The Cyprus banking fiasco seems so obvious that I wonder why the wise rulers at the EU did not see it coming. Did the EU, in their infinite wisdom, really think that they could confiscate part of people´s bank accounts and nothing would happen? Property rights and due process are the corner stone of a capitalist society. Without that there is no trust and little investment and the economy suffers. Now because of the proposed confiscation, Cypriot banking is ruined, there will almost certainly be a run on the banks when the bank holiday ends next Tuesday, and the entire EU banking system has taken a hit in confidence. After all stealing money it can be mandated by the EU in Cyprus, why not Greece or Italy or Spain? In the end one gets the feeling that no one´s money is safe. Trust is the foundation of modern banking and the only way to prevent massive runs on the banks. The EU decided to take money from Cypriot account to prevent contagion. Instead they have sowed outrage and distrust of the whole system.
This latest crisis has shown that the EU is totally lacking in normal procedures to deal with these constant crisises. Instead every crisis is treated in a make it up as they go along, ad hoc manner by a select group of power players who come to decisions behind closed doors according to whatever criteria they think is best at the moment. There is a total lack of transparency, accountability or representative democracy in these decisions. It is not wonder that people in Ireland, Cyprus or Greece feel that decisions are being made that affect them greatly by undemocratic and unaccountable powers from far away.
The EU made such a boneheaded decision regarding Cyprus precisely because of a lack of democracy, accountability and established procedures. I am sure that the EU negotiators were desperate for a solution concerning the Cypriot rescue package, the idea was raised to raid bank accounts to pay for it, and it seemed good at the time. No one thought through the obvious unintended consequences of their decision, and frankly the fact the Cyprus is a small far away country made such heavy handed measures seem more palatable. They would never dare do such a thing to a country like France. What the EU did not think about is that Cyprus may be small and powerless, but what happens there also matters to the rest of the EU, and everyone is to some degree (often to a large degree) interconnected. Cyprus is an island but not an island in terms of banking.
The other aspect of this whole deal that irritates me (and a lot of other people to) is the mentality that bondholders and banks should not suffer. Instead the common people should pay the price for incompetent banks, speculators and government. The justification for taking people´s money is that there are many Russians of dubious origin who have Cypriot bank accounts. That is true to an extent, but there is are also many perfectly legal people of modest means who have accounts in Cypriot banks. If they want to get the Russian money laundering they should have to prosecute those people with due process, not do a blanket seizure of everyone´s money. That is like arresting and throwing everyone in jail who lives in a neighborhood with a high crime rate just because there are many criminals there. There are also many innocent people there and they deserve not to be prosecuted just because they happen to live in an area with a high crime rate.
What further irritates me is that Cyprus has to pay for the rescue, but why only bank account holders? Why are people who have account in foreign banks, those who keep their money at home, those who have gold or stocks or wealth tied up in property, why are the not required to contribute to the rescue? The reality is that it is often the simple modest people who keep their wealth in the bank. It is more often the well to do who invest their savings in stock and real estate. But they will be untouched by this confiscation. Taking money from people´s bank account often hurts normal people more than the well off who have riches tied up in more sophisticated investment vehicles.
In sum this whole fiasco is just another example of people of modest means having to bail out-yet again-powerful wealthy interests who created the problem in the first place. I really believe that the bankers rule the world. Everyone hates the banks. It is not a left versus right issue. Everyone agrees that the banks and their bailouts are wrong. And yet in country after country, no matter if the left or the right, or a new or old government is in power, governments always take public money to reward incompetent and criminal bankers. The politicians promise that if elected things will change. But they never do. How can this happen in a democratic society. How can such universally unpopular policies be shoved down the throats of the people years after year, no matter who is in power? It sounds like bankers have taken over governments in country after country. The only place that has not followed this pattern is little Iceland, which has done well since telling the banks to take their lumps. Everywhere else it has been privatized gains and public loses.
Charles Hugh Smith has some insightful comments in his blog about what is really going on in Europe.
The Deeper Meanings of Cyprus (March 18, 2013)
The deposit-confiscation “bailout” of Cyprus reveals much about the Eurozone’s fundamental neocolonial, neofeudal structure.
At long last, Europe’s flimsy facades of State sovereignty, democracy and free-market capitalism have collapsed, and we see the real machinery laid bare: the Eurozone’s political-financial Aristocracy will stripmine every nation’s citizenry to preserve their power and protect the banks and bondholders from absorbing losses.
The deposit-confiscation “bailout” of Cyprus confirms the Eurozone’s fundamental neocolonial, neofeudal structure and the region’s political surrender to financialization.
Let’s list what Cyprus reveals about the true state of financial-political power in Europe:
1. The Core-Periphery terminology masks the real structure: the E.U. operates on a neocolonial model. In the old Colonialism 1.0 model, the colonizing power conquered or co-opted the Power Elites of the periphery regions, and proceeded to exploit the new colonies’ resources and labor to enrich the Imperial core.
