Money Matters

Cyprus Threatens to Steal Bank Accounts

The tiny nation of Cyprus rocked the financial world last week saying that the government would take up to 10 % of their citizen’s bank accounts to pay for a bailout.

Cyprus banks like many other banks all over the world gambled and won for years but now, as all gamblers do, finally had the wheel come up red and lost. Although they kept all the profits for decades, now that they lost they can’t pay.

The usual suspects now tell the same old lies that the whole system is set to collapse if they don’t get some help in form of loans from the European Monetary Authorities who in the end get their money from plain old people like you and I.

It’s the same old story. Banks privatize the profits but stick us with the losses under the guise of having to save the system. It sure is a great system, for them. Gamble like hell, keep all the winnings and stick someone else with the losses.

So the story in Europe goes like this. Since nation after nation has bellied up to the bailout trough, the strong nations in the European Union are getting tired of footing the bill (mainly Germany) and said Cyprus must pony up 5 or so billion of its own money to get even more money in the form of a bailout.

Cyprus doesn’t have it so they came up with the bright idea to take about 9.9 % of all larger savings accounts in Cyprus banks. They closed the banks then announced the move over the weekend and of course the citizens of Cyprus went nuts.

Not only did the Cypriots go up in arms but since half the deposits in Cyprus banks are from Russia, the Russians didn’t like it much either.

Cypriot authorities voted on the proposal and struck down the deal but the damage was done. People around the globe saw the attempted theft of the private bank accounts and now the notion that banks are not safe is permeating investor mindset and citizens alike.

The European Monetary Authorities backed down and now will give Cyprus a loan for free. What is perplexing however is that this tiny nation can shake the financial globe much like Greece did a few months back.

This is because Cyprus may eventually be forced out of the Euro Union and even a small nation leaving the Euro rocks the stability of the currency and subsequently the Euro Union itself.

“Confidence contagion” is now the game as central banks everywhere try to hold all this debt mess together with printed dollars and the confidence game, patching leaks wherever they spring up with more printed dollars and spewing forth verbal pabulum that all is fine and the emperors are fully clothed.

It remains to be seen how this will all play out but threatening to take bank accounts is probably one of the worst things a government could have done seeing as we are just crawling out of a banking crisis.

Now the thought that our bank accounts at least were safe is now tainted with the nightmare that one day we could wake up and a government has stolen all or part of our hard earned money without consent.

Not a pleasant thought and my guess is at least some depositors are making withdrawals or considering them all over the world, and especially in Europe where the problems are more severe and closer to home.

Watch for renewed banking stress and a return of the Euro debt problem. Not that these ever went away, they just swept them under the rug for awhile but their back again with the Cyprus fiasco.

This article expresses the opinions of Marc Cuniberti. Mr. Cuniberti hosts “Money Matters” on KVMR FM 89.5 and 105.1 FM on Thursdays at noon. He has been featured on NBC and ABC television and on a host of made for TV documentaries for his economic insights. His website is www.moneymanagementradio.com
Published April 3, 2013