above the insured limit in any of the countries you listed is very high risk at the moment.
I'd agree, but i'd like to add that one would have to be fooling themselves if this high risk is anything but contained to the PIIGS or the EU.
ex: Some british pension accounts were hit: http://www.telegraph.co.uk/news/worldnews/europe/cyprus/9944...
I guess in any case, having any bank account over "insurance" limits in any country isn't sound (as we've seen that even those limits can be changed [usually changed or able to be removed at any time like what the FDIC announced in December]). But then again, people don't usually act in a logical manner (which I guess in a weird sense they shouldn't since any currency is ultimately built upon trust or belief which is not directly connected to logic).
I guess it's just better to stick to the basics (food,water,shelter) and let the bankers worry about when their fellow citizens or russian oligarchs will come for their heads which according to history, eventually happens :P
I would note, even the US has a long list of banks on the endangered list: http://www.calculatedriskblog.com/2013/03/unofficial-problem...
Some big banks in the US seem immune at the moment, but the recent revelations about Chase losing billions while trying not to reveal it to regulators is just par for the course.
I personally trust the US government to back my small deposits far more than any bank. It's not because the US government is so good, it's because the banks are so bad.
To me, it appears that without IMF prodding and EU intervention, Cypress would eventually have had a banking collapse that would have wiped out 100% of all depositors. The general operation of banks when losing money seems to increase leverage to try and make up for the losses, instead of acknowledging losses.
Finance can deal with inflation and deflation. Economies can't usually deal well with either, but deflation seems to be worse, and constant value is impossible and probably not better than inflation.
People are more than their bank statements. They breath their money through their life style and even survival. That is why money shouldn't stay still.
"I've already sold a part of my bitcoins to cover emergency needs. But I don't plan to recover my business in Cyprus. Instead, I'm moving to another country outside EU."
The OP appears to forget that without the European Commission, all of his money would be lost.
It's like getting mad at the guy who chainsaws you out of the car that you folded around a tree because he sawed your car into two pieces.
My parents who have a fairly large sum of money hired a decent accountant to mitigate a large portion of the risk. Spreading their money between a fairly large number of bank accounts.
You then look at when Iceland banks failed. Lots of people lost money.
The Cyprus banking sector size was ridiculous. It was 7x Cyprus GDP. If the sector failed it was fairly obvious Cyprus would be unable to save it. You have no idea what the terms would be of a bailout or if a small country like Cyprus would get one..
So back to my main point. Get a decent accountant. Understand where your money is going.
I fail to see the difference, honestly.
The OP, by running a business within a society where many services essential to that business are provided by the government and paid for by the citizens and businesses within that society, profited directly from other people's taxes - but refused to contribute.
I feel about as bad for him as I do for any of the other gangsters, Russian or otherwise.
He wrote:
> The people running the government, which uses the taxes to secure loans that they have no intention on paying back, in order to prop up a failing economy that is failing because of the rules and regulations that are setup to maximize the illigit profit for said people running government.. those are the real gangsters.
> Most large state governments amount to little more then just legalized mafias. Ran by political and family dynasties serving the purposes of whoever is capable of providing them the most money and power.
> IMHO, paying as little taxes as possible is a moral imperative.
Perhaps whoever you quoted was making a good case for not cooperating (taxes or otherwise) with tyrannical governments, but the situation in most European countries is that the government is democratic, progressive, and operates in the interests of it's citizens more than it does in the interests of the politicians themselves.
The OP, unfortunately, doesn't get a choice of operating within a system where he benefits greatly from other people's effort and also paying taxes OR doing neither, he only gets to choose whether to contribute to a system that profits him massively or not. While choosing not to contribute, which is what OP did, is not technically stealing, it's ethically equivalent - I present as rationale the Kantian argument - if nobody paid taxes it is obvious that (within European countries) everybody would be worse off than if everybody paid taxes, therefore it is unethical for a single person to not pay taxes.
- there are plenty of ways to distribute "less taxes", and if "mafiaesque government" remains constant, then that implies that taxes just simply need be distributed less equitably to satisfy that condition.
I'm not sure why, but natermer's past several posts are all dead.
He had operations in Cyprus with employees in Cyprus, He was not operating in one country while using bank accounts of Cyprus.
