unexpected danger to bank accounts ...

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hicabob
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unexpected danger to bank accounts ...

Post by hicabob » Mon Mar 18, 2013 6:08 am

From Reuters .... the tax on bank deposits in Cyprus .....
"Faced with a growing public backlash, Cypriot finance ministry officials began discussions with lenders on Sunday to lessen the blow for smaller savers.
On Sunday, a source close to the consultations told Reuters authorities were hoping to cut the tax to 3.0 percent from 6.7 percent for deposits under 100,000 euros. The rate for deposits above that would then be jacked up to 12.5 percent from 9.9 percent."

One point for the "in the mattress" crowd.

mac808
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Re: unexpected danger to bank accounts ...

Post by mac808 » Mon Mar 18, 2013 6:25 am

Fascinating to watch this develop. I think they made a huge mistake in hitting people below 100k Euros which is the insurance limit similar to FDIC in the States. Even if Cyprus went bankrupt, those folks were not supposed to be harmed at all. Faith in the banking system is the foundation of modern economies. Truly, nothing is 100% safe.
Last edited by mac808 on Mon Mar 18, 2013 6:26 am, edited 1 time in total.

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Re: unexpected danger to bank accounts ...

Post by SSSS » Mon Mar 18, 2013 6:36 am


SPG8
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Re: unexpected danger to bank accounts ...

Post by SPG8 » Mon Mar 18, 2013 6:45 am

In there, and slowly disseminating today, is that this is a nonevent (unless you are a Cypriot).

Cyprus has whacky banking; 18B GDP and 70B deposits. Most of the deposits belong to Russians.

The individual risk-assessment is not what might happen here (wherever that is), but what might happen if you moved large sums to a different country.

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Re: unexpected danger to bank accounts ...

Post by Valuethinker » Mon Mar 18, 2013 6:54 am

SPG8 wrote:
In there, and slowly disseminating today, is that this is a nonevent (unless you are a Cypriot).

Cyprus has whacky banking; 18B GDP and 70B deposits. Most of the deposits belong to Russians.

The individual risk-assessment is not what might happen here (wherever that is), but what might happen if you moved large sums to a different country.
+1

Before this thread gets shut down (again). Let's make the point against the 'mattress crowd'.

The main lesson here is that offshore tax havens have high deposits to GDP ratios (8 to 1 in Cyprus, closer to 1 to 1 in the US, I believe). Iceland was 15 to 1. Switzerland was 8 to 1.

The US is not an offshore tax haven.

If you put your money into offshore tax havens, they cannot afford to bail you out if things go wrong. Even with a Jersey account with Barclays, say, the parent bank will 'cut loose' the subsidiary if the whole country goes down. Same for BVI, Grand Cayman etc.

There are no macroeconomic lessons for Americans in their domestic banking market.

Levett
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Re: unexpected danger to bank accounts ...

Post by Levett » Mon Mar 18, 2013 6:58 am

Thanks for the input, VT.

Lev

crowd79
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Re: unexpected danger to bank accounts ...

Post by crowd79 » Mon Mar 18, 2013 7:10 am

Sometimes money is safer under the mattress.

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Re: unexpected danger to bank accounts ...

Post by Valuethinker » Mon Mar 18, 2013 7:34 am

Another obvious point, which I missed.

The US can print its own money. The Central Bank buys Treasury Bonds, the proceeds are used to bail out the banks.

If Cyprus borrowed in Cypriot Drachma, it would just print 6% more drachma. The worth of the bank accounts could potentially be 6% less, but no one would notice.

Look at the UK. Similar deposit to GDP ratio-- far higher than the US. 2 of the world's largest banks go bust. RBS and HBOS.

What do we do? Print lots of pounds. Lower interest rates to near zero whilst inflation is 2-4%.

Sterling falls 30% against world currencies-- down from USD 2.00 to below USD 1.50.

My bank account has lost a lot more than 6% in the last 5 years. But do I notice? No.

