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View Diary: BREAKING NEWS: Parliament of Cyprus Rejects "Bailout," Bank "Haircut" (143 comments)

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  •  Interesting idea from Lee Buchheit by way (10+ / 0-)

    of Felix Salmon:

    First, leave all deposits under €100,000 untouched. Hitting those deposits was by far the biggest mistake of the Cyprus plan as originally envisaged, and everybody would be extremely happy if guaranteed depositors could be kept whole.

    Second, term out everybody else by five years, or ten if they prefer.

    That’s it! That’s the whole plan, and it’s kinda genius. If you have bank deposits of more than €100,000, they will be converted into bank CDs, with a maturity of either five years or 10 years — your choice. If you pick the longer maturity, then your CD will be secured by future Cypriot gas revenues, which could amount to hundreds of billions of dollars.

    And if you have sovereign bonds, they too will be termed out by five years, giving Cyprus a bit of breathing room to get its act together.

    Do that, say Buchheit and Gulati, and you manage to reduce the size of the needed bailout by more than the €5.8 billion that Cyprus is currently planning to raise with its tax on bank deposits — and you don’t touch anybody’s principal at all. To be sure, the new CDs, which would be tradable, would surely trade at less than par: there would be a present-value haircut on deposits over €100,000. But that’s going to happen anyway. And at least in this case patient depositors will have a chance of getting all their money back in full — with interest. And, most importantly, guaranteed depositors will remain unscathed.
    •  interesting. (3+ / 0-)

      In fact, in the original version of the EU deal, the % cuts were nominally converted in bank equity too .. following a little bit along lines such as you cite.

      That was scathingly laughed off the table as "theft" by people who stood to lose (not poor people, thus). So I guess they would hate this plan even more.

      I look at it from an entire other viewpoint. I´m a European taxpayer, so the people crying about "theft" about this haircut solution don´t mind wanting my money to cover their losses.

      •  Wrong (15+ / 0-)

        No one is asking for your money to cover their losses.  The Cypriot people, just like the Greek people, are not begging for your money.  They never asked for a "bailout."  They never asked for austerity.  They never asked for their bank accounts to be slashed, their salaries to be cut, their jobs to be vanished.  The EU, instead of punishing those politicians and banksters who are responsible, in its entirety, for this mess, has instead taken out all of its power and anger on the people.

        It was about time that the boomerang turned around and smacked them in the face.

        •  So you think the people want to default? (0+ / 0-)
          •  Another false dilemma (14+ / 0-)

            Seriously, are you from Merkel's press office?  It's not black or white.  It's not "accept this or default."  That's what the EU was threatening Cyprus with this week.  Their bluff was called.

            By popular demand, here's a few solutions that are applicable to Cyprus, Greece, and other austerity-ravaged countries:

            - Actually prosecute and jail the corrupt politicians from all parties who have any responsibility at all for their countries' current economic woes.

            - Actually prosecute and jail the corrupt and criminal banksters who have any responsibility at all for helping bring about this economic crisis.  

            - Seize the illegally obtained assets of all of the above, no matter where they may be held.

            - Form an independent commission in each country that will investigate the totality of the debt, and immediately write off any debt that is found to be odious (illegitimate).

            - Form an independent commission in each country that will investigate all of the criminal austerity measures and the decisions that were taken which implemented said members.  Prosecute and jail anyone and everyone responsible.

            - If necessary, declare a temporary stoppage of payments on all legitimate debt.  Declare a national state of emergency and pour all available national resources towards helping to restore the economy, instead of to pay interest.

            - Renegotiate the payment terms for all legitimate debt, take it or leave it.

            - Actually give the people a say in their country's financial future, openly and democratically, with an informed national dialogue that is free of blackmail and scaremongering.  Just as they did in Iceland.  How's that for a novel concept?

            - Build up as much foreign currency reserve as possible and return to a national currency, after first formulating a careful plan.  Utilize Euros as part of those foreign currency reserves.  For more details about how this can happen, an interview with economist Dimitris Kazakis (who, by the way, predicted back in December what would happen in Cyprus) is in order: (interview in Greek with translation into English).

