Doomsday:Cyprus confiscate 10% of all bank accounts balances

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
trademil
Posts: 204
Joined: Tue May 22, 2012 3:14 am

Doomsday:Cyprus confiscate 10% of all bank accounts balances

Post by trademil » Sat Mar 16, 2013 3:30 pm

http://www.bbc.co.uk/news/world-europe-21814325
People in Cyprus with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, Eurozone officials said.

Those with greater sums will lose 9.9%.
The levy itself will not take effect until Tuesday, following a public holiday, but action is being taken to control electronic money transfers over the weekend.
"As good as money in the bank" just got a whole new meaning...

Will this mark the death of CD's? on the other hand, they might just as well do the same with government bonds, couldn't they?

How can I protect myself when this scenario takes place in my country (or in any country I hide my money in) as well?

-freaking out -

trademil
Posts: 204
Joined: Tue May 22, 2012 3:14 am

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by trademil » Sat Mar 16, 2013 3:32 pm

Some more detailed report:
bank depositors will lose up to nearly 10 percent of their money and authorities have prohibited withdrawals for now, setting off furious reaction as depositors lined up outside the institutions demanding their cash.
http://greece.greekreporter.com/2013/03 ... ls-barred/

richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by richard » Sat Mar 16, 2013 3:50 pm

trademil wrote:How can I protect myself when this scenario takes place in my country (or in any country I hide my money in) as well?
Keep your money in banks in countries that won't do this and don't have reason to do so. For example, it would seem that in the US, even if the government wanted to do this, it would require a change in law, which would be a public action by congress and the president with lots of advance notice. The odds of this happening in the US approximate zero.

Among the reasons this happened in Cyprus are that it was forced by other countries, in large part because Cyprus doesn't control it's own currency. Contrast the US - we control our currency and issue dollar denominated debt. Controlling one's own currency is vital. No major country which controls its own currency pays high interest rates, while similar countries that don't control their currency are paying rather high rates.

The task for the Eurozone, and maybe for everywhere, is to convince people that Cyprus is unique and "it can't happen here." To the extent Cyprus gets a lot of publicity, Monday could be an interesting day.

kitteh
Posts: 194
Joined: Fri Mar 15, 2013 12:13 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by kitteh » Sat Mar 16, 2013 3:52 pm

I read the Times article and immediately started thinking, what would I do? Stuff my money in a mattress?

This scenario sounds far fetched, but in the U.S. the Fed is already effectively taking from savers, so upon reflection it is not that far-fetched.

wesleymouch
Posts: 237
Joined: Wed Dec 05, 2012 2:24 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by wesleymouch » Sat Mar 16, 2013 3:58 pm

This is why you should own gold that is held outside of the banking system.

wesleymouch
Posts: 237
Joined: Wed Dec 05, 2012 2:24 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by wesleymouch » Sat Mar 16, 2013 4:00 pm

The big money in the US is retirement accounts - IRAs,401ks etc. That is the easy money to go after. I know u cannot talk about politics in investing on this site but unfortunately politics is all important. Ask Cuban investors in index funds how they have done since 1959

wesleymouch
Posts: 237
Joined: Wed Dec 05, 2012 2:24 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by wesleymouch » Sat Mar 16, 2013 4:02 pm

richard wrote:
trademil wrote:How can I protect myself when this scenario takes place in my country (or in any country I hide my money in) as well?
Keep your money in banks in countries that won't do this and don't have reason to do so. For example, it would seem that in the US, even if the government wanted to do this, it would require a change in law, which would be a public action by congress and the president with lots of advance notice. The odds of this happening in the US approximate zero.

Among the reasons this happened in Cyprus are that it was forced by other countries, in large part because Cyprus doesn't control it's own currency. Contrast the US - we control our currency and issue dollar denominated debt. Controlling one's own currency is vital. No major country which controls its own currency pays high interest rates, while similar countries that don't control their currency are paying rather high rates.

The task for the Eurozone, and maybe for everywhere, is to convince people that Cyprus is unique and "it can't happen here." To the extent Cyprus gets a lot of publicity, Monday could be an interesting day.
Remember the much beloved FDR confiscated everyone's gold then devaluated. It has happened before and can happen again. Politicians care only about staying in power.

Sidney
Posts: 6696
Joined: Thu Mar 08, 2007 6:06 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by Sidney » Sat Mar 16, 2013 4:15 pm

trademil wrote:-freaking out -
Why, do you live in Cyprus?
I always wanted to be a procrastinator.

kitteh
Posts: 194
Joined: Fri Mar 15, 2013 12:13 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by kitteh » Sat Mar 16, 2013 5:16 pm

wesleymouch wrote:This is why you should own gold that is held outside of the banking system.
I've never understood the value of gold. If civilization were collapsing, I would think food, medicine, and (sigh) probably guns/ammunition would be the things with value.