When a country borrows in its own currency it can always print money and devalue. Because Cyprus is in the Euro, it cannot do this. The US and UK can.

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Re: unexpected danger to bank accounts ...

Post by Ed 2 » Mon Mar 18, 2013 7:44 am

stocks will plunge,fools will run for the hills and time will come to do some shopping. Where it comes to the bank depositors-lesson to my russian money loundering comrades never keep your money in foreign bank,espesially like third world country's one. :moneybag
Last edited by Ed 2 on Mon Mar 18, 2013 7:59 am, edited 2 times in total.
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SPG8
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Re: unexpected danger to bank accounts ...

Post by SPG8 » Mon Mar 18, 2013 7:46 am

Levett wrote:Thanks for the input, VT.

Lev
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staustin
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Re: unexpected danger to bank accounts ...

Post by staustin » Mon Mar 18, 2013 8:04 am

valuethinker has it exactly right... there have been a few folks making the point over and over that intentional negative real interest rates equate to a stealth tax/destruction of value. Yet, people seem oblivious...

Gold's appeal is yet again apparent versus a fiat currency.

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Re: unexpected danger to bank accounts ...

Post by nisiprius » Mon Mar 18, 2013 8:07 am

I think it's a little alarmist to say that because there's a danger to bank accounts in country X, there's a danger to "bank accounts." I'm not trying to be unreasonably smug or xenophobic, but different countries really have different banking regulations and consumer protection.

All that the Cyprus situation proves is that just because something is called a bank, or, I suppose, a τράπεζα--whoa! a trapeze???? What's with that?--and is in a nice dignified building that looks the way a bank should look, it doesn't mean it's safe.

Yes, it's important to pay attention to things like FDIC placards and NCUA logos... and I would also suggest U.S. residents not being totally casual about buying Yankee CDs or taking advantage of any other convenient ways of opening foreign bank accounts.

Yes, I felt a chill at news pictures like this back in 2007.
Image
Could it possibly ever happen in the U.S.? Of course. Could it happen right now and without warning? I don't think so.
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Re: unexpected danger to bank accounts ...

Post by JArthur » Mon Mar 18, 2013 8:30 am

FDIC or NCUA could not have protected you from this confiscation if it had taken place in the US as they do not reimburse depositors from government "taxes". It's possible they could protect you from the subsequent bank runs, but it's likely that there would be capital controls limiting withdrawals.

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Re: unexpected danger to bank accounts ...

Post by kitteh » Mon Mar 18, 2013 8:33 am

staustin wrote:valuethinker has it exactly right... there have been a few folks making the point over and over that intentional negative real interest rates equate to a stealth tax/destruction of value. Yet, people seem oblivious....
Every Senior I know is aware of this.

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Re: unexpected danger to bank accounts ...

Post by normaldude » Mon Mar 18, 2013 8:37 am

nisiprius wrote:Could it happen right now and without warning? I don't think so.
Why would there be a warning? Seizing bank deposits only works if there is no warning. Otherwise, everyone would withdraw their money before the bank deposits are seized.

Don't expect the government to issue any official warnings, because they would be self-defeating. The only warnings you'll get are threads like this.

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Re: unexpected danger to bank accounts ...

Post by Mister Whale » Mon Mar 18, 2013 8:40 am

Valuethinker wrote:The main lesson here is that offshore tax havens have high deposits to GDP ratios (8 to 1 in Cyprus, closer to 1 to 1 in the US, I believe). Iceland was 15 to 1. Switzerland was 8 to 1.

The US is not an offshore tax haven.

If you put your money into offshore tax havens, they cannot afford to bail you out if things go wrong. Even with a Jersey account with Barclays, say, the parent bank will 'cut loose' the subsidiary if the whole country goes down. Same for BVI, Grand Cayman etc.