If he is a Cypriot, or his account was used for managing a business in Cyprus rather than avoiding taxes in his home state, then he was just a victim of bad politics and bad financial management.
If the asset you invest in fails you lose your money.
Don't see how this is the European Commission robbing anyone.
I thought (But could be wrong) without the bailout all the money would be lost. Isn't this them giving someone who's lost it all 20% of their money back?
Insurance is for Euro 100k, and he has a Dollar Account, that is why he will get only $128k based on the exchange rate.
http://www.cyprus-mail.com/cyprus/details-euimf-bailout- agreement-cyprus/20130325
"Laiki will be resolved immediately - with full contribution of equity shareholders, bond holders and uninsured depositors - based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework."
Bailout or no bailout, all money in Laikie is lost except what was insured.
Some interesting points 1) Laikie bank also had a loan of 9 Billion from ECB, that won't be written off , even though depositor's money is written off. That loan will be transferred to Bank of Cyprus. 2) Out of this 9 Billion half was used by Greek branches which are not effected as sold to a greek bank, even then Bank of Cyprus will have to pay full 9 Billion. 3) If you had a mortgage with same bank for 300k , and had 300k Deposit, only Deposit will be reduced to 100k , but you will still owe the bank 300k loan, as they are transferring all good loans to Bank of Cyprus.
I can go on with more points to prove that its unfair politics just to give a message to Rich Russians to send their money to Germany instead of keeping it in Cyprus.
After the crisis, German banks are trying to put full page Ads in Cypriot newspapers both in English and Russian saying that their money will be safer in Germany!!!
In this case, the bank went tits up, he got his 100k EUR back from insurance.
As for mortgages and loans, those aren't insured to the bank either (unless underwritten by the gov't ...), so if YOU go bankrupt the bank is out that money. In most cases you have some equity backing that loan so even if you go bankrupt some part of the money can be recovered by for example selling your house.
http://en.wikipedia.org/wiki/Deposit_insurance#By_EU_country
He put money in a bank that failed. Presumably, he made the investment for reasons of convenience of operating the capital in Cyprus, but also because the particular bank he chose was paying high interest rates. It was paying high interest rates because everyone knew the risk was high. The risk materialised. Who is surprised?
EU helps a bit but is not prepared to compensate him for losses; this is not a fault of the European Commission.
I'm a bit short of sympathy because of this blaming of Merkel, Rehn et al. They're not perfect, but they are not culpable for this loss.
Cyprus has had tax as percentage of GDP at below 40 %. Northern Europe is closer to 50 %. If you had wanted buffers provided by the state, you should have collected taxes to do so. Alternatively, you could have stayed out of the euro, and then the government could just print money and rescue the banks. Of course, outside the euro you wouldn't have been such a great haven for grey and black Russian money.
Oh I know, they should've just covered all the tax haven banks losses.
Even if the 7% levy was all hard-earned money instead of too high interest rate profits, this would have hardly bankrupted more than a few depositors which were in dire straits already.
Can you quote what high interest rates are you talking about on deposits? And what about interest rates on Current Accounts? Business usually pay money to have these accounts.
Cyprus also has higher interest rates on mortgages, and most Cypriots have mortgages, so they are not actually having any profits because of "so-called" high rates.
If European Union is so concerned about Tax-Haven issues, why didn't they come clean and ask Cyprus to raise tax rates as they did in 2004 when Cyprus joined European Union, And what about Luxembourg, isn't it where Apple is registered for saving taxes ??
>I've already explained that it's CURRENT ACCOUNT (transactional account).
>Not bank paid to me, but I was paying annual fee to the bank in order to maintain this account and debit card.
>Current accounts are usually not affected even if bank goes bankrupt. Upon liquidation, current account holders are paid first, as money on this type of account cannot be gambled by bank. It's most liquid assets, like cash.
A part of it is 'dirty' and that argument is being used to validate the confiscation of working people's money and company's money which the EU's economy is based upon.
The fact that they announced this before taking a decision is just beyond stupid, any normal thinking human being knows that it's a bad approach given that they want to prevent a bank run. People in other countries are fearing that the same procedure will happen to them. This has a way bigger impact than just some companies and some rich people and some bad russians, they are just harming the image of banks in whole Europe.
