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About LinkBacksThe collective debt could be sold as a bond. Instant cash.Originally Posted by snootyjim
The collective debt could be sold as a bond. Instant cash.
One thing is certain, the Cyprus government (well, the Greek side - coincidence??) has got a tiger by the tail, and if I were a betting man, I'd say it is a dead cert that there will be a run on the banks when they evdntually re-open.
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thats what a cyprus guy (george theadoru) has said on tv - doesnt matter what happens now when the banks re-open there will be a run on them and some banks will likely collapse next week.
I'd say it's a dead cert too.
We only choked off a bank run here by the government explicitly stepping in, to calm down Northern Rock fears and massively propping up HBoS.
And even that ONLY worked because there was enough credibility with depositors that the assurances were believed. Given what's happened in Cyprus, what credibility is there, when that same "guarantee" (though now 100,000 Euros) was in place, and this measured would have neatly side-stepped it and taken the money anyway. It showed, EU wide, that that guarantee might cover you if the bank fails, but not if the government steps in just before it fails, and 'nationalises' (i.e. legally steals, despite the contradiction in terms in that) your money to pay for saving it. Talk about splitting hairs.
Surely they will be placing withdrawl restrictions on them?
It's telling thou, that someone I know was planning to return to Cyprus, been originally from there, had resigned his job just last month, has now decided to stay in London.
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Probably.
But will that not just mean a slow-motion run?
I mean, if I had a couple of thousand in those banks, I'd withdraw it in one go if I can, and in 20 chunks of £100 at a time if that's all I can do, but either way, I'd withdraw it. Permanently.
But .... you introduce those capital controls and you can pretty much kiss goodbye to any chance of further incoming capital, and that wrecks a major plank of the Cypriot economy, which relies on "loose" tax and money laundering rules.
IMHO, 50% of the damage is already done, that being damage to future trade, that now will go elsewhere. The other 50% is yet to come, that being damage to the trade they already have .... sorry, had.
I presume they'd just put a block on say 10% of the amount in the account, possibly back dated to last Monday.
Saracen thats pretty much what this guy who the bbc interviewed has said , his firm is close to going under , all they have is cash reserves - credit cards arnt being taken in alot of places now as well. no one is spending , and cash machines arnt being refilled.
There is a cruel irony in this thou.
10% loss is nothing. Absolutely nothing.
There I said it.
If a business is operating so close to the wire that a 10% loss on its operating cash is enough to kill it, it was already dead.
If a person has just sold their house, and lost 10% of the cash they had sitting in the bank, life's a bitch, it's not going to make you homeless, worst case, the kids share a room.
If someone is living on their savings, 6.9% might mean a loss of luxuries, but not starvation.
As it stands the un-certainty, the looking probably collapse of their banking will likely cost each person a hell of a lot more than 10%. However that won't effect them until tomorrow!
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Perhaps, but personally, I would be really, REALLY furious if the government decided to help itself to 10% of my savings.
Let me give you an example. When the credit crunch hit, and there was speculation about Halifax/RBoS, etc, I had to shift a fairly large sum around. I'm not going to go into too much detail for obvious reasons, and reading too much into what I'm saying next would be a mistake because any inferences drawn are likely to be wrong. But I shifted a sum that, well, could be measured in the hundreds of thousands, into multiple accounts and into other asset classes, precisely because of the risk.
And sure, the risk was over FAR more than 10%, but even 10% would have been a really large hit.
The point was the damage to confidence. I no longer would put that sort of sum in one place, or for that matter, one asset class. My confidence in the safety of banks has never recovered, and I doubt it ever will.
And yes, the situation, and the nature of the risk, is different. But the reaction to a risk you didn't expect, that you had never thought of as possible, that had never occurred to you, is that you will never be unaware of it again.
And right round the EU, and possibly even wider afield that that, people are looking at their bank, and their government, and thinking "hmmmm .... what if ...?"
Most, no doubt, won't act overtly, at least, not yet. But, they may take precautionary measures. Maybe, they keep an emergency reserve in cash, at home. That would certainly be a lesson many in Cyprus would be well-advised to consider, though it brings security risks of a different kind.
Another option would be to keep some funds in a different currency, and even in a bank in a different country. It's not that difficult to do. And I've been doing it for about 30 years, though in large part, it's for convenience not as a hedge against risk. It doubles up as that, though.
So it remains to be seen what long-term effect this has, but regardless of that, the damage to confidence and to banking has been done. It'll be worse, by far, in Cyprus than elsewhere, but echoes will be felt all over the place.
As for whether 10% is damaging or not, it depends on your perspective. It might not be that damaging to those with a regular income stream, but if you're trying to live on savings and returns from those savings, it's a very big hit, because you not only lose that 10% as a one-off, but you also lose the revenue, such as it is at today's rates, on what that 10% would have earned, and you lose that year after year. And the capital may well be irreplaceable.
But even if not, the real issue is not what damage losing the 10% would have done, but what damage people reactions of perhaps losing in a similar way on the future would be.
And of course, if they grab 10% now, what's to say they won't be back in a week, month or year, for another 10%, or 25%, or .... ?
Fool me once, shame on you. Fool me twice, shame on me.
If my government clobbered me like this once, two things would happen. First, I'd never forgive them. Second, I'd do everything I could to ensure I was not in a position that they could ever do it to me again, just because they thought it was possible. And I'm sure I'm not the only one.
Well they've completely backed down for now:
http://www.bbc.co.uk/news/world-europe-21875246
But it will be interesting to see what will happen.
Contempory Economic History will be much more interesting for students of the next decade.
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It's going to be hilarious. A mix of 'WTF were they thinking' and 'nothing actually works so why are we on this course?'
Perhaps, but it would be worth far less than the headline number.
How so? A bond is a bond. The only negotiable bit is the interest paid by the borrowing comapny / nation given how risky it seems to the lender. In this case the bond would have to be underwritten somehow to make it credible. Given the endless other BS underwriting iffy debt going on in the Eurozone, this would be just another day at the office.
Why would anybody want to buy a huge amount of debt with no guarantees it would be repaid? It would have to be value for money, i.e. they'd pay less than it's worth and in doing so take on the risk.
I get what your argument is, but surely you can see how much more convenient taking savings would be, as compared to increasing debts?
It shows you what govt guarantees mean. I remember the run on Northern Rock and Alistair Darling urged to make a statement, any statement, to give people confidence is safe.
The Cypriot PM has committed political suicide. Yes it is robbery but given they were going to the wall and would lose it all, one can understand why he did it.
That isn't the worst of it. They were asked to place 15% levy 100k+ folk which by estimates make up 65% of accounts, PM argued to bring it down closer to 10% and make the rest from those with less than 100k.
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