Cyprus Bailout: Stupidity, Short-Sightedness, Something Else?

Er, this turned in to a rambling rant. Some of it might be worth reading....<p>I don't agree with this analysis. Its a one sided argument against the current plan. Which is fine, but its certainly not the whole story. Part 15, the solution, is absurd. It has all the problems outlined in the previous 14 points. It is no solution, because there isn't a reasonable no pain solution. People are literally saying anything that pops in to their heads because the cant cope with the idea proposed already. I get that, but there isn't really an alternative. The country, or to put it another way, a big group of people, have gone way too far in to debt. An individual in the same circumstances would go bankrupt, but that is not an option for a country, as far as I know. In the end, they have to settle the debts. Not only that, borrow more money to survive.<p>What interests me is the reaction of the people. It all seems a bit civilised. There isn't much worse a government can do to its people, yet the people seems incredibly calm about it. I am still surprised that the people haven't stormed their parliament. This i the real test. How far can you push a population? Looks like you can push them pretty far.<p>Also, I still cant get my head round peoples who vote in governments then trying to separate themselves from the actions of that government. Or take out loans, then blame the banks for handing those loads out. Or scream hysterically about socialism, when its capitalism and its basic law of supply and demand that has caused the whole mess.<p>The biggest joke of all, in the UK at least, is that with a disaster caused by banks dishing out toxic loans, the banks are now under pressure to loan out more. Half the problem is people now working to pay off loans, reducing the amount of money that can be spent in general. We want them to borrow more, when their jobs are uncertain?<p>In the end, the problem is greed and impatience, and us the people demanding that we are loaned the money to satisfy that.<p>Im sorry, but IMHO, the whole system is a wreck, and no one wants to take responsibility for any of it. Governments are too interested in protecting votes, and that is making them avoid any harsh but effective solutions.<p>Anyway, point being, I'm not seeing any realistic long term solutions anywhere. The Cypriot idea is interesting to me, and rather than knee jerk against it, I am interested in seeing how it pans out. I mean, what if it works? The UK is said to have triple dipped, so what ever is going on here isn't much cop, we are just scraping along the financial gutter. Could a one off injection of all our money save the day? Its our country, our debt.<p>I'm stopping now. I'm boring and confusing myself....

"You never, ever, ever, hit insured depositors."<p>The current deal only impacts depositors with more than 100K in the banks - more than this wasn't insured anyway.<p>"You should basically never hit non-insured depositors either."<p>Why? Since when is there a guarantee that banks are 100% safe? If people deposit large (i.e. over deposit guarantee limits) in a bank to benefit from the high interest rates they are taking a risk with a reward - if this goes wrong then why should other more prudent people have to bail them out?

As an indie developer who had established an online business in cyprus and is now being hardly hit by the bail-in, i agree with a lot of the observations made. Cyprus offers high quality financial services for people who do international business transactions. I am not aware how much of this business is from russian mafiosos, but I was certainly not one of them.<p>Establishing a business in southern europe is risky anyways in the past 5 years with national governments failing left and right. The red tape and the ability of the state to impose arbitrary "urgent taxation" (has happened twice in greece already) hurts all business planning in an already shaky business environment. For me, cyprus was an obvious choice because of its "most lawful" status (the country is in the EU and in the euro for years, which requires a high level of transparency, and it is not in considered a tax heaven by OECD), plus when you don't do business in your home country you have the freedom of choice. Compared to the bailed-out european south, cyprus was actually the safest option. From my experience, i did have to provide adequate documentation for all business transactions and the red tape overhead was much reduced.<p>The whole handling of the situation until now is a hugely chaotic freak show, a pretense battle between white knights of capitalism and socialism, and a huge display of how ineffective it is to run europe without a central trustable government.

Oh by the way<p>While Cypriots were queuing in the ATMs to withdraw 300€ tops (then reduced), Laiki Bank was open in London, and accepting all withdraw orders.<p><a href="http://www.zerohedge.com/news/2013-03-25/have-russians-already-quietly-withdrawn-all-their-cash-cyprus" rel="nofollow">http://www.zerohedge.com/news/2013-03-25/have-russians-alrea...</a>

A great article. I think the EU made a big mess up by even considering not honouring the deposit insurance scheme. Now everyone knows that the insurance is not really an insurance and the government can grab it anytime a crisis happens. All the trust built up over the years is gone with just one action.<p>Also all the big accounts with a large haircut will now cause almost all businesses to be affected. It will be very hard to see any business surviving this cashflow crunch in Cyprus.

To be honest, expect more of this crap.<p>The only question now is who's next?<p><a href="http://youtu.be/thSTpGnWEAs" rel="nofollow">http://youtu.be/thSTpGnWEAs</a>

I like the conspiracy theory about natural resources. Incidentally, Greece is also sitting on huge natural gas reserves: <a href="http://www.globalresearch.ca/the-new-mediterranean-oil-and-gas-bonanza/29609" rel="nofollow">http://www.globalresearch.ca/the-new-mediterranean-oil-and-g...</a><p>The way the greek problems were handled by the EU under german "leadership" could be interpreted the same way (extremely stupid or conspiracy).

Maybe I missed it. What solution does the author offer?

This is really interesting and makes the whole situation seem absurd. It makes you wonder what they (the EU) are thinking. It is really scary that this can happen in this manner. Each individual bank was not treated differently - some Cyprus banks stayed conservative and didn't put their depositors money at risk and are still being wiped out. Amazing - and scary.

As we speak, laws are/were passed here in the US that will make it ok for predatory banks to confisticate your savings and give you some worthless stock in exchange.<p>It's open season on savers now.

&#62; Cyprus is a 78% services-based economy.<p>Well, fix that.

Wow, great run down, kinda makes you wanna keep your money in a mattress though, especially if you're from some small country like that...

The best analysis of what was really going on I've read up to now.

<i>(c) The banks are almost 100% deposit funded (something that regulators across the world have been encouraging because deposits tend to be sticky if you take care of them).</i><p>Uh... if you pay 1% or less a year in interest as they in USA. Many Cyprus banks were paying north of 5% a year so they'd have to make maybe 7%-10% a year to break even after expenses and taxes.<p><i>8. You never, ever, ever, hit insured depositors.</i><p>Great point, expect that no one is touching them. Deposits over EUR 100K are being hit /frozen, those up to EUR 100K are not touched, which just happened to be the insured amount. The banks could have bought private insurance and threatened to take down the next AIG with them (Now that's leverage), but they apparently didn't.<p>The real fault lies with the banks and Cyprus gov (or the people, indirectly). They could have cracked down on these shady deals and limited the bank's exposures to Greek debt. They didn't and Germans /N Europeans don't want to ask their taxpayers to bail another country. Someone has to pay, it clearly can't be the taxpayers given the ratio to GDP so it's the depositors and bank owners. To summarize:<p>There is no money.<p>No one wants to give them more money.<p>Banks are broke and as usual you can lose all the money that is not insured. It says so, or it should say so on the tiny print.