Next to that fact, OP has a medium sized business, people work there, wages can't be paid, this has a major influence on companies all over Europe and everyone who works there. OP put his money in Cyprus because it was profitable, is that a bad thing? You have to choose paths that are most profitable for your company and he didn't put it in some obscure market, it was backed by a bank, we generally trust banks.
Now they want to prevent a bank run, this is just a ticking timebomb. Whenever the 300 euro/day rule doesn't apply anymore, there will be a bank run. No money will be going into the bank anytime soon. They are going to regret this.
The way I understand it: Cyprus failed to control their economy and required the help from the European Union. In order to lent them a crazy amount of money, they wanted some guarantee. They could not provide anything, so their government had to use the peoples money to pay for the governments previously bad judgement about not saving up for bad times.
The impact on local business is already being felt, both consumption & payment of supplies & salaries (and soon tax remittance), and imports will suffer significantly in the coming days and weeks too. Exports may well be paid for and the funds remain outside of Cyprus, further creating problems for the economy, as it goes almost all-cash and tax is evaded too. Credit card balances can not be paid off for now either.
It will be interesting to see how Russian mobsters (and various shades of business people) react to having millions/billions taken from them. I'd not want to be a Cypriot politician or banker having to say no to these guys.
Total loss was the alternative to the bailout...
Relevant: https://twitter.com/finansakrobat/status/316813023639646208
Speaking in a television interview with state broadcaster RIC, Michalis Sarris indicated that it could also take years before those depositors see any of their money returned.
"Realistically, very little will be returned," Mr. Sarris said.
http://www.foxbusiness.com/news/2013/03/26/cyprus-finance-mi...
Moreover, how would you treat accounts that are not owned by a person, but e.g. companies?
The liability should lie with the people who bought the Cypriot/Greek debt in the first place. They are the ones that in essence lent the money to these two tiny countries when it was obvious it was out of control and would blow up.
But where is the incentive not too when the liability is offloaded to people who had no part in the debt transaction; either the citizens or other third parties.
To me these risk balances are way out of whack and are just asking for the irresponsible fiscal activities we are seeing.
This doesn't really change my assertions, the Cypriot debt holders should take the hit first, let the pain filter through the whole rotten trail.
1. http://greece.greekreporter.com/2013/03/27/cyprus-finance-mi...
http://metro.co.uk/2013/03/28/gallery-people-line-up-outside...
In another sense, this is also about tech, specifically, bitcoin. The desperate people in Cypress may turn towards alternative currencies as a way to escape their situation.
I know there are a lot of folks around here who vocally support bitcoin or other alternative currencies. For me the idea is very interesting, but the reality makes me nervous. There are one of two possibilities; either (1) I know bitcoin well enough to never trust it, or (2) I don't know bitcoin well enough to make an informed decision.
I'm still betting on the latter. ;-)
None the less, there's a lot of negative bitcoin news that never makes the front page of HN, and I wonder why. The most recent was:
https://news.ycombinator.com/item?id=5459304
http://www.youtube.com/watch?v=7fvSYT7vhQY
The worst part of the above could the sensationalism, but in my opinion, it's my inability to verify the veracity of the claims. Are they just muckraking to (successfully) cause "Fear, Uncertainty, and Doubt" (FUD)? --Sadly, stuff like this makes us already skeptical and squeamish folks even more nervous about it.
Market manipulation is a very real problem in all markets, so even if the above is entirely true, it's merely one instance of graft against bitcoin, when there are countless instances of corruption in all the other markets.
If i got to decide the EU should have let your contry go bankrupt fall in to civil war, but hey we decided to lend you money to stop that.
But yes blame the very people that helped you from loosing all your money. That seems like a good idea....
Schemes like the FDIC (which, as mentioned in a previous comment, can change the rules at any time) only serve to dumb us down and encourage bad behavior; firstly by lulling depositors into a false sense of security, and secondly by eliminating the incentive to be prudent and appropriately risk-averse.
And of course, if you partake in a well-functioning state, which protects your rights against all sorts of problems, educates your workforce, regulates your food and healthcare, you might consider the taxes a bargain.
I'm not saying this doesn't suck for him and his company, but €100K is better than €0.
The initial proposal was to only tax a percentage of the saved amount. That was rejected by the cypriotic people/govt.
/s