A Nuanced Point in the Outrage Over Cyprus
I meant to remark on this a few days ago, but I’m a busy guy…
When the Cyprus bailout-plus-tax-on-depositors was first announced, most people flipped out, saying it was stealing money from the average Joe in order to rectify the bad investment decisions of the fat cats. I myself took this tack in the March issue of the Lara-Murphy Report.
Yet here the critics (including me) were unwittingly buying into the very problem: People have been conditioned by governments (and the financial elites) that there is something sacrosanct about depositing your money in a bank. If you put your money in Bank A, and it lent those funds to the Greek government which then defaulted on the loan, then why shouldn’t you take a hit? It’s partly your fault for giving your money to an institution that makes such dumb decisions.
I first saw Richard Ebeling make this point on Facebook, and then I saw Lew Rockwell write up a version at his blog. Their arguments completely flipped me around; I had been looking at the situation too simplistically.
Now, the actual proposal in Cyprus really did involve genuine theft, because (I believe) every depositor (at least based on levels of the deposit) was going to get hit with the fee, regardless of how his or her particular bank performed. Also, there would possibly be different haircuts given in an actual bankruptcy proceeding, depending on when somebody (effectively) lent his money to a given bank.
Nonetheless, I just wanted to draw everyone’s attention to Rockwell’s short post, because (as I said) many people–including me–were too quick to classify this as the rich bankers screwing over the little guy, when our own recommendation would amount to effectively the same thing in many respects.
Well played.
I wrote this comment a couple of weeks ago over on Zerohedge where they were discussing the default. In 1966, I bought my first shares of General Motors Corp. (at that time I believed that engineers designed automobiles, they don’t… marketing people design automobiles) Over the years, I bought more and reinvested all my dividends. The securities became worthless in April 2011 so right now I am deducting my losses from my income tax. At $3,000 per year, I will be over 90 years old before I get them all deducted. How about a few words on how the investors in the Cyprus banks are different than the investors in General Motors? Why do I take a 100% haircut to the benefit of the UAW and you are whining about the depositors in the Cyprus Banks only taking a 40% haircut for the benefit of the incompetent banksters?
Another good point that I came across from Richard Nickoley is that he basically asked, “how is this any different from taxation or inflation?” (paraphrase). I mean, you already let them take a percentage of your pay as it is (a lot of which already benefits the banks), how is it any different here? The only real difference is that this is far more obvious that it is theft.
Murphy I think your original reaction was justified.
You were originally talking about the explicit theft from people’s bank accounts by the government, weren’t you? I think Rockwell would find that unjust as well