There are no macroeconomic lessons for Americans in their domestic banking market.
Thanks for laying this out so clearly. :beer
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Why the Cyprus bailout could start the next financial crisis

Post by bobcat2 » Mon Mar 18, 2013 8:52 am

What's dangerous about this situation has nothing to do with Americans or American bank deposits. It is instead the following as Neil Irwin explains at Wonkblog.
What makes this important for people who couldn’t locate Cyprus on a map is this: It is one of the 17 nations using the euro currency, the fact that it’s a lot closer to Beirut than to Paris notwithstanding. European officials have spent the past six years moving heaven and earth to ensure that no depositors with the continent’s banks suffer a loss despite the financial strains the banks have been under.

Even as the Greek economy has fallen into depression and Spanish bank losses on real estate have reached dangerous levels, the European Central Bank and the continent’s government have ensured that bank deposits were safe. They have feared that if depositors in any country were forced to take losses, it would spark a destructive cascade of withdrawals across Europe.

So is Cyprus different? In a lot of ways, it is separate from the rest of the euro zone, and not just geographically. Its population is a mere 1.1 million (the Greek population is 10 times as large). It has an unwieldy banking system with liabilities equal to eight times its economic output, versus 3.5 times for the euro zone as a whole. Many of those deposits are held by wealthy Russians who use Cyprus as a convenient place to park money.

Those are the reasons the IMF has insisted on losses for depositors — those, and the fact that rescuing Cyprus’s finances without the 5.8 billion-euro contribution represented by depositors’ losses would have meant a bailout approximately equivalent to the country’s annual economic output, too much for the fund to stomach.

Expect a flood of central bank liquidity into Greece, Spain and beyond if there is any hint that depositors across Europe seem to be thinking that Cyprus is the new normal and that their seemingly safe bank deposits could be reduced 10 percent without warning.

The best the rest of the world can hope for is that Cyprus’s case is sufficiently unique that it won’t spark panic in Athens and Madrid (or in Lisbon, Dublin and Rome). For the past six months, the global financial markets have become increasingly complacent, convinced that the euro-zone crisis is, for practical purposes, over. Cyprus is the test of whether that is correct, or whether the complacency was instead misplaced. In other words, if there is going to be a new wave of crisis in Europe, historians will be able to trace its starting point back to today’s Cyprus bank bailout.
Link -
http://www.washingtonpost.com/blogs/won ... ezra-klein

Also this from the Economist on the Cyprus bailout.
Unfair, short-sighted and self-defeating - http://www.economist.com/blogs/schumpet ... s-bail-out

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Re: unexpected danger to bank accounts ...

Post by Valuethinker » Mon Mar 18, 2013 10:03 am

nisiprius wrote:I think it's a little alarmist to say that because there's a danger to bank accounts in country X, there's a danger to "bank accounts." I'm not trying to be unreasonably smug or xenophobic, but different countries really have different banking regulations and consumer protection.

All that the Cyprus situation proves is that just because something is called a bank, or, I suppose, a τράπεζα--whoa! a trapeze???? What's with that?--and is in a nice dignified building that looks the way a bank should look, it doesn't mean it's safe.

Yes, it's important to pay attention to things like FDIC placards and NCUA logos... and I would also suggest U.S. residents not being totally casual about buying Yankee CDs or taking advantage of any other convenient ways of opening foreign bank accounts.

Yes, I felt a chill at news pictures like this back in 2007.
Image
Could it possibly ever happen in the U.S.? Of course. Could it happen right now and without warning? I don't think so.
Nisi

We were complete virgins on bank failures when NR shut down-- hadn't been one in over 100 years.

Northern Rock happens every day in the USA. That's why the FDIC is such a well run and smoothly run machine. Think Continental Illinois.

You have drilled for this disaster. Lehman the mechanism was suspended from working. You have a whole department of civil servants whose lives are for this moment. Move in, secure the assets, shut the bank.

Time for a movie. 'Shoot to Kill' -- Tom Berenger, Sidney Poitier, Kirsty Alley.

Mountain guide Berenger has his fiance, Alley, kidnapped by a hit man on the run from Poitier, an FBI Agent.

