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View Diary: Krugman suggests Cyprus could be the start of something positive (74 comments)

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  •  Krugman is full of shit on this one (0+ / 0-)

    Cyprus is fucked, and all the window dressing in the world isn't going to fix it. Capital is going to do one thing, exit the country as quickly as possible and never return.

    •  And that is a good thing in general (6+ / 0-)

      (not so much for Cyprus).

      Fractional reserve banking is a communal endeavor by nature.  Our deposits are loaned to others to build community wealth and is compounded over and over again.

      To work there must be strict supervision or financial panics occur and evaporate wealth.  Canada is comprised of TBTF banks that are properly regulated and they escaped the financial disaster of 2008 altogether.

      The Mitt Romneys of the world give their countries a big FU when they move their money offshore.

      "The way to see by faith is to shut the eye of reason." - Thomas Paine

      by shrike on Mon Mar 25, 2013 at 06:20:11 AM PDT

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      •  How much communal pooling of wealth (1+ / 0-)
        Recommended by:
        ratzo

        will there be when govts have decided that arbitrarily raiding the pool of deposits is acceptable?

        Would you ever invest or save money in Cyprus after this?

        •  that's not the proposal at all (6+ / 0-)

          The current proposal is basically the following:

          1. Split the bank into a "good bank" and a "bad bank".

          2. Bad assets and uninsured deposits (over $130k) go to the "bad bank".

          3. Good assets and insured deposits go to the "good bank."

          4. Bond-holders wiped out.

          When the "bad bank" sells its assets, the uninsured deposits get paid. The estimate is a 30% loss, but no one really knows.

          That's not the government raiding anything; it's a managed liquidation of the bank.

          The Irish should have done something similar.

          •  The original proposal (2+ / 0-)
            Recommended by:
            limpidglass, mkor7

            (what someone thought was a good enough idea to go public) was that all depositors (insured or otherwise) would take a 6-10% loss.

            After public outcry, they've come up with plan 2.0 which is basically that large depositors eat all of the losses. While all of these machinations are going on, everyone (even those with insured deposits) is locked out of access to their funds in Cypriot banks.

            The damage has already been done, regardless of what plan they adopt. Money is not safe in Cyprus and anyone that has any sense is going to move all of their funds out of the country.

            •  this deal effectively breaks Cyprus off (3+ / 0-)
              Recommended by:
              VictorLHKOS, Remove Kebab, mkor7

              of the eurozone. Whatever the troika may say about preserving the EZ's integrity, the currency union is functionally severed. Thanks to the capital controls, euro in Cyprus is no longer worth the same as a euro in France.

              No one will put money into Cyprus because you're no longer allowed to take it out. So the flow both ways is restricted. Those Cypriots of means will find a way to smuggle it out against the prohibitions. Everyone else will have to pay a huge premium to have euros smuggled in, or start using alternative currencies. So we will soon have a thriving black market of currencies, encouraging criminality to flourish. And people were so pissed about "Russian oligarchs" using Cyprus as a "tax haven"!

              The economy will be shot because the banks comprised so much of it. On top of that you'll have deflation because euros won't be coming into Cyprus and there won't be enough euros for people to use for their daily needs, and I don't expect the ECB will be too keen on expanding the supply of euros in Cyprus.

              No one will be keen to put any money in any banks in Cyprus, so banks will stop lending, and credit will get tight. The economy will tank thanks to the austerity that's part of the deal, and Cyprus will need a second bailout in maybe a year or so.

              Because people will have a strong incentive to use alternative currencies, and Cypriot taxes are collected in euros, tax revenue will decrease. This means the deficit will rise and so the debt will never have a chance of being repaid.

              Of course the deal authorizes:

              Any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary for reasons of public order and safety
              In other words, Cyprus is now under dictatorship, to make sure  this truly horrendous deal is enforced. Then when unrest breaks out, we'll be told that it's just those unruly Cypriots, who can't possibly be trusted to govern themselves.

              When the time comes for the next bailout, what incentive will Cyprus possibly have to cut a deal with the troika? Better for them to leave the eurozone than have to endure this, they may reason. They came damn near leaving it this time.

              The troika had to destroy the euro in order to save it. And whether they're willing to admit it or not, they have destroyed it.

              "In America, the law is king." --Thomas Paine

              by limpidglass on Mon Mar 25, 2013 at 08:30:30 AM PDT

              [ Parent ]

          •  Uninsured deposits of Laika are likely to be (2+ / 0-)
            Recommended by:
            ferg, Remove Kebab

            a total loss.  The uninsured deposits of the major bank will get a 30-40% haircut, from the estimates I've seen.

    •  Cyprus has 400 bill in Natl Gas & 1 mil people, (0+ / 0-)

      they're the new small Saudi Arabia.

      80 % of Success is Just Showing Up!.....The Climate Change Denial Era........IS OVER.........Welcome to......CLIMATE HELL!

      by Churchill on Mon Mar 25, 2013 at 07:50:06 AM PDT

      [ Parent ]

    •  Black Market for Cypriot Euros (1+ / 0-)
      Recommended by:
      limpidglass

      A market will have develop within a couple of weeks.

      Someone with 2M will seek to transfer the money outside of Europe, and ask for takers.

      At that point, we'll have the f/x rate for a Cypriot Euro vs. a Euro.

      Learn about Centrist Economics, learn about Robert Rubin's Hamilton Project. www.hamiltonproject.org

      by PatriciaVa on Mon Mar 25, 2013 at 08:27:01 AM PDT

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    •  What part of "Capital controls" did you not (1+ / 0-)
      Recommended by:
      elginblt

      understand? Maybe I'm reading this wrong, but the whole point is that capital can't flee because there are restrictions on capital.

      •  I guess I'm missing the part (0+ / 0-)

        where it approaches anything close to a "good" thing.

        Capital will flee, at whatever rate it can, and by whatever means are available. Unless they have proposed a system where they have basically seized all of the depositors funds (as in you can't do anything with your own money) people are going to do everything they can to get it out of the system.

        We're seeing the disintegration of Cyprus, and possibly the entire EU in the weeks/months to come.

        •  Given the alternative of what is happening (0+ / 0-)

          to Greece, this is a good choice. The central EU countries are going to try and hold on to the periphery because it makes them stronger but the periphery weaker. The rush to get into the EU was based on neoliberal lies and this is the first step in the fight against it.

          •  Cyprus is going to be worse than Greece (0+ / 0-)

            Unemployment will be worse, and the currency doesn't circulate. Cyprus is effectively OUT of the EU, with a dead currency.

            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

            by upstate NY on Tue Mar 26, 2013 at 08:29:18 AM PDT

            [ Parent ]

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