Author Topic: IMF takes money from all Cyprus bank accounts; rest of Eurozone "not ruled out"  (Read 1222 times)

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Offline Foxpup

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EXTREMELY DISTURBING: IMF Goes Directly After Bank Depositor Money
Quote from: Economic Policy Journal
The banksters are getting desperate. The IMF today took an unprecedented step to grab bank depositor money.

In a new plan to bailout the government of Cyprus, under the watchful eye of the IMF, depositors in Cypriot banks will be hit with a one-time tax on their savings, as part of a €10 billion ($12.96 billion) bailout.

In a deal, announced early Saturday, accounts with more than €100,000 will be taxed at 9.9%, those with less at 6.75%, raising an expected €5.8 billion for the near-bankrupt nation.

Cypriot Finance Minister Michalis Sarris said the Cypriot Parliament would adopt the taxes over the weekend and the money would be extracted from accounts before banks take up business Tuesday. Monday is a public holiday.

Run on banks in Cyprus adds to eurozone woes
Quote from: The Times of India
In a move that could set off new fears of contagion across the eurozone, anxious depositors drained cash from ATMs in Cyprus on Saturday, hours after European officials in Brussels required that part of a new 10 billion bailout must be paid for directly from the bank accounts of ordinary savers.

The move - a first in the 3-year-old European financial crisis - raised questions over whether bank runs could be set off elsewhere in the eurozone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

So much for deposit insurance. :o
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Offline redyoshi49q

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...Yeah, I don't see this ending well...

  • People put money into banks in no small part because they consider that to be more secure than putting money in their mattresses.
  • This tax, even if it is a one time tax, and even if it can't be circumvented through withdrawals, will kill the public's trust in banks in that country.  They'll withdraw their remaining money en masse even if they can't get it all back (as they have already started to do).
  • When an entity (such as a bank) lends its money, the money they lend and the loan itself both have value in an economy; it is for this reason that lending effectively increases the money supply in an economy.
  • When banks have a massive reduction in the funds entrusted to them, they are less able to lend, and the money supply consequently decreases.

Unfortunately, it's been too long since my macroeconomics class for me to fully trust my memory of what the exact consequences of decreasing the money supply are, though I seem to recall that one appropriate way to provide a short term macroeconomic boost (at the cost of temporarily increased inflation in the long term) is to increase the money supply (for example, by printing more money).  Cyprus seems to be heading in the opposite direction.  I really hope the people who came up with this policy know what they're doing.  They may find themselves doing more short term and long term damage to their own economy than they get from this tax...
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Offline Foxpup

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I just heard a rumour that the IMF is going to scrap the tax on accounts under €100,000 and increase the tax on accounts over €100,000. I personally don't think this rumour has any veracity whatsoever, and even if it's true it not going to stop a bank run. Either way it doesn't look good for the rest of the Eurozone. I think it's not too long before we're looking at a systemic bank failure.

EDIT: I was right. There was no veracity to this rumour. When the banks open tomorrow (assuming the bank holiday isn't extended), everyone in Cyprus will be shocked but not surprised to discover that they have less money than they did. There is some talk of reimbursing accounts with less than €20,000, but I expect nothing will come of it. (In any case €20,000 is a lot less than the €100,000 supposedly covered by deposit insurance, so... yeah.)

UPDATE: The bank holiday has been extended until next Tuesday. I'm not sure how long an entire country can operate with no financial services whatsoever, but I'm guessing it's less than a week. This is Bad News.
« Last Edit: March 20, 2013, 08:55:00 am by Foxpup »
“Hmm... They have the Internet on computers now.” - Homer Simpson

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Offline Foxpup

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Good news: Insured accounts under €100,000 are safe (for now - the IMF can change their minds faster than a Formula 1 pit crew can change a tire). Bad news: Accounts over €100,000 will be taxed at up to 40%. ATM withdrawals are limited to €100 per day. And the bank holiday has been extended again until Thursday.
“Hmm... They have the Internet on computers now.” - Homer Simpson

“Art doesn't work without pain. Art exists for compensating pain.” - Till Lindemann

“There's a fine line between sayings that make sense.” - Too Much Coffee Man