They go over the mountain top, in the snow, to catch the guy with his hostage, making for the Canadian border.

Poitier (60 something actor freezing on a mountain side) 'Do you mountain men do this often?'
Berenger: 'Every damn day'.



At the end of the movie (SPOILER WARNING) they chase hit man onto the Vancouver Ferry, shoot it out, wind up in the water struggling with him. The paramedics have Berenger and Poitier on the deck, administering treatment for hypothermia

Berenger: 'You G Men do this often?'
Poiter: 'EVERY DAMN DAY'


So to adapt

UK Euro weenie regulator 'You Fed chaps do this often?'

Fed: US besuited Sheila Blair clone with the short skirted suit and the perfect makeup and hair 'Every damn day'

Only in America. FDIC. Every damn day.

(and remember, FDIC looks like it's running out of money, Congress passes emergency measure, US Treasury issues bonds to US Federal Reserve bank for money printed from Fed's electronic deposit system, money goes to the FDIC. There is never 'no money' when you have your own currency and you borrow from depositors in that currency).

EDIT

After Margin Call, I am imagining Demi Moore in the role of the head of the FDIC? Merril Streep as President Jones?

'Every damn day, Mrs. President. Every damn day'.

Thoughts?
Last edited by Valuethinker on Mon Mar 18, 2013 12:31 pm, edited 2 times in total.

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Re: unexpected danger to bank accounts ...

Post by Valuethinker » Mon Mar 18, 2013 10:06 am

normaldude wrote:
nisiprius wrote:Could it happen right now and without warning? I don't think so.
Why would there be a warning? Seizing bank deposits only works if there is no warning. Otherwise, everyone would withdraw their money before the bank deposits are seized.

Don't expect the government to issue any official warnings, because they would be self-defeating. The only warnings you'll get are threads like this.
And you are in America. People would call their Congressman, and they would sue. Lawyers would drown every branch of government and legislature, serving writs. 'I know my rights'.

Today's 70 year old Americans stood on the protest lines during Vietnam. They know all about being carried off by state power.

The US government is, by constitutional design, built for slow reaction times, and legislative oversight of presidential power.

Roosevelt closed the banks, but that was to *save* depositors money.

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Re: unexpected danger to bank accounts ...

Post by Jfet » Mon Mar 18, 2013 10:22 am

It is interesting but could the lapse in safety of a bank account actually drive the stock markets higher?

Your choices:

1) Put money in an asset with a guaranteed negative return, and not even now a guarantee of principal.

2) Keep money in matress with even more negative return

3) Put money in stocks, which as long as people use resources and food, will have some value that probably increases with inflation.

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Re: unexpected danger to bank accounts ...

Post by normaldude » Mon Mar 18, 2013 10:32 am

Valuethinker wrote:And you are in America. People would call their Congressman, and they would sue. Lawyers would drown every branch of government and legislature, serving writs.
Both the Tea Party and Occupy Wall Street protesters claimed that they were opposed to the Wall Street bailouts. After banging on some drums in Zuccotti Park, they then went ahead and voted for either Obama or Romney, two guys who both supported the Wall Street bailouts.

Most Americans are too distracted by reality TV shows, and are easily manipulated by a the political elite.
Valuethinker wrote: 'I know my rights'.
Americans will post rants on youtube, but it won't dent the political system.
Valuethinker wrote: Today's 70 year old Americans stood on the protest lines during Vietnam. They know all about being carried off by state power.
Protest lines have no teeth.

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Re: unexpected danger to bank accounts ...

Post by sgr000 » Mon Mar 18, 2013 10:53 am

nisiprius wrote:[...] All that the Cyprus situation proves is that just because something is called a bank, or, I suppose, a τράπεζα--whoa! a trapeze???? What's with that?--and is in a nice dignified building that looks the way a bank should look, it doesn't mean it's safe. [...]
It's a weird word: sometimes it means bank, or in a monastery it can be the refectory where the monks eat. Drill down deep enough and you find it used to mean a table: hence a place to eat, and a table for exchanging money and doing paperwork. Also, as "trapezoid", it means "4-sided thingy kind of like a table".

