Shock in Cyprus as savers face bailout levy

[notting]

That is a completely different question and not the point I was making.

It is the question that reality is presenting them.

Essentially savers are being punished for the mistakes of governments, banks and bankers.

Really?
I suppose that could be true if those savers paid their taxes and voted with the benefit of the country as a whole rather than what might fatten their wallets regardless of what it would do to the country.
Other wise they are just getting what they had coming to them.

 

[McLovin]

That is a completely different question and not the point I was making.

It's the only relevant question. The banking system in Cyprus is broke and the Cypriot government doesn't have anywhere near enough money to rescue it. So the golden rule applies.

Why should taxpayers from Northern Europe be expected to foot bill? If they don't, of course, then the Cypriot depositors will have accounts worth substantially less than x-10%.

I absolutely understand why the Germans et al aren't interested in bailing out a banking system that operated largely as a Russian laundromat.

 

[FlyingFox]

It is the question that reality is presenting them.

I agree. But the point I made was in relation to comment that this is just another form of taxation. I think this can't be seen as another form of taxation because it is double for those, assuming that they have paid their taxes, who save and none for those who spend it all or borrow.

Really?
I suppose that could be true if those savers paid their taxes and voted with the benefit of the country as a whole rather than what might fatten their wallets regardless of what it would do to the country.
Other wise they are just getting what they had coming to them.

This is my point. Amongst those that are being taxed will be people that have paid their taxes and from what I have read others that have acquired their wealth in unscrupulous ways without paying taxes etc.

Do you really think the general populous will ever vote for what's right for their country? Look at Australia in the last decade.

 

[FlyingFox]

It's the only relevant question. The banking system in Cyprus is broke and the Cypriot government doesn't have anywhere near enough money to rescue it. So the golden rule applies.

Why should taxpayers from Northern Europe be expected to foot bill? If they don't, of course, then the Cypriot depositors will have accounts worth substantially less than x-10%.

I absolutely understand why the Germans et al aren't interested in bailing out a banking system that operated largely as a Russian laundromat.

No I don't think the banking system should be bailed out by other countries. All unscrupulous behaviour aside, do you think the savers of the country are to be blamed for the present predicament? Seems that they will be the only ones to suffer either way. To answer your question, I do agree with you that it is the lesser of the two evils.

The more important question is what sort of precedent does this set. I am sure there will be more banks and governments that will go down this road.

 

[McLovin]

All unscrupulous behaviour aside, do you think the savers of the country are to be blamed for the present predicament?

No. But I think who's to blame is entirely irrelvant at this point. Cyprus is where it is and no amount of blame or punishment will reverse previous mistakes or malfeasance.

The more important question is what sort of precedent does this set. I am sure there will be more banks and governments that will go down this road.

I highly doubt it.

 

[explod]

The more important question is what sort of precedent does this set. I am sure there will be more banks and governments that will go down this road.

Yes it sets a precedent and in a sense will now be regarded as a direct emergency form of tax.

Money in the bank system was lost to depositors forever in Argentina in the 1990's, all types of bonds collapsed in the Great Depression. The Russian's hold half of the money in the Cyprus banking system and just watch the shenanigans as they try to get it all out.

Where debt levels continue to grow beyond respective gross domestic production this rot will continue to escalate.

A policy of raiding citizens bank accounts will undermine every countries financial system and central bank and it sets a dangerous precedent. How will Spanish savers greet negotiations with the IMF and how will they begin to withdraw their savings from the already fragile Spanish banking system.
Once again the ECB, the IMF and the EU elites have looked after the interests of banks and institutions over those of the ordinary people. Corporatism is alive and well and it threatens our banking systems and capitalism itself which cannot function without a healthy banking system.

From Harvey Organ today (about half way through): http://harveyorgan.blogspot.com.au/

 

[CanOz]

It's the only relevant question. The banking system in Cyprus is broke and the Cypriot government doesn't have anywhere near enough money to rescue it. So the golden rule applies.

Why should taxpayers from Northern Europe be expected to foot bill? If they don't, of course, then the Cypriot depositors will have accounts worth substantially less than x-10%.

I absolutely understand why the Germans et al aren't interested in bailing out a banking system that operated largely as a Russian laundromat.

Agree....

Some facts

1.) The bulk of the savings is not from the islands "savers".
2.) They're trying to work out a deal that affects the locals less and hits the wealthy tax avoiding Russians a little more, for the benefit of Cyprus and possibly the EU.
3.) Cyprus banks got into this situation by taking a haircut on the Greek bonds.
4.) If they don't do this, Cyprus will descend into chaos and there could be contagion for EU.
5.) It was certainly a political decision, the Germans are not going to bail out Cyprus.