User avatar
jeffyscott
Posts: 7372
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by jeffyscott » Sat Mar 16, 2013 5:19 pm

wesleymouch wrote:The big money in the US is retirement accounts - IRAs,401ks etc.
Well, it's a quite a bit, but still only about 20% of financial assets.

Total assets in 401ks and IRAs is about $10 trillion: http://www.ici.org/pressroom/news/ret_11_q2

Total financial assets are around $50 trillion: http://www.zerohedge.com/news/627-trill ... ance-sheet
press on, regardless - John C. Bogle

User avatar
market timer
Posts: 5969
Joined: Tue Aug 21, 2007 1:42 am

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by market timer » Sat Mar 16, 2013 5:28 pm

kitteh wrote:
wesleymouch wrote:This is why you should own gold that is held outside of the banking system.
I've never understood the value of gold. If civilization were collapsing, I would think food, medicine, and (sigh) probably guns/ammunition would be the things with value.
Don't think of it as civilization collapsing. Think of it as a fresh start.

User avatar
SSSS
Posts: 1890
Joined: Fri Jun 18, 2010 11:50 am

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by SSSS » Sat Mar 16, 2013 5:44 pm

The point of the levy is to warn lenders to banks that they should take care where they place their funds, and avoid banks that overstretch themselves
Oh, well, okay then.

z3r0c00l
Posts: 1242
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by z3r0c00l » Sat Mar 16, 2013 6:26 pm

wesleymouch wrote:This is why you should own gold that is held outside of the banking system.
And if the government outlaws selling gold?

lws6772
Posts: 463
Joined: Mon Oct 06, 2008 5:14 pm
Location: Texas

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by lws6772 » Sat Mar 16, 2013 6:31 pm

z3r0c00l wrote:
wesleymouch wrote:This is why you should own gold that is held outside of the banking system.
And if the government outlaws selling gold?
Silver or maybe twinkies? :)

livesoft
Posts: 63013
Joined: Thu Mar 01, 2007 8:00 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by livesoft » Sat Mar 16, 2013 7:08 pm

I wonder what interest rate was being paid on the deposits in Cypriot banks? Everybody knew the banks were risky, so I would not be surprised if it was 10%. Of course, I would not like a new tax on my assets even if it did amount to only a year of interest paid.

Remember when Icelandic banks offered higher interest rates than banks on the continent? How did that turn out?
Wiki This signature message sponsored by sscritic: Learn to fish.

clacy
Posts: 109
Joined: Wed Apr 20, 2011 8:50 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by clacy » Sat Mar 16, 2013 7:10 pm

Sidney wrote:
trademil wrote:-freaking out -
Why, do you live in Cyprus?
This could easily become a very big deal globally, IMO. This could lead to a bank run in the EU. Their banks are already way under-capped and their economy is flat-lined. A banking collapse could cause very well steamroll into something more significant than 08.

rodfatherjr
Posts: 12
Joined: Sun Jan 27, 2013 2:58 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by rodfatherjr » Sat Mar 16, 2013 7:30 pm

It will be interesting to see if there is any reaction to this on Monday which impacts the price of gold. I've always thought a small stake in held hard assets like gold and silver was a nice addition to a "balanced" portfolio. If it makes you sleep better having a 5% or even 10% gold and silver coin stash in a couple of safe deposit boxes or for the survivalists buried in a PVC pipe...so be it. I know this flies in the face of rational investing but it seems that for all of recorded time people have valued gold, especially in bad times. Having said that and believing that, I also think our government is so adapt at taking the money it wants in the form or taxes, it will never need to be so "transparent" in it's fleecing. Now if you're concerned about means testing for 401K's and IRA's? Well, I personally think that's coming sooner or later...Well, gotta run. My woman just got home. Glad I don't live in Greece!!

richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by richard » Sat Mar 16, 2013 8:01 pm

livesoft wrote:Remember when Icelandic banks offered higher interest rates than banks on the continent? How did that turn out?
Iceland's banks collapsed as part of the global downturn, Iceland reimbursed its own citizen depositors but not foreigners, many European countries reimbursed their own citizens and Iceland is now doing much better than the US or most of Europe in terms of unemployment and growth, and significantly better than European countries which decided to be "responsible" with regard to bank obligations. Another victory for having one's own currency.

