Sunday, March 17, 2013

Cyprus: Run, Banks, Run!

I am neither an economics major nor a user of hallucinogenic drugs, so I simply cannot understand the rationale behind the bank bailout in Cyprus: anybody with a Cypriot bank account will have their deposit reduced by 6.75 percent if they have less than 100,000 Euros in savings, 9.9 percent if they have anything more. The theory, I suppose, is that people who managed to save money should be punished to benefit those who went into debt. The theory further supposes that it's no big deal if depositors lose faith in Cypriot banks, even though the law just ensured that cash in hand is worth up to ten percent more than "cash" in a bank account, not to mention better-protected from capricious government confiscation.

Disclaimer: I have no money in Cypriot banks, only a savings account in the USA. It's a fairly large-ish sum of money (though not large enough to qualify for Cyprus' ten percent confiscation rate) because I have been living cheap and squirreling money away for several years now, in hope of one day buying a non-bubble-priced house. Also: as a freelancer with an unsteady income, I know damned well the importance of having a fat emergency cushion to catch me if I fall.

As an American who would like to one day buy a house to live in without taking on exorbitant amounts of debt, I am already miffed by the American mantra "A healthy economy requires ever-rising housing prices, because current homeowners who wish to sell are obviously the only Americans with financial interests worth considering." I do not agree that a constant (but allegedly low) rate of inflation is a good thing. So I'll admit: I do have a dog in this fight, regarding the question "Should the economy encourage people to be savers or debtors?"

I disagree with these policies, but still, I kinda-sorta understand the rationale behind them, understand why some economists are pushing for higher American home prices, or support a constant rate of inflation. But I do not understand the rationale of taxing Cypriot savings accounts, and basically teaching all current Cypriot adults the lesson: "You must never, ever trust your money to a bank, because the government will raid your account anytime it needs money." Why the hell is this supposed to be a good idea?

I don't see anything about a similar tax on stock or investment accounts. Not that I'd support a reduction in Cypriot stock portfolios, of course ... but at least a partial confiscation of Cypriot investment accounts would be less regressive than this confiscation from plain savings accounts. 

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