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Mar 20 2013

The people of Cyprus versus the global oligarchy

Felix Salmon has been following the bizarre Cyprus bailout plan and its coverage in the US and hightlights a New York Times report that sheds a revealing light on the lens through which the elite media in the US views things.

[NYT business reporter] Andrew Ross Sorkin defends the Cyprus deal today, on the grounds that (a) Cyprus is “tiny”, and “largely irrelevant to the global economy”; (b) Cyprus is a genuinely unique case; (c) it would be grossly unfair not to bail in Russian depositors, who are generally losing less than they’ve made in interest over the past few years; and (d) the Greek alternative “will not work in Cyprus”, and that therefore (this last bit is only implied, never stated outright) the current plan is really the only option.

Notably, Sorkin doesn’t attempt to defend the most indefensible part of the plan — the confiscation of wealth from depositors with sovereign deposit guarantees. While hedge-fund bondholders will get paid their full $1.4 billion on June 3, the date of Cyprus’s next coupon payment, small depositors with just a few hundred or a few thousand euros in savings will lose money which the Cypriot government had promised them was safe. Why is the government’s promise to foreign hedge funds more important than its promise to its own citizens? Sorkin never attempts an answer to that one.

That question likely never even occurred to Sorkin because for the global elites, the health of the global financial markets is the most important thing and everything else is secondary. So in their eyes ‘tiny’ Cyprus and its even tinier depositors are not worth a hill of beans and should be honored to serve as sacrificial pawns in order to keep happy the creditors who shift vast sums of money around the globe. Even though both the small depositors and the big hedge funds lent money to the banks, in their eyes only the hedge funds interests must be protected.

Meanwhile, the banks are closed until Thursday and parliament has rejected the bailout plan with not a single vote in favor, and 36 against with 19 abstentions. I am frankly mystified by the whole thing. How could the Cypriot president announce this plan, that depends so crucially on surprise, without having guaranteed parliamentary approval? Or did he get secret assurances that fell apart when the parliamentarians sensed the anger of the public? What options does he have on Thursday when the banks are said to reopen?

The people of Cyprus are getting their torches and pitchforks ready. Good for them.

11 comments

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  1. 1
    Dunc

    Perhaps he doesn’t actually want the plan to pass, but needs to be able to claim that he tried?

  2. 2
    trucreep

    I hope most people will be able to get that this is outrageous. I was curious myself how this would be reported here in the US…looks like they’re not disappointing :|

    I’m blown away by two things really. That they thought this was a good idea at all is strange – this is basic “economics” (at least what they teach you in school) – a run on the banks is all but sure to happen. The idea of not having this vote guaranteed was something I hadn’t thought of but is definitely interesting.

    But the other thing is to think this would be acceptable to any one…are we really in such a state of apathy about what is happening between governments and banks that the link between banks straight up STEALING our money is getting this direct???

  3. 3
    invivoMark

    I do not want to be at a bank in Cyprus tomorrow.

  4. 4
    trucreep

    Haha I mean hooooooooly SHIT! Straight up laundering money for drug cartels gets you a fine that you’ve already built into your budget (I mean FUCK why not just slap an insurance tax on the launder for something like this anyway so you get the cartel to end up paying the fine – I don’t think that’d surprise ANYONE at this point) while just suspicion of having weed will have the cops bust into your home and SHOOT you!!!! (This seriously happened in Grand Rapids, MI [well Allendale])

  5. 5
    MNb

    “Good for them.”
    Will you write this as well if Cyprus won’t receive financial help at all, leading to those same citizens suffering a worse fate than Greece? Because you know, the country needs some 17 billion Euro’s asap. And as I wrote before, German and Dutch citizens – ordinary people too – won’t take it well if they have to cough up everything and the Cypriots nothing.

  6. 6
    MNb

    And btw – the plan that was rejected would have kept savings up to 20 000 Euro intact, the double of what I thought acceptable yesterday. Just compare: my son will go studying in Amsterdam in August. His income will be slightly less than 1 000 Euro a month. From that money he won’t be able to save anything. Still he is lucky; if he had been born a year later his prospects would have been worse.
    But still you Americans expect common Dutch citizens to pay for those poor Cypriots. Great.

    http://www.trouw.nl/tr/nl/7964/Schuldencrisis/article/detail/3411981/2013/03/19/Vijf-vragen-over-de-financiele-genocide-in-Cyprus.dhtml

    “Wie die vermeende financiële genocide treft? Iedereen die meer dan 20.000 euro op een Cypriotische bank heeft weggezet. Dat zijn niet alleen de eilandbewoners, maar ook veel buitenlanders. Van de 68 miljard euro die in de Cypriotische kassen behoren te liggen, is 40 procent van buitenlandse, vooral Russische herkomst. Cyprus had er voor kunnen kiezen om alleen de grote spaarders aan te pakken, maar wilde niet in de dubbele cijfers komen. Een heffing van tien procent op het spaargeld was te veel, 9,9 procent, dat ging net. Keerzijde is dat daarvoor de spaarders met een rekening tussen de 20.000 en 100.000 euro ook moeten betalen.”

  7. 7
    kraut

    “Good for them”

    You must be kidding.
    Major Banks in Cyprus are close to bankruptcy, and Cyprus does NOT have the funds to bail them out. If those banks go bankrupt – what do you think will happen to the deposits? Three guesses??

    The population in Germany in particular with whose tax moneys the bailouts in Greece was partially funded are sick of funding governments who for years simply spent money as if there was no tomorrow.
    Those governments were elected and supported in their overspending by their population, who now have to bear the consequences.
    I remember the pain Canada went through under its finance minister Mr. Martin – severe cuts, but after ten years of frugality Canada was in better shape than almost anybody in the so called Western Democracies.
    This was under a Liberal government – now the Conservatives have squandered a substantial amount away again with nonsense of the highest order.

    Your posting here seems to be rather substandard.

  8. 8
    sailor1031

    Well, I think they have pretty much guaranteed som kind of a run on the banks when they open (friday now). If I was a depositor, foreign or otherwise, I’d be looking to protect my assets. Besides who doesn’t think if this had succeeded it would not become a habit? A habit that would spread to all countries? That would totally destroy the banks…….

  9. 9
    Dunc

    This plan is now dead, and Cypriot banks won’t re-open until Tuesday: http://www.bbc.co.uk/news/world-europe-21875246

  10. 10
    ahcuah

    I know there is a real psychological blow to having this “tax” on savings, but I am wondering how much of it is because Cyprus is on the Euro.

    If they were still on their own currency, there would be one of two things happening. If the Cyprus pound was pegged to another currency, it would simply be devalued (new exchange rate set), or that would happen automatically if the pound had a floating exchange rate.

    There is also inflation that could also devalue people’s assets but the 6% “tax” happens in a more hidden fashion. But we see inflation all the time with unpegged currencies and government overspending.

    So, I’m not sure I see how the “tax” is that much different from the other ways in which smaller countries have their financial woes solved, except that this is much more overt.

  11. 11
    Mano Singham

    The problem with garnishing the savings like this is that it undermines a key basis of the economy. Governments need people to put money into saving accounts for two major reasons: the provide for their old age and so not become a burden on the state, and to provide cheap funds for investment. That is why they provide guarantees like FDIC insurance in the US. So suddenly raiding those funds is breaking an important promise and completely undermining the basis for long-term stability, quite different from (say) raising tax rates, which people understand as part of normal economic life.

    As for the problem being part of the Euro, I really don’t understand global finance well enough to respond to that particular issue.

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