Cyprus Bank Heist

Posted: March 29, 2013 in Current Events, Media Gleanings, politics

So I’ve been looking at the situation in Cyprus for the past few weeks, and several thoughts have been rattling around in my head.

If I have this straight, banks in Cyprus have decided that depositors with more than 100 000 Euros in accounts will have to give the bank somewhere between 20% and 80% of their funds.  I put the range in there, because if you look at the reports it is not at all clear what the final rate is going to be, and it has already changed at least once.  So if your life savings was 200 000 Euros, you could easily lose half of that in what they’re calling a “bail-in” as opposed to a bail-out.  Banks that have incompetently lost money or which have succumbed to the financial winds of other big institutions that have lost money will be able to recoup their losses by dipping into the personal accounts of its customers.

And nobody seems to be screaming bloody murder!  While the situation is being reported in the media, it doesn’t seem to be getting the “Holy shit!! What the hell is happening here!!” treatment that it should.  There is very little investigative reporting around, say, the fact that many wealthier customers were tipped off about the policy in advance and were able to withdraw their funds before they were frozen.  There seems to be little mention of the hardships that many of the ordinary people who may lose their retirement nest egg will suffer.  And, very notably, there is very little concern about whether this tactic will be used in other countries.  That this can happen in a European country and be accompanied by so little attention and outrage is deeply concerning.  I try not to be a conspiracy theorist, but one can’t help buy wonder if the media inattention, and the eclipse of the issue by the gay marriage question, might be deliberate.

The second thought was, “Who’s next?”  The answer seems to be, “Everyone!”  There are already signs that this tactic is being adopted in other European countries.  In Canada, while the threat of our banking system’s demise is significantly less than it is elsewhere, Harper and the Canadian government just passed a bill   which establishes “bail-ins” as a strategy to deal with the problems of banks and financial institutions.  Once again, this has been done with almost no media coverage.  That’s not surprising.  The Cyprus banks had to freeze assets and limit withdrawals because of a run on savings.  Imagine what would happen in Canada or the U.S. if there was even a hint of this possibility.  The run on the banks of people withdrawing their money would be enough to topple them.

One might ask, “Well, what is the answer then?  Should failing banks not be the responsibility of their customers?  Why should taxpayer bail out banks?”  These are all legitimate questions.  The problem is that we’ve already seen with the U.S. (and Canadian) bail-outs, that the within a few years banks are back to billions in profits with millions in bonuses for executives, but the customer victims of the whole mess are still unemployed, and have still lost their retirement funds or houses.  There is nothing to suggest that the “bail-in” strategy would not have the same outcome.  Additionally, while you might say that customers should bear the responsibility for the financial decisions that they make, there aren’t too many options.  Based on what we’re seeing here, maybe everyone should remove their money from the banks and turn it into gold or something similar.  Maybe it all needs to be invested into real estate, although that’s not protected from potential property taxation and confiscation.  I don’t know the answer.  I do know that if this situation develops, and viable alternative options are found, that doesn’t bode well for banks, and that’s not good for anybody.

What a mess.  The situation seems to be “no win”.  Why?  Because there is a climate of corporate and financial greed and irresponsibility which is being encouraged by governments allowing it to happen.  Because financial institutions are encouraged to be opportunists and are self aggrandizing rather than responsible custodians of their customers’ resources.  They are companies that have lost sight of their customers, even though they are totally dependent upon customer resources in order to maintain their own resources.

Under those circumstances, I wouldn’t blame customers to be outraged to the point of revolution if the banks just decided to steal their money.  I’m surprised that the reaction isn’t more violent in Cyprus.  Perhaps it well arise in coming weeks.


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