Clio, the muse of history, has a weird sense of humor.

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Re: unexpected danger to bank accounts ...

Post by Karamatsu » Mon Mar 18, 2013 11:02 am

Not really a position borne out historically. The defiance of even a single person can bring down a government if it's the right person and the right protest at the right time. But we're straying far afield and thanks, as always, for your clear-headed appraisal of the situation in Cyprus. Japan's ability to print its own money not withstanding, the option of confiscating private account deposits (as opposed to funnelling them into JGBs) is probably not an option considered seriously in Tokyo... until now.

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Re: unexpected danger to bank accounts ...

Post by Spades » Mon Mar 18, 2013 11:20 am

So if the claim of 70B in deposits is true, then does 31B (19+12 from the link) in russian deposits mean 3.1B will come from russia?

http://www.businessweek.com/ap/2013-03- ... gs-seizure


Valuethinker, I've enjoyed your replies.

:sharebeer

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Re: unexpected danger to bank accounts ...

Post by wesleymouch » Mon Mar 18, 2013 12:04 pm

I think that it is important to recognize that this was not the rogue action of the Cyprus government but involves the EU, the German government and the IMF. It is the canary in the coal mine that says that other European countries are not safe.
Last edited by wesleymouch on Mon Mar 18, 2013 12:09 pm, edited 1 time in total.

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Re: unexpected danger to bank accounts ...

Post by wesleymouch » Mon Mar 18, 2013 12:09 pm

Valuethinker wrote:
normaldude wrote:
nisiprius wrote:Could it happen right now and without warning? I don't think so.
Why would there be a warning? Seizing bank deposits only works if there is no warning. Otherwise, everyone would withdraw their money before the bank deposits are seized.

Don't expect the government to issue any official warnings, because they would be self-defeating. The only warnings you'll get are threads like this.
And you are in America. People would call their Congressman, and they would sue. Lawyers would drown every branch of government and legislature, serving writs. 'I know my rights'.

Today's 70 year old Americans stood on the protest lines during Vietnam. They know all about being carried off by state power.

The US government is, by constitutional design, built for slow reaction times, and legislative oversight of presidential power.

Roosevelt closed the banks, but that was to *save* depositors money.
KInd of like what happened with the ACA right?

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Re: unexpected danger to bank accounts ...

Post by Valuethinker » Mon Mar 18, 2013 12:27 pm

wesleymouch wrote: KInd of like what happened with the ACA right?

Welcome my friend to reasoning by false analogy. For reasons I will not break Forum Policy here to discuss, having healthcare is entirely different regardless of rhetoric.

And btw it went all the way to the Supreme Court-- a system of checks and balances.


Just look at the numbers: c. 250 million Americans have bank accounts. Voters have, disproportionately, more money in their bank accounts than anyone else.

Note the Cypriot Parliament is still debating this one.

But the economics are clear. There is NO NEED to do this if you borrow in your own currency.

Instead the Treasury sells bonds to the Central Bank. There is more money out there, so intrinsically any dollar in a bank account is worth less. Maybe you get inflation (it depends because GDP = quantity of money x velocity, and velocity tends to drop in an economic crisis, people don't spend their bank accounts). Almost certainly you get currency devaluation.

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Re: unexpected danger to bank accounts ...

Post by Valuethinker » Mon Mar 18, 2013 12:33 pm

Jfet wrote:It is interesting but could the lapse in safety of a bank account actually drive the stock markets higher?

Your choices:

1) Put money in an asset with a guaranteed negative return, and not even now a guarantee of principal.

2) Keep money in matress with even more negative return

3) Put money in stocks, which as long as people use resources and food, will have some value that probably increases with inflation.
No. Because the shock to confidence would be so great.

Financial intermediation is not just a textbook concept. It's key to an economy. Banks really are unique in a financial system.

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