In the meantime, the return of volatility!

CanOz

 

[FlyingFox]

No. But I think who's to blame is entirely irrelvant at this point. Cyprus is where it is and no amount of blame or punishment will reverse previous mistakes or malfeasance.

It maybe irrelevant at this point in time and possibly to Cyprus but it is the most relevant question going forward. This is advocating that no matter what governments do or how banks screw up , they will be propped up. Not only that but if you have savings, you will be the first one targeted.

I highly doubt it.

Regardless of whether it happens or not, people have/will loose trust in the system. And like you said, the current situation can't be reversed. What is the same happens in Italy and Spain?

 

[CanOz]

An article from the Economist on the "Bail In"...

CanOz

 

[McLovin]

It maybe irrelevant at this point in time and possibly to Cyprus but it is the most relevant question going forward. This is advocating that no matter what governments do or how banks screw up , they will be propped up. Not only that but if you have savings, you will be the first one targeted.

Bank is propped up by taxpayers or deposit holders lose everything

Bank is propped up by taxpayers and deposit holders lose a small amount of their funds on deposit or they lose everything.

See the quandry? Either way taxpayers pay. Shouldn't the people most directly affected bear a higher proportion of the cost? Deposit holders aren't some sacred cow that needs to be protected no matter the cost borne by the rest of society.

 

[drsmith]

The fundamental problem with taxing bank account balances in this way is that is that it encourages savers to withdraw it and stuff it under the bed or elsewhere beyond the reach of the taxing authority. It reduces confidence in the security of bank deposits overall.

A floating currency is a much better form of economic adjustment.

 

[explod]

Deposit holders aren't some sacred cow that needs to be protected no matter the cost borne by the rest of society.

Strewth, would you care to read back what you just said,

or perhaps can you elaborate on that ?

 

[Julia]

No. But I think who's to blame is entirely irrelvant at this point.

I disagree. It is less about reversing previous mistakes and more about setting a precedent for the future.
From the start of the GFC we have seen example after example of the moral hazard of the people causing the whole mess getting away with the results of their greed and exploitation.

It maybe irrelevant at this point in time and possibly to Cyprus but it is the most relevant question going forward. This is advocating that no matter what governments do or how banks screw up , they will be propped up. Not only that but if you have savings, you will be the first one targeted.

Regardless of whether it happens or not, people have/will loose trust in the system. And like you said, the current situation can't be reversed. What is the same happens in Italy and Spain?

Exactly.
Philip Lowe's comments this morning (RBA)

More from the RBA speech this morning. Dr Philip Lowe said he had been very surprised by plans to tax depositors in Cyprus as part of a bailout package and saw it as a step back for the region.

Answering questions after a speech, Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said the plans for a tax threatened integrity of deposits generally and could lead to runs on banks in other euro zone countries where bailouts might be needed.

Deposit holders aren't some sacred cow that needs to be protected no matter the cost borne by the rest of society.

You seem to be dismissing the collective psychological impact of the message now that money in the bank is no longer safe. The potential ramifications of such a loss of trust could be considerable imo.

Try this link again if you are interested.
http://www.businessspectator.com.au...two-options-misery-or-suffering#ixzz2NrxmDwpS

Thank you: that link worked. From Mr Koukoulas's article:

The decision to tax savings has lead to a range of criticisms, particularly as savings are the antithesis of the whole problem and sovereign debt holders have not had to endure a similar hair cut. This is the main problem with the deposit levy as those active players in the whole crisis such as the hedge funds, banks and other bond holders are getting away scot-free it seems.

This is my point. I'm entirely sympathetic to the German taxpayer having had more than enough of shouldering the responsibilities of the profligacy of other countries, but just do not believe taxing depositors is the only way to deal with it. Whack huge taxes on alcohol, cigarettes, luxury foods, cars, petrol etc, but 10% is a hell of an impost on what would in some cases be a lifetime of diligent saving. People who have money in bank deposits are, by and large, more conservative and risk averse than those who would have channeled similar funds into areas seen as more risky. The loss of trust and sense of fear that can spread as a result of this is potentially harmful as well as morally bankrupt imo.

There seems to be some discussion around whether it's possible to tax more heavily the foreign deposits in Cyprus, thus avoiding the unfair penalty on small individual local savers. I hope that can be worked out.

The way I see it is that the situation sounds bad initially but ultimately it is the same as other forms of tax increase, austerity or even inflation. The consequence is that the private citizens' purchasing power is reduced.

No. The consequence is that the purchasing power of savers, specifically, is reduced, that they are to be punished for their caution and diligence.