            Economists such as Kazakis and Costas Lapavitsas, among others, have provided far more informed analyses as to how all of the above may be achieved.  I recommend looking them up.

            •  Reading your source (4+ / 0-)

              Costas Lapavitsas  writes approvingly:

              Iceland followed a radically different path, as it is free of the troika and not a member of the EMU. It refused to increase its national debt and it thus let banks go bankrupt, shifting the costs on to shareholders, bondholders and depositors abroad. Iceland looked after small depositors, but also allowed its currency to devalue and applied capital controls. The country avoided a deep and protracted recession, and last year the economy grew at 2.5%.
              emphasis mine.

              So the part of the now-scuttled deal that most goes along with Costas Lapavitsas ideas is the part where depositord get the haircut! With the only exception - a poison pill - that it had no "small" depositor safety offcut limit.

              Whereas the part of the EU-cyprus deal that goes most against your economist is where the EU uses 10 billion of european public money to bail out the banks - "In effect, the costs of failed banks were brazenly shifted onto society as a whole", as he calls it for Ireland.


            •  Exactly (3+ / 0-)
              Recommended by:
              mrkvica, yoduuuh do or do not, neo11

              Never understood why in the world this is presented as an all-or-nothing, binary choice between two outrageous, unacceptable alternatives- default vs. utterly screwing over small depositors and shaking faith in the banking system in general (all for the benefit of a few well-connected bankster gangsters).

              As neo11 points out here, a constructive solution is simple, straightforward and far more beneficial to all parties involved. First go after the corrupt 1%ers who are responsible for this, including the corrupt ultra-rich (aka the Cypriot Mitt Romneys) who've been evading their obligations. Seize their assets, and make it clear that the EU law is with the people, not the banksters.

              Even if Cyprus doesn't leave the Eurozone itself- since the prior corruption by Cyprus's 1%ers wouldn't inspire much confidence (or solvency) in Cyprus's own currency- the solution is that the Euro must be turned into a national currency itself for all the Eurozone members, that is, a liquid instrument that allows all of the EU countries to effectively be sovereign in the currency.

              In practice of course, on an economic level, this would in many ways convert the EU states into something like the American states, which although they can't print dollars themselves, are nonetheless able to denominate their debts in what is their own (collectively) sovereign currency, with backing from the federal government itself (whatever the EU's equivalent is).

              And above all, Angela Merkel has to go. She's become ridiculously obsessed with the austerity nonsense and seems incapable of grasping basic macroeconomics. One of the most blindingly simple concepts from Econ 101 is that the entire global economic and financial system depends on people's trust that their bank deposits will be fully honored, thus innovations like e.g. the FDIC. That Merkel doesn't get this (or that she's made herself a tool of powerful banksters) means that she's no longer even pretending to be a representative of the people, her won or any other in the EU.

        •  what again is the mess? (3+ / 0-)

          wait wait you´re too fast for me. What did Cyprus want the 10 european billion of the - now scuttled - deal for?

          refinancing state debt, isn´t it? Debt caused by the lost creditworthyness of Cypriotic banks, isn´t it? That those banks have made a shit out of their capital is not the fault of the common Cypriot. Its also not the fault of the common mid-European. Yet, the Cypriots (not the mid Europeans) stand to face a state bankruptcy over this. And so they ask anyone - Russians, Chinese, EU - for a bridge loan.

          The EU would be willing to give that, on condition that the actual culprits (the international tax haven money that fueled the Cypriot banking system) pay a significant share.

          The Russian oligarchs offer to buy out the indebted outfit called Cyprus, no oligarch loses money, and they get to own the place.

          Your choice indeed!

          The EU´s mistake was this foolish not having a lower offcut for the depositor tax, That made it stink. After all common-folks cypriots arent to blame here. So, blame the EU for this stupidity. OK .. and then? Still your choice, What do you want?

          •  You're too forgiving of the EU (5+ / 0-)

            If the whole issue is just providing "bridge loans," then please explain such measures as lowering the minimum wage in Greece to below poverty level and taxing heating oil to death, even though so few people can now afford it that revenues from this tax have actually gone down.

