“There Really Couldn’t Be A More Stupid Idea”

Newly elected President of Cyprus Nicos Anastasiades on 3/3/13, his first day in office:

I want to be absolutely clear. Absolutely no reference to a haircut on public debt or deposits will be tolerated. Such an issue isn’t even up for discussion.

Finance Minister Michael Sarris also said this on depositor haircuts:

Really and categorically—and this doesn’t only apply in the case of Cyprus but for the world over and the euro zone—there really couldn’t be a more stupid idea.

Two weeks later, Anastasiades agrees to what he said wasn’t being considered, and engages in outright theft from the people of Cyprus to ensure unsecured and uninsured debt obligations are paid.

If I lived in Europe, particularly if I lived in Ireland, Greece, Spain, Portugal or France, I’d withdraw every cent I had in any bank account as soon as the banks re-open and put it in Hong Kong, possibly the last place to secure assets from grabby governments. Or under my mattress.

This is so incredibly stupid, so destructive to markets psychologically, that it can’t possibly be anything other than a trial balloon, to see if it can be pulled off in a tiny market before moving to the bigger ones.

28 thoughts on ““There Really Couldn’t Be A More Stupid Idea”

  1. Luke says:

    Italy, Greece, Slovenia and Spain will be the main players in coming days. The Europeans are not stupid and they understand, their their savings are in a danger. If their governments are pushed to apply for the bailout, their savings will become a part of the deal.

  2. Jim says:

    It is practically impossible to open a Hong Kong back account without visiting Hong Kong.

  3. Jim says:

    BTW – if anyone knows of a good offshore service provider to create a HK corporation, please let me know. There’s a hundred of them in google results, and they all seem the same. I’m looking for recommendations. I’d like to move some of my business to HK…

  4. Mark Mercer says:

    Agreed, utterly stupid. But The Powers That Be are probably making an offer he can’t refuse. So offshore depositers, and Cypriot citizens: individuals, families, pensioners, and small businesses owners, get shafted to pay for their country and the banks bailout. None of such payers having any significant culpabiliity in causing the problem.

    Can’t poor Cyprus catch a break? Bad enough what happened back in the 1974 war that is still dividing that beautiful and historic country. Now add this. Tragic.

    And a very scary precedent. That will spread. Maybe even across the Atlantic, not just northwest on to Continental Europe. We still have a boatload of TBTF banks right here at home (“we” here referential to my US nationality, as opposed to my residence now in Uruguay where I’m working with someone who survived being under fire when she was living in Cyprus during the war.)

  5. David says:

    This was done in Brazil in 1990. Pathetic, tragic. Brazil was lucky: things turned around with a solid and long-term plan that began in 1994.

  6. El Commenter says:

    How is this different from EU “stealing” from German taxpayers through increased taxes and public debt to bail out Cyprus? As a French citizen, I don’t remember being consulted when southern countries are being bailed out using my money (it’s not taken directly from my account, but there’s no difference on the end result).

  7. ajf says:

    Everyone in government, any government, at any level, should be stood up against a wall and shot…, along with their progeny.

  8. Chris says:

    Mike, you’re missing the bigger picture. Cyprus went belly up because they first wooed hot Russian money as a tax haven, leading to a deposit base that is way too outsized for such a small economy. And then the Cyprus banks put that money into Greek government debt. With the quasi default on Greek government debt, Cyprus banks are defacto bust too, and cannot repay the hot Russian deposts. That is also why Russia was willing to loan out a lot of money a couple of years ago to help out Cyprus.

    Question now is: Is the free market allowed to work its magic, i.e. Cyprus banks go bust, burning their creditors and depositors. Or are other nations helping out using their tax payers money.

    I guess if the US was willing to help out, as well ass Russia, the Europen nations would feel more encouraged to defy free market logic and fix this mess. But the IMF does not seem all to happy to help.

  9. Ryan says:

    Heh, as soon as I saw the headline and mention of haircuts with public money, I thought for sure you were going to talk about the Senate barbershop.