In Neocolonialism, the forces of financialization (debt and leverage controlled by State-enforced banking cartels) are used to indenture the local Elites and populace to the financial core: the peripheral “colonials” borrow money to buy the finished goods manufactured in the core economies, enriching the Imperial Elites with A) the profits made selling goods to the debtors B) interest on credit extended to the peripheral colonies to buy the core economies’ goods and “live large”, and C) the transactional skim of financializing peripheral assets such as real estate and State debt.
In essence, the core banks of the E.U. colonized the peripheral nations via the financializing euro, which enabled a massive expansion of debt and consumption in the periphery. The banks and exporters of the core exacted enormous profits from this expansion of debt and consumption.
Now that the financialization scheme of the euro has run its course, the periphery’s neocolonial standing is starkly revealed: the assets and income of the periphery are flowing to the core as interest on the private and sovereign debts that are owed to the core’s central bank and its crony money-center private banks.
This is not just the perfection of neocolonialism but of neofeudalism as well. The peripheral nations of the E.U. are effectively neocolonial debtors of the core (quasi-Imperial) banks, and the taxpayers of the core nations (now reduced to Germany and The Netherlands) are now feudal serfs whose labor is devoted to making good on any bank loans to the periphery that go bad.
Though we can term the E.U. a plutocracy or oligarchy, the neofeudal structure compels us to distinguish a class of those holding wealth and political power that is not limited to national border: this is an Aristocracy.
Serving the Aristocracy is a well-paid technocrat class of factotums, lackeys, toadies and enforcers. Below this well-compensated caste of technocrats is the larger class of debt-serfs, enslaved to interest payments on either their own debts or the debts of others, and bound by their class powerlessness to protecting banks and bondholders from losses.
Cyprus merely adds an expropriation twist to this well-oiled plunder: deposits will be expropriated directly to insure no Imperial (core) banks or bond holders lose money on their absurdly risky loans to periphery nations and serfs.
2. This is a supranational plunder. While commentators can wile away years debating how much Germany benefited from the euro, the real core is not national, it is supranational banks and the political machinery of the E.U. the banks have effectively captured.
The citizenry of Germany may approve or disapprove of the Cyprus expropriation, but it doesn’t matter either way: their own serfdom to banks and bondholders is simply being masked: the bailouts of periphery nations are transparently bailouts of core banks and bondholders.
The nation-states of the neocolonial periphery are simply convenient propaganda placeholders, useful misdirections aimed at the naive and sentimental, hollowed-out national structures propped up to mask the ugly neocolonial reality of servitude and plunder.
3. Democracy is a fiction when no matter who you vote for, the banks and bondholders win control of the national income stream and private wealth. Democracy in Europe is a travesty of a mockery of a sham, an absurd play which is acted out as a form of blood-sport circus to distract the masses from their powerlessness and debt-serfdom.
Democracy is a fiction when the policies protecting banks and bondholders from losses remain in place regardless of which political party, coalition or politico is nominally in power.
The German taxpayers’ private wealth is being expropriated via taxes to bail out core banks and bondholders; how is this any different from the blatant expropriation of private assets in Cyprus?
It is only a difference in technique; the result is the same: the forced transfer of wealth from those who earned it from their labor to banks and bondholders which in a truly capitalist economy would be immediately forced to absorb the losses of their leveraged, highly risky bets.
4. The ideological fiction of capitalism is dead in Europe. Capitalism is a fiction if capital that is placed at risk for a return cannot be lost.
5. Cyprus is a test to see how blatant the expropriation of private assets can become without triggering overthrow and revolution. If the furor dies down soon enough, then the same technique of expropriation will be imposed elsewhere. If the reaction is sustained and threatening to the Aristocracy, other less blatant expropriations will be tested in other neocolonies.
6. Divide and conquer is the propaganda order of the day. The Power Elites are attempting to set the serfs of the periphery against the serfs of the core, the goal being to keep both sets of serfs from realizing they are equally indentured to the core’s pathological political-financial Aristocracy.
I expect that it will be a bumpy ride next week when Cyprus lifts the bank holiday and account holders rush to get their money out, causing a probably run on the banks? What are Greek, Spanish and Italian banks going to do if confidence in the system breaks down and their banks have run. In trying to solve a problem they have created a much bigger one. This from NaturalNews.
Until then, the banks remain closed, and everybody knows the minute they open, every account holder will immediately transfer their money out of the banks, causing a near-instant bank run and a collapse.
The worry across the eurozone now is that this imminent bank collapse will trigger account holders in Greece to start taking their money out of the bank, too. The Greek banking system is already in such sad shape that it only takes a very small percentage of account holders withdrawing their funds — perhaps 5% or so — to topple Greek banks. That’s because the banks are roughly 95% leveraged with fractional reserve accounts and complex debt instruments.