The Australian government had a one-time QLD flood levy in 2011. I paid my share but I was not offered any choice or consulted in the process. The economic impact to me would be the same had they simply take the same amount from my bank account. But they called it a tax/levy and took it out of people's pay instead. The situation and cause are slightly different, but the economic consequences are similar. Yet somehow a flood levy doesn't sound nearly as dramatic as a disposit levy.

It hardly compares!
Someone earning over $100K was levied a one off mere 1% just on those earnings. That's a completely different principle from a tax on savings.

 

[McLovin]

Strewth, would you care to read back what you just said,

or perhaps can you elaborate on that ?

Cyprus is broke. The banks are broke. The cost will be borne by society as a whole, through higher taxes and less public services. Bailing out the banks amounts to a transfer from the public purse to private individuals (ie creditors, including depositors). Under the scenario where the government is broke, is it really fair to expect taxpayers to bail out foreigners who have money on deposit? Or even fair to expect taxpayers to foot the entire bill for domestic depositors?

I don't see why under the conditions Cyprus finds itself in it's such a burden to expect people to contribute to save their own skin. The alternatives are far more grim.

 

[McLovin]

You seem to be dismissing the collective psychological impact of the message now that money in the bank is no longer safe. The potential ramifications of such a loss of trust could be considerable imo.

Not dismissing it, I just don't think there is an absolute guarantee and given the size of the bailout it's pretty unrealistic to expect one (see: Iceland, 2009). Bank deposits in Cyprus are ~7-8x GDP. To put that in perspective, that would mean the Australian banks had deposits of $9.75 trillion (as opposed to the $1.5 trillion they actually do) and the current bailout would amount to about ~$750 billion, or 57% of GDP.

At some point the cost to the country outweighs any psychological benefit.

 

[skc]

It hardly compares!
Someone earning over $100K was levied a one off mere 1% just on those earnings. That's a completely different principle from a tax on savings.

Government has the power to take money from the public... either through taxes, reduced welfare, deliberate inflation or "direct debit" of bank accounts. The economic consequence is the same, and each of these methods will hurt some subset of the public.

Cast aside the notion that savers are for some reason more sacred than tax payers or welfare recipients, and ignore the quantum of the two levies (as they are trying to address problems of different magnitude) you will find there are more similarities than differences. They are both one-off levies, they are both imposed on the public (a different subset of the public), and they are both done as extraordinary measures to address issues elsewhere in the system.

 

[CanOz]

Looks like it may not happen, the markets ain't gonna be happy 'bout that!!

(CY) Cyprus govt spokesperson Stylianides: Cyprus parliament will not approve bank deposit levy, trying to find ways to mitigate burden on depositors - Source TradeTheNews.com

 

[FlyingFox]

Bank is propped up by taxpayers or deposit holders lose everything

Bank is propped up by taxpayers and deposit holders lose a small amount of their funds on deposit or they lose everything.

Let me ask you this. Why is the banking sector in trouble in the first place?

See the quandry? Either way taxpayers pay. Shouldn't the people most directly affected bear a higher proportion of the cost? Deposit holders aren't some sacred cow that needs to be protected no matter the cost borne by the rest of society.

Neither are investment bankers ... but they seem to get away with it...

 

[FlyingFox]

Government has the power to take money from the public... either through taxes, reduced welfare, deliberate inflation or "direct debit" of bank accounts. The economic consequence is the same, and each of these methods will hurt some subset of the public.

Can you please explain how it is the same? It may have the same economic impact but by no means is it the same.

Cast aside the notion that savers are for some reason more sacred than tax payers or welfare recipients, and ignore the quantum of the two levies (as they are trying to address problems of different magnitude) you will find there are more similarities than differences. They are both one-off levies, they are both imposed on the public (a different subset of the public), and they are both done as extraordinary measures to address issues elsewhere in the system.

I don't have a problem with your premise. Look at QLD flood levies which was charged on income. Fair on everyone as everyone earning paid the levy. The current arrangement equates to double taxation and only on those having savings.

 

[CanOz]

Let me ask you this. Why is the banking sector in trouble in the first place?




Neither are investment bankers ... but they seem to get away with it...

You guys are making this sounds like its something new, its not. This is all related to the blatant fraudulant activities of the darn banker/wankers in the first place...now someone's got to pay. Same thing happened in the US, except it was the tax payers on the hook there through bailouts, mind you the FDIC had to save the depositors there too (more taxpayer money). Over 100 banks collapsed during the GFC in the US alone.

This is just a delayed reaction of all that prior contagion in Europe.

CanOz.