User avatar
BlueEars
Posts: 3634
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by BlueEars » Sat Mar 16, 2013 8:06 pm

There is very good coverage (several links) of this at the BBC site: http://www.bbc.co.uk/news/

From one story, link here: http://www.bbc.co.uk/news/business-21812853
Here is the logic behind imposing a hefty levy on Cyprus deposits, according to this official:

1) Regulators and politicians are convinced that a vast amount of cash in Cypriot banks belongs to Russian money launderers.

2) Few German politicians of any persuasion would have voted for a Cyprus rescue that simultaneously rescued these launderers.

3) So the only way to get the bailout through the Bundestag is for the launderers to be taxed to the tune of almost 10% of their allegedly ill-gotten cash. And if innocent savers are hurt too, that is the way this particular "Keks" will crumble.

On that analysis, private sector lenders either to Spanish banks or to the Italian government - as two topical and relevant examples - need not fear that it is their turn next to take a write-off.

User avatar
fishnskiguy
Posts: 2596
Joined: Tue Feb 27, 2007 1:27 pm
Location: Sedona, AZ

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by fishnskiguy » Sat Mar 16, 2013 8:24 pm

I'm having a hard time being sympathetic. Southern Europeans have made tax cheating an art form.

Chris
Trident D-5 SLBM- "When you care enough to send the very best."

User avatar
jeffyscott
Posts: 7372
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by jeffyscott » Sat Mar 16, 2013 8:46 pm

rodfatherjr wrote:It will be interesting to see if there is any reaction to this on Monday which impacts the price of gold.
The price in what currency? If the reaction is people fleeing the euro, the price could rise in euros and remain the same in dollars.
press on, regardless - John C. Bogle

User avatar
bottlecap
Posts: 5898
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by bottlecap » Sat Mar 16, 2013 8:56 pm

It's pretty shocking - and they are making this legal by taking a vote on it. On the other hand, all governments do things that destroy or confiscate wealth every day, even ours. This is just direct and overt. Many prominent people argue that the money really isn't ours anyway, but the central authorities. If you think about it, there is a thin veil of protection over everyone's rights. Should things get bad enough, rights, especially property rights, will go by the wayside.

JT

User avatar
arcticpineapplecorp.
Posts: 3503
Joined: Tue Mar 06, 2012 9:22 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by arcticpineapplecorp. » Sat Mar 16, 2013 9:09 pm

trademil wrote:How can I protect myself when this scenario takes place in my country (or in any country I hide my money in) as well?
-freaking out -
By "hide my money in", you do mean "report your offshore bank accounts on your tax return", right? There's apparently nothing wrong with having an offshore account, provided it is reported on one's tax return and not hidden in anyway. To do otherwise would be considered tax evasion.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

richard
Posts: 7961
Joined: Tue Feb 20, 2007 3:38 pm
Contact:

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by richard » Sat Mar 16, 2013 9:13 pm

bottlecap wrote:It's pretty shocking - and they are making this legal by taking a vote on it. On the other hand, all governments do things that destroy or confiscate wealth every day, even ours. This is just direct and overt. Many prominent people argue that the money really isn't ours anyway, but the central authorities. If you think about it, there is a thin veil of protection over everyone's rights. Should things get bad enough, rights, especially property rights, will go by the wayside.
The government might argue that without action the banks would be insolvent and depositors would suffer larger losses than 6.75% or 9.9%, so that depositors are better off as a result of the actions.

They might also argue that collapse of the banks would have rather negative effects on the rest of the economy, so that citizens generally are better off as a result of the actions.

umfundi
Posts: 3361
Joined: Tue Jun 07, 2011 5:26 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by umfundi » Sat Mar 16, 2013 9:28 pm

The difficulty here is that with a unified currency but independent national fiscal policies (and oversight), devaluation of a national currency in the Eurozone is no longer an option. The available alternative measures to accomplish the same end as devaluation are much more dramatic and traumatic, as we have seen with Greece, etc.

I doubt the Cyprus domino is tall enough to hit any others when it topples. "Wealth" taxes are not unknown, particularly in Europe.

Keith
Last edited by umfundi on Sat Mar 16, 2013 9:34 pm, edited 1 time in total.
Déjà Vu is not a prediction

livesoft
Posts: 63013
Joined: Thu Mar 01, 2007 8:00 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by livesoft » Sat Mar 16, 2013 9:31 pm

So it appears to not be a confiscation nor a "tax" since the depositors will be buying shares in their banks according to a BBC report:
http://www.bbc.co.uk/news/world-europe-21818598
People in Cyprus with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, Eurozone officials said after agreeing the deal.

Those with greater sums will pay 9.9% in tax.

