Cyprus govt to seize 6.75% of all bank accounts as of Sat morning

bondi688 said:
Hope there will not be bank runs in some European countries like Greece, Portugal, Spain and Italy.:(
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I expected a bigger reaction on Wall Street today and am wondering if the shoe just hasn't dropped yet. Read this in NYT:
The general feeling was that European leaders were using Cyprus to test whether confiscating deposits would work, before possibly applying it more widely. “They are trying to make an experiment with a small country,” said Stefan Kourbelis, a manager at the Centrum Hotel in Nicosia’s main square, echoing a widely held view. “If it works, the next one could be Spain, Italy and others. If things go badly, they can just say, who cares about Cyprus?”
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Also found this interesting Market Map from WSJ (new to me, maybe not to you)
 
Felix Mulier said:
I expected a bigger reaction on Wall Street today and am wondering if the shoe just hasn't dropped yet. Read this in NYT:
Also found this interesting Market Map from WSJ (new to me, maybe not to you)
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The reason why there is not a bigger reaction (futures were off 90 points for DJIA prior to opening) is that everyone, including the Cypriot government, the EU and the Germans are now backing away from this ill thought out and incendiary idea.
 
rbmrtn said:
Must dependent on the bank, it worked at several I've had.
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I must admit that it took me by surprise.

I never bothered opening another account at a bricks and mortar bank, and these days I have a 2nd on-line bank account, at Penfed, which I opened when I applied for a Penfed CC a few years ago. To ensure that savings account stays active I transfer cash into it each month, and then use it to pay off the CC. I could pay the CC directly but figure it is worth the extra keystrokes and mouse clicks each month to ensure that account doesn't get closed for no activity. (I have no idea if PenFed would actually close a savings account that has little activity).
 
bondi688 said:
...everyone, including the Cypriot government, the EU and the Germans are now backing away from this ill thought out and incendiary idea.
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I'm not convinced a new (albeit insane!) precedent hasn't been set here. We'll see.

OTOH, I agree with brewer12345
"Eh, we are overdue for a correction and I have lots of cash to invest. Sell-off, ho!"
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So the depositors are being forced to bail out the banks who made lousy business decisions. What else is to be expected? It is simply another tactic to be used in the war on savers. Let them eat cake!! :banghead:
 
MichaelB said:
I was a local hire and paid in Bs. Some rough moments and sleepless nights. I remember friends and coworkers in Brazil, Argentina, Mexico and Peru who also went through tough currency and banking situations. I imagine lots of folks in Cyprus are worried right now. Those that can afford it the least will be hurt.

Nothing about the US financial situation even remotely compares, especially the fear factor.
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As an Argentinian, I can relate to all of this. My parents lost a significant part of their life savings overnight, as did most middle-class folks down there. Severe currency devaluation, withdrawal limits and regulations, etc. I never saw a bank nor a government in the same light after 2001, and I was in my early 20's then. If you think your cash is safe in a bank, think again. Unfortunately, I have no magic alternatives to offer. But to this day I have a hard time believing those who keep telling me "that could NEVER happen in the US"...
 
Karloff said:
As an Argentinian, I can relate to all of this. My parents lost a significant part of their life savings overnight, as did most middle-class folks down there. Severe currency devaluation, withdrawal limits and regulations, etc. I never saw a bank nor a government in the same light after 2001, and I was in my early 20's then. If you think your cash is safe in a bank, think again. Unfortunately, I have no magic alternatives to offer. But to this day I have a hard time believing those who keep telling me "that could NEVER happen in the US"...
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There is a difference between the currency being devalued and the currency being confiscated.. sure, both are tough on the citizens...

If the currency is devalued, then it really does not matter WHERE you keep it, it will buy less... keeping it in a bank or under your mattress is no difference... this is what some worry that the US will do, inflate their way out of a debt crisis...


Taking people's money out of their account as a 'tax' is something that I have not heard happen before... and I wonder if they are only talking about bank accounts or does it include brokerage accounts:confused: IOW, Fidelity and Vanguard has a LOT of people's money... and if they took a % of that it would hurt big time...

Taking out money from a checking account or CD would not affect me as much... heck, the other day my checking account balance was $65... (DW wrote checks she did not tell me about)...
 
Karloff said:
As an Argentinian, I can relate to all of this. My parents lost a significant part of their life savings overnight, as did most middle-class folks down there. Severe currency devaluation, withdrawal limits and regulations, etc. I never saw a bank nor a government in the same light after 2001, and I was in my early 20's then. If you think your cash is safe in a bank, think again. Unfortunately, I have no magic alternatives to offer. But to this day I have a hard time believing those who keep telling me "that could NEVER happen in the US"...
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As I've said before the number of countries historically that have done crap like this is significantly greater than the number of countries like US,Canada, Switzerland and others that have not.

The impact of hyperinflation, devaluations and withdrawal limitation is just as bad as what Cyprus did.

If you have money in a saving account making .1% interest and the risk is the government will come and confiscate 10% of the money, you have to believe that chance the government does this is less than once every thousand years. Otherwise you are better off holding the money in cash in a safety deposit box (or home safe) and periodically depositing to a checking account as needed.

Now I don't think many people in the US are going to do this, but if even a small fraction of people in countries with weaker traditions do this it will have a significant impact on the liquidity in the world.
 
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Alan said:
It is the same in Oz. The article sparky linked to says that the definition of a dormant bank account has been shortened from 7 years to 3 years, and you can claim it back from the government just like before.


