The Cyprus Deal & Lessons Learned

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Negotiators reached a last-minute deal earlier today to stave off the Eurozone’s first eviction. While the arrangement does not include the direct confiscation of deposits, it is not without its flaws. Complete details are not yet available, but the agreement includes the closure of the country’s second largest bank, resulting in substantial losses for those with (uninsured) deposits over 100,000 Euros (~128,000 USD).

This story isn’t over yet, but there are some obvious lessons that can already be identified:

  1. Uncontrolled debt will take it’s toll, sooner or later. The later it comes, the fewer and more severe the options. Cyprus probably got a better deal that was originally proposed, but the pain is real and will be felt for years to come.
  2. When resolving a financial crisis, the government will always attempt to transfer as much of the pain to the more productive as possible because lower income earners are higher in number and more willing to protest/riot. However, the wealthiest often survive because they are well represented in the governing class. Notice that the original bank levy proposal only addressed bank deposits, not stocks, bonds and property more likely to be held by the wealthiest Cypriots. The demonized “top 1%” in Cyprus do not have most of their assets in banks anyway. In the end, the biggest hit is always felt by the middle class.
  3. Government access to private information should be limited, whether we’re talking about bank accounts, medical records, or gun registrations. The government can attempt to do just about anything in a “national emergency.”
  4. As George Washington advised, nations should avoid as many foreign entanglements as possible. Countries like Germany and France are learning this lesson in the economic realm. Financial collectivism among nations always transfers wealth to the weaker countries and risk to the stronger ones.
  5. Individuals should consider holding as much wealth as possible in assets less susceptible to easy government confiscation, such as precious metals or property. Bank and retirement accounts are easy prey.
  6. If you live in a troubled EU nation (particularly Cyprus, Portugal, Spain, Greece, or Ireland), limit the amount of money you keep in local banks. “Government insurance” is only as strong as the integrity of government officials. The next attempt at bank deposit confiscation might be successful.
  7. If something happens in the EU, it’s not far-fetched to think it can happen in the US. At the end of the day, the Constitution won’t protect us without a cadre of elected officials willing to defend it.
9 Comments

9 Comments

  1. JESSE  •  Mar 25, 2013 @5:54 PM

    They tried it once, they’ll try it again. Get your money out of the banks and buy hard assets.

  2. Ty  •  Mar 26, 2013 @1:38 PM

    7.If something happens in the EU, it’s not far-fetched to think it can happen in the US. At the end of the day, the Constitution won’t protect us without a cadre of elected officials willing to defend it.

    If a cadre is more than 5 or 6 we are toast. :-(

  3. JC1969  •  Mar 27, 2013 @9:57 AM

    This is an incredible event that the mainstream media has ignored.

  4. Aliza  •  Mar 27, 2013 @11:35 AM

    The media (WSJ and others) reports today that large deposit holders will lose about 40% on their deposits.
    Regarding lesson no. 3: “government access to private information should be limited……..or gun registrations”. If people will not register their guns, how will the law enforcement authorities will be able to identify a person who commit a crime using a gun? I’m aware to the fact that many of the crimes are committed by people who use illegal weapon, but why should we make things more difficult in other cases?
    If we register our cars, won’t we register guns?

  5. John Parnell  •  Mar 27, 2013 @2:57 PM

    To clarify 2 points Aliza made… She noted that large depositors will lose a large percentage of their deposits. While this demonstrates that those with resources will always be asked to pay more, you shouldn’t overlook the fact that wealthier individuals typically hold larger amounts OUTSIDE of banks. Those with SOME wealth (i.e., the middle and upper-middle class) are likely to hold higher percentages in banks. Hence, my guess is that the groups losing the highest percentage of income are probably the middle-middle, upper-middle, and lower-upper classes.

    Concerning guns, Aliza asked how will the law enforcement authorities will be able to identify a person who commit a crime using a gun if registration is not required. I think she backed into the truth…Criminals will not register their guns and/or will steal weapons from others anyway. Hence, registration would only track and restrict guns in the hands of those wishing to lawfully defend themselves and their properties, not those determined to commit crimes.

  6. Aliza  •  Mar 27, 2013 @3:56 PM

    Unfortunately, the massacre in Newtown, Conn. was committed by a man who carried a registered gun and this is not the first time that a registered gun is used for such tragic incidents.
    I support strict gun control laws and comprehensive background checks in order to prevent access to guns from mentally ill people and convicted felons.

  7. terry  •  Mar 27, 2013 @4:49 PM

    hey aliza, that’s the point. the gun registration laws didn’t stop the newtown tragedy. there’s a difference between background checks and gun registration.

  8. Aliza  •  Mar 27, 2013 @5:04 PM

    Gun registration laws can help identify the shooter. Comprehensive background checks can help preventing the next tragedy.

  9. terry  •  Mar 27, 2013 @5:34 PM

    gun registration laws only identify the shooter if he registers his gun. a criminal will get a gun from the black market if he can’t get one another way, so registration has no effect except to create a hurdle for law-abiding citizens.