Depositors will be compensated with the equivalent amount in shares in their banks.
Of course, those shares may not have any real value. Let's see if a market for those shares pops up and who would buy them.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
SSSS
Posts: 1890
Joined: Fri Jun 18, 2010 11:50 am

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by SSSS » Sat Mar 16, 2013 9:44 pm

livesoft wrote:So it appears to not be a confiscation nor a "tax" since the depositors will be buying shares in their banks according to a BBC report:
http://www.bbc.co.uk/news/world-europe-21818598
And will they be able to sell those shares?

User avatar
jeffyscott
Posts: 7372
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by jeffyscott » Sat Mar 16, 2013 9:48 pm

bottlecap wrote:It's pretty shocking - and they are making this legal by taking a vote on it.
I think it may not matter if it passes or not, either way they have now sent the message that bank deposit guarantees really mean in the eurozone, as they can default on the guarantee to whatever extent they wish by calling it a tax on deposits. (And they do seem to still call it a tax, despite the bank equity that the depositors will be getting.)

I guess it is really no different than a country devaluing it's currency by other means, such as inflation. But it may be perceived much differently, I'll be surprised if there are not a lot of withdrawals from at least some other eurozone banks after this.
press on, regardless - John C. Bogle

umfundi
Posts: 3361
Joined: Tue Jun 07, 2011 5:26 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by umfundi » Sat Mar 16, 2013 9:48 pm

Cyprus GDP 25 B
Greece GDP 299 B
Walmart revenue 422 B
USA GDP 15,090 B

Doomsday? I think not. :wink:

Keith
Déjà Vu is not a prediction

User avatar
FNK
Posts: 1359
Joined: Tue May 17, 2011 7:01 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by FNK » Sat Mar 16, 2013 9:55 pm

Thread locked in 3...2...1...

User avatar
Peter Foley
Posts: 4620
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by Peter Foley » Sat Mar 16, 2013 10:06 pm

Agreed. This thread should be locked.

User avatar
norookie
Posts: 3016
Joined: Tue Jul 07, 2009 1:55 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by norookie » Sat Mar 16, 2013 10:25 pm

:annoyed
" Wealth usually leads to excess " Cicero 55 b.c

poundwise
Posts: 135
Joined: Wed Apr 06, 2011 1:17 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by poundwise » Sat Mar 16, 2013 10:34 pm

Really hope this thread doesn't get locked. The implied investment question is clearly actionable:

Do Bogleheads need to hedge against wealth confiscation, and if so, how?

mortal
Posts: 445
Joined: Mon Sep 15, 2008 11:15 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by mortal » Sat Mar 16, 2013 10:34 pm

Peter Foley wrote:Agreed. This thread should be locked.
...Why exactly? I find it irritating when conversations are locked that haven't gotten out of hand (in general, not this site specifically), but I find it very disappointing when people start encouraging a lock to limit civil discussion of a topic.

What's the big deal?

livesoft
Posts: 63013
Joined: Thu Mar 01, 2007 8:00 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by livesoft » Sat Mar 16, 2013 10:38 pm

poundwise wrote:Really hope this thread doesn't get locked. The implied investment question is clearly actionable:

Do Bogleheads need to hedge against wealth confiscation, and if so, how?
Sure. I can think of a few ways to hedge:
1. Don't have wealth.
2. Run for and get elected to political office in order to have some control over this.
Wiki This signature message sponsored by sscritic: Learn to fish.

billjohnson
Posts: 620
Joined: Thu Nov 04, 2010 10:41 pm

Re: Doomsday:Cyprus confiscate 10% of all bank accounts bala

Post by billjohnson » Sat Mar 16, 2013 10:53 pm

mortal wrote:I find it irritating when conversations are locked that haven't gotten out of hand (in general, not this site specifically), but I find it very disappointing when people start encouraging a lock to limit civil discussion of a topic. What's the big deal?
+1 Why non-moderators feel the need to leave "lock it" posts is beyond me?? Nice article here though...

http://www.bcg.com/documents/file87307.pdf

Alex Frakt
Founder
Posts: 10853
Joined: Fri Feb 23, 2007 1:06 pm
Location: Chicago
Contact:

Locked

Post by Alex Frakt » Sat Mar 16, 2013 11:14 pm

The OP's actual question is off topic; speculating on future legislation.
How can I protect myself when this scenario takes place in my country (or in any country I hide my money in) as well?


The rest of it, including several of the replies, is just trolling. The situation in Cyprus has nothing at all to do with the US. Freaking out about it makes exactly as much sense as freaking out because a shark killed a surfer in South Africa and you regularly swim in a lake in Minnesota.

Locked