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+1. That's correct. The money is held in trust and can be claimed back at any time. There is no "expiry date". The government introduced it to help with its cash flow, but it is still a liability in the government's books, meaning it has to be repaid on demand to the rightful owner.
Many countries have similar "unclaimed monies" legislation, where money left unclaimed by the rightful owners are sent to a public trustee or similar governing body. It is far more secure than leaving it in the hands of corporations who in theory can go under, in which case the owner has no hope in hell of recovering their cash
 
Felix Mulier said:
I'm not convinced a new (albeit insane!) precedent hasn't been set here. We'll see.
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What new precedent? The little guys are required to bail out the big guys when the big guys mess up. This already happened in the USA a few years ago. Cyprus is just more up front about what they are doing.
 
Even if bank deposits are not technically held in trust for the depositors, using their deposits to bail out the bondholders seems like terrible public policy to me. If anything, the current shareholders should be eliminated and the bondholders should be subjected to a forced debt-to-new equity conversion. Then and only then should depositors take a haircut.

I wonder what genius came up with this idea.
 
Gumby said:
Even if bank deposits are not technically held in trust for the depositors, using their deposits to bail out the bondholders seems like terrible public policy to me. If anything, the current shareholders should be eliminated and the bondholders should be subjected to a forced debt-to-new equity conversion. Then and only then should depositors take a haircut.

I wonder what genius came up with this idea.
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My understanding is that the banks were insolvent, even completely wiping out the shareholders (which I am pretty sure will happen) and the bondholders doesn't leave enough money.

Germany said Nein to sticking German shareholders with the bailout bill so... there weren't a lot of options.
 
+1. What concerns me is the IDEA of confiscation. Other governments in the future might be tempted to do something similar. The US government is no exception.
Alan said:
I must admit that it took me by surprise.
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Gumby said:
Even if bank deposits are not technically held in trust for the depositors, using their deposits to bail out the bondholders seems like terrible public policy to me. If anything, the current shareholders should be eliminated and the bondholders should be subjected to a forced debt-to-new equity conversion. Then and only then should depositors take a haircut.

I wonder what genius came up with this idea.
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At least the depositors with less than 100K Euros, which is the insured amount. The initial reports said the money would not be taxed, it would be replaced with additional equity. Technically, I have no idea what that really means.

They are rethinking. That's good and bad. I think the only smart (and ballsy) move in the whole thing was by Mr Ha (see post 35).
 
Gumby said:
Even if bank deposits are not technically held in trust for the depositors, using their deposits to bail out the bondholders seems like terrible public policy to me. If anything, the current shareholders should be eliminated and the bondholders should be subjected to a forced debt-to-new equity conversion. Then and only then should depositors take a haircut.

I wonder what genius came up with this idea.
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Apparently the germans, as they and the IMF and the ECB hold mucho bank debt in all these marginal countries.

Anyway, this aspect of protecting bondholders seems to be exactly the same as our own bank bailout. Only the bondholders in the very first bank failures lost any money; after that they stayed whole and taxpayers ponied up, or more accurately are on the hook for eventually doing that. I bleive Ireland was the same. Perhaps only Iceland reneged on that agreement, and told the bondholders, mostly British and some continentals, that they were out of luck. Here President Olafur Grimson tells how to do this.
How did Iceland recover? Report from Davos | Beyond Money

Ha
 
Interesting reading about some other countries etc..


But, let's try something that actually might be OK... but would never happen...

Wipe out the bank shareholders 100%.... if you convert the bondholders to equity and the bank is solvent then they can be converted....

Take the money from the accounts and the account holders now own the bank... maybe with the bondholders.... maybe 100%.... (I would prefer 100% myself)...

NOW the account holders have an interest in the bank staying solvent... they might not make a run on the bank... also, they can sell their shares in the open market if they need the cash (who knows what % they would get, but they could get something).....

Again, no change of this happening as the bondholders are probably banks in other EU countries and do NOT want to lose everything....
 
The other issue is they are breaking the agreements made regarding depositor insurance for accounts below 100K Euro. What this demonstrates is how much of our monetary systems rely upon trust and technology. Cyprus has now extended the bank holiday to Thursday.....the reason for the run is that it only takes a few lines of code to effect the transfer...err confiscation. And for someone to say, "it would never happen here," history shows that is not necessarily true. I guess the best motto is hope for the best, prepare for the worst.
 
Texas Proud said:
Taking people's money out of their account as a 'tax' is something that I have not heard happen before... and I wonder if they are only talking about bank accounts or does it include brokerage accounts:confused: IOW, Fidelity and Vanguard has a LOT of people's money... and if they took a % of that it would hurt big time...
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This won't happen in the United States without a constitutional amendment. The federal government is restricted by the constitution.

Article I, Section 9, Clause 4:
No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.
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This clause basically refers to a tax on property, including land and intangible assets. States have done "wealth taxes" in the past, like the infamous Florida intangible property tax. The federal government can't.
 
What's tragic is that we now have even larger To Big To Fail banks, a situation that may tempt our government to do something similar. The government can and does pick winners and losers in this kind of situation - remember the GM bond holders who were taken to the cleaners on the GM bailout. IMHO, the special interests are so powerful, I can see them pressuring the government to sacrifice the savings of the middle class for the good of reckless bankers. They have already done this partially by holding down rates to levels far below inflation. I hate to write this, but that is what I am feeling,
 
Stanley said:
What's tragic is that we now have even larger To Big To Fail banks, a situation that may tempt our government to do something similar. The government can and does pick winners and losers in this kind of situation - remember the GM bond holders who were taken to the cleaners on the GM bailout. IMHO, the special interests are so powerful, I can see them pressuring the government to sacrifice the savings of the middle class for the good of reckless bankers. They have already done this partially by holding down rates to levels far below inflation. I hate to write this, but that is what I am feeling,
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I hate to have to agree with you, but I do. The government should start proceedings soon to break up the "too big to fail" institutions.
 
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