| Cyprus is in economic trouble now and has turned to europe for financial assistance. On Friday a deal was agreed, with support of ECB and IMF and all the usual suspects. But there is a feature of this particular bail out which is different: for the agreement includes a one time levy on ordinary deposits in the bank. If you have less than 100,000 euros in a cypriot bank you lose 6.75% of of those savings: and if you have more than that you lose 9.9%. This happens on Tuesday, but the ATM's and banks are closed until then, so you cannot withdraw your money before the levy is imposed.
In the reports I have seen there is no mention of a similar levy on bondholders: certainly not senior bond holders. It is possible that they have also suffered from a cut, but it has not been reported here, so far as I can see. There is, however, much mention of the fact that half of the deposits in cyprus belong to non-resident russians. Cyprus appears to have constituted itself as a tax haven and much of the economy depends on the banking sector: just as is the case in the UK.
Previously we were told that the banks must be supported at all costs. A run on the banks was the worst thing that could happen, and the public sector had to pay to avoid that, no matter what the consequences for their lives, in terms of austerity. It seems that something has changed. There is a clear possibility that this measure will lead to a run on the banks in Cyprus and across the eurozone, and apparently that is no longer a risk we cannot take. I am wondering why.
I mentioned above that joe soap has virtually no choice about where to keep his money. His wages are paid in directly to the bank and the choice of getting it in cash is not open for most. Benefits are the same. If he has savings he puts them in the bank in one form or another, and theoretical alternatives such as buying stocks or whatever are not true options: for joe soap does not have any understanding of those markets nor does he have the capacity to deal directly on them. Mostly if he wishes to do that he must pay an adviser or a broker, and the fees are higher than the returns, so it is not worthwhile.
The decision to penalise junior bond holders in the case of SNS, outlined above, came as something of a shock to ordinary people just seeking a higher level of return on their savings: but they had at least enjoyed that higher rate of return for some period (very short in the case of the poster boy in the article linked in my last post): this is not even like that. This is the money you put into your bank for everyday needs.
There is much talk about the difference between investment banking and retail banking. As noted the separation of those two functions was abolished on the basis that regulation is a bad thing. And there is now some recognition of the disastrous consequences of that decision (again) and talk of reinstating that separation. In this country the government is intent on ensuring that is not effective: lip service to it without real change is the aim, so far as I can tell (see banking thread).
For most of us those considerations were a bit arcane, and we did not really understand why they were important. So we bought the idea that this would be good for the economy, as told by neoliberals who believe that all regulation is a bad thing and all government action is detrimental. But we continued to believe that our relations with the bank were unaffected. We put our money in the bank precisely because it was safer than putting it under the mattress, and we understood that interest received was likely to be lower than inflation but we knew it would be there for us when we needed it. That is what is called "confidence". We accepted that we are compelled to contribute to banking profits and bankers' remuneration as we were denied the option of receiving cash for our labour or benefits.
In the Handmaid's Tale, the first step in the enslavement of the women was the appropriation of their bank accounts and the prevention of their access to their money. This could be done easily because of how banking is done: it is all electronic and they can cancel your access very easily, as we now see in practice in Cyprus. This is not fanciful. But even with this warning, what is one to do? I am very open to ideas about how to withdraw from the banking system but I cannot think how to do it. I could take what I have and keep it in the house: withdraw what I get as soon as I get it. But that opens me to the risk of theft and I have been burgled more than once. I feel that I have no choice, really: so they can do whatever they like.
People in the past who have felt insecure in this way have put what money they have into assets: so they bought jewellery or gold fillings or property, or whatever. That is some protection (until they build concentration camps and extract your teeth for the gold). Some people will revert to that, I suspect, but how does that help? It merely fuels an asset price bubble, presumably. And that also benefits the rich.
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