  10. sdcausa says:

    This is just a preview of what’s to come in the US. They want to nationalize the 401K and IRA accounts in the US and use that money to “cover” the $16.5 Trillion in government debt using the same accounting trick that allows them to make our deficit look much better than it is by counting the Social Security Trust Fund as an asset rather than a liability. Don’t kid yourself, this kind of outright theft in Cyprus is just a trial balloon. It will serve as a test case that all central banks will watch carefully to figure out exactly how big of a haircut depositors will accept. They are carefully watching to see the reaction and if this goes over well, we’ll all be seeing some version of it in our own countries in the not so distant future.

  11. elf2k8 says:

    Reblogged this on elf2k8's Blog and commented:
    Trial and error! If succeed we’ll upgrade to a bigger market/country! Be afraid!

  12. Karl says:

    Driving around southern Germany you’d be wondering how nice everything looks, solar panels everywhere and all. Turns out for years now people have been socking away savings into upgrading their residences. Go figure.
    And if they had more water I am sure you’d see lots of nice motorboats as well.

  13. Mike B. says:

    There is no way the Cypriot government can vote for the bailout with that confiscation clause in it. If it did, the banks in that country would fail within hours of reopening their doors. I think the dire stakes are the very reason why this stupid confiscation will never occur, not even for high-balance accounts.

    But you’re right Mike – some damage has already been done no matter how the vote turns out.

  14. mikeybigbar says:

    There is no way the Cypriot government can vote for the bailout with that confiscation clause in it. If it did, the banks in that country would fail within hours of reopening their doors. I think the dire stakes are the very reason why this stupid confiscation will never occur, not even for high-balance accounts.

    But you’re right Mike – some damage has already been done no matter how the vote turns out.

  15. The same thing happens in other countries, except it has a different name – quantitative easing. The value of the money you have in savings in the USA or any other western nation is always changing relative to purchasing power due to inflation, the devaluation of currency etc.

    The only difference with Cyprus is they had to directly take the money since they don’t control their own currency, interest rates or financial levers.

  16. mike says:

    Could have been avoided if Greeks and Cypriots paid their taxes once in a while? It’s not JUST the evil government and banks that are to blame…

  17. Andrei says:

    The risk is > 10% for most of your options. Keep it at home, you risk being stolen ( and maybe you and your family being hurt ). Transfer it overseas – you risk quite a lot more. Politics between countries can change, wars may start, your money may be “seized”.

    The only option is for people to stand out, as they’ve done as far as I could read on the news. Not respecting the 100k deposit guarantee is a stupid idea and a dangerous idea. Standing up is what needs to be done.

    Spreading panic by calling for massive withdrawals is not wise and not responsible.

  18. Sven Ehlert says:

    Mike, you might think it’s stupid. I think it’s only fair. I’m German and I guess we here have a different view on fairness.

  19. Peter says:

    How is that theft? While there is a EU directive urging countries to guarantee bank deposits up to 100k EUR, Cyprus never put an institution in place that would do that. Instead, their banks were paying 3x the interest rates of e.g. German banks without different currency risk. Money for nothing? Key purpose of today’s “theft” is to attract the international financing needed to secure that any of the deposits remain intact. Otherwise 100% is gone. And: yes, this is probably a good time to review if your bank is worthy of your trust; can’t be taxpayers job to bail you out.

  20. So what do you suggest? How do you propose to get the Cyprus banks out of bankruptcy, and let them inter-operate with other world banks, without buying this “insurance” at these usurious rates?

    It’s easy to condemn something. It’s harder to come up with something better. What you got?

  21. dcpetersen says:

    The US seizes our money every day by creating inflation. Is it really any different?

  22. Henrik says:

    Mike, what do find to be the big difference from printing new money, thereby creating inflation which decreases the value of money, thereby decreasing the purchasing power of the money in you bank account? Inflation is a tax imposed by the government that for some reason often flies below the radar.

  23. The should exit the Euro and switch to Bitcoin.

  24. Joe DiLeo says:

    Mike, stay positive & keep chin up. There are many thinking about you & your family.

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