Cyprus Negative Bailout

This post was very interesting. According to that calculation, the total bailout Cyprus received was negative.

It’s a very interesting analysis. Some of the cash is going to Cyprus’ government and not to the banks. That money is being used to refinance government debt, mostly held by the ECB, which means that the bailout money is going right back to the rest of the UE.

Some Cyprus banks had Greek branches. However, the banks were split into two, the Greek part and the Cyprus part. However, the underwater liabilities were stuck with the Cyprus banks. Greek depositors were paid off at par, increasing losses for Cyprus depositors. In effect, Cyprus bailed out Greek depositors.

Most of the Cyprus bank losses were Greek government bonds. In effect, Cyprus depositors bailed out the Greek government.

This story was very interesting. Some people knew about the Cyprus insolvency ahead of time, and withdrew their deposits a few weeks before the “bank holiday”. Because insiders withdrew their deposits at par, other depositors had a greater loss.

When a Ponzi scam implodes, people who were net beneficiaries have to give their money back to the other victims, ensuring that all Ponzi participants have the same loss rate. Similarly, those insider withdrawals should be clawed back, and returned equally among all depositors. In a non-corrupt justice system, those insider withdrawals should be nullified and the money spread equally among all depositors.

The Cyprus “bailout” may have actually been negative, if you include all the dodgy transactions that happened before the “bailout”, along with all the restrictions that come along with the bailout. Sometimes, banks are “too big to fail” and are bailed out (big banks during subprime mortgage crash). Sometimes, the banks are allowed to fail and depositors lose (MF Global, Cyprus). Whatever will lead to most profit for insiders, is what happens. If insiders are holding all the debt, then there’s a bailout. If it’s non-insiders depositors and investors, then there’s no bailout.

I’m surprised that Cyprus depositors were allowed to lose everything, rather than printing new money and bailing them out. The lesson is that if you have money in the bank, that isn’t a safe investment at all. Why cause everyone to lose confidence in the banking system, just to cheat Cyprus depositors out of $20B? One poster cynically said that it’s a test, to see if the State can rob depositors of their money, without it leading to violence and revolt.

2 Responses to Cyprus Negative Bailout

  1. Anonymous Coward April 2, 2013 at 3:33 pm

    After all FSK’s negative posts about cronyism in the USA and Europe, I am thinking of moving to Somalia. I hear they have a stable currency as they don’t have a central government printing loads of cash out of thin air.

    Wikpedia tells me their economy is actually growing.
    > with a projected real growth rate of 2.6%

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