            If the EU wants to punish those who created the mess, punish the politicians and the banksters.  Period.  The fact that they are not doing so means that something else is going on.  Something more akin to a German-led power grab.

            Go on and continue being an apologist for them though if you wish.

            •  that was just what (0+ / 0-)

              -- if the press is to believed, which you are entitled to doubt --- the Cypriot president had offered instead of the depositor tax: wage cuts, pension cuts, general tax increases. Again, that wasnt demanded by the EU, that was offered by Cyprus instead of getting a chunk of international tax evader money.

              The EU refused that.

              It can be that I am agreeing with you about the worthlessness of Cypriots politicians? maybe? The central Europeans are mostly right-wing idiots and callous bourgeois, nothing to be proud of either.

              Yet it doesnt look to me that this is a story of a poor little island bowed under financial tyrants from Germany. It seems to me that that would be just hyperbole to hide a little island struggling at the brink of the abyss to keep at least some of its preferred business (being a capital flight destination).

              •  Well (3+ / 0-)
                Recommended by:
                marsanges, Chi, mrkvica

                Well it seems to me the president is worthless, but quite a few people knew that prior to the election.  He may have won, but the vocal minority predicted that he would go along with whatever Europe wanted, and inded, that's what happened.

                The fact that he proposed cuts to wages and pensions and also proposed tax increases - everything that has been done in Greece to disastarous results - says it all.

                By the way, please explain to me why it's perfectly acceptable for countries like Lichtenstein, Luxembourg, Switzerland, etc. to be tax havens, but not Cyprus.  Is it because it is preferred by the big bad Russians instead of by the likes of Mitt Romney?  Just curious.

                •  No no (2+ / 0-)
                  Recommended by:
                  Chi, mrkvica

                  I dont like them either (meaning not to say that I dont like Cyprus - the opposite is the case; actually I like them far less). Luxembourg has been a bit cut to size as its directly in the EU. That was good. Liechtenstein is ever being fought over, just recently aghain when German tax services availed themselves of illegally gotten data from there.  

                  The more I read your economist - this Mr Lapvitsas - the more I agree with him. I hate whats being done to Europe, the desocialization thats going on, all to preserve the well-suitedness of a certain, pretty rich upper bourgeoisie.

                  I also hated the pettyness of my Dutch countrymen when Icesave went down - oh losing their capital couldnt be a fate that was in store for touchy Dutchmen! It was morally repugnant. They wanted all the gain for themselves and all the risk for the state.

                  Yet; a part of the failure of the left in our continent is that they as a whole have not really developed an alternative. Merkels policy was begun by Schroeder (who I helped elect). French lefties afforded themselves a five-candidate split - with trotskyites - guaranteeing Chirac´s long power, and THAT was a crushing blow for Europe. Zapatero in Spain made a gallant stand but ultimately had no answer to the crisis that he had not caused. I feel very much for him. Yet there it is ... if I ask you "now what" then I implicitly ask myself and all of us "now what"? We need to get rid of this posse thats ruining our continent.

      •  Maybe you should stop trying to shove the (0+ / 0-)

        other zebras in front of the lions.

        income gains to the top 1% from 2009 to 2011 were 121% of all income increases. How did that happen? Incomes to the bottom 99% fell by 0.4%

        by JesseCW on Tue Mar 19, 2013 at 06:16:11 PM PDT

        [ Parent ]

      •  The average depositor in the Cyprus bank didn't (2+ / 0-)
        Recommended by:
        mrkvica, neo11

        cause this problem.  Why should a pensioner with 45k in the bank be charged 3150 for the mistakes the board and operators of the bank made??  It's not the average depositor that's 'wanting' 'your' money.  It's the big banks across the world.

    •  intriguing (0+ / 0-)

      and worth a virtual tip.

      The "extreme wing" of the Democratic Party is the wing that is hell-bent on protecting the banks and credit card companies. ~ Kos

      by ozsea1 on Tue Mar 19, 2013 at 03:11:47 PM PDT

      [ Parent ]

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