Home / Banking / Large Depositors in Cyprus Lose 47.5% of Their Deposits. Good!
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Large Depositors in Cyprus Lose 47.5% of Their Deposits. Good!

Written by Gary North on July 31, 2013

Any bank depositor in Cyprus who had over 100,000 euros has just lost 47.5% of everything over 100,000 euros. He now owns equity in the bank he put his money in. This is equity in a failed venture.

Uncertainty has now been transferred to large depositors. This is good news for those of us who do not believe in government insurance of bank accounts. In the USA, 100% of everything over $250,000 can be lost. But the FDIC never allows this. The idea that large depositors could lose their money might scare other big depositors.

Why shouldn’t depositors go to the trouble of finding out if their bank is not run well? All fractional reserve banking is fraudulent. All such banks are technically insolvent. A bank run could bust all of them. They counterfeit money as a business model.

Why should the FDIC or any government use taxpayers’ funds to insure that counterfeiters are not at risk for their lending policies?

What is new about Cyprus is this: the government of Cyprus just stuck the rightful uncertainty-bearers — depositors — with the uncertainty that the free market says they all deserve.

In a free market, depositors would be at risk of losing 100% of their deposits. But we do not have a free market. We have the FDIC. It was a creation of the New Deal. There is nothing remotely free market about it. It is part of the welfare state.

If the principle of “depositor beware” were allowed to spread across the world and down to every dollar or euro deposited, the world would then have something resembling a free market in banking. Every banker would know that a bank run on his bank could wipe it out at any time. Bankers would become far more careful with depositors’ money. Banking would become less inflationary. The world would be better off.

The bankers in the rest of Europe are terrified that the “Cyprus solution” will spread to their nations. That would place final authority in the hands of depositors. This thought terrifies bankers. They want government guarantees for depositors, which transfers uncertainty to taxpayers. It puts depositors to sleep. That’s what bankers like: sleepy, trusting depositors. “No problem. We’re in good hands with big state.”

When we trust the state, we can be sure that there will be a disaster, and when it hits, it will be worse than what would have taken place if we had not trusted the state. When we transfer risk to the state, the risk winds up in our laps, collectively. Meanwhile, bankers get rich.

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7 thoughts on “Large Depositors in Cyprus Lose 47.5% of Their Deposits. Good!

  1. Texas Chris says:

    FDIC was set up as a "safety net". That safety net, and the others set up with it like Social Security, have quickly morphed into prison cells for most of the American people.

    They can no longer get out.

  2. When the government says that we bailed out Wall Street what they mean is we saved the banks from their own stupid business practices, and then there is AIG. You can bet that the ownership of which is probably predominately in the hands of certain well connected people. I have heard the politicians blame Bush for the housing bubble burst, but he went before the committee more than once to warn against the type loans that Clinton had backed. You know where they didn't require 20% dawn and they had fuzzy math as to the amount they qualified for. Most if not all the politicians that caused the bubble and eventually the burst are probably retired now and living a more than comfortable life style.
    Now the government is wanting to cause the same cycle. Our government is not solvent, social security is broke and we still send money to other countries, that is money we don't have. We curse the Chinese for loaning us money. We asked for it and we got it. Remember when the Chinese said they want comodoties and not currency as a pay back? That is because they now our currency is not worth what we say it is.
    We complain about buy American now, but there was a time when we wouldn't buy Japanese or Chinese goods, but that changed in a big way. Now when you hear a politician complain, it is their fault because we need to use the same rules as China and Mexico, and Japan on items to be brought into their country and sold. We also should have the same immigration laws as them. We also should not allow a law that was passed to let the wives and families of our military to be used for other countries.
    We should close the border. Which would do away with all this BS about making illegals legal. Which is another crock. The CBO says we will make a lot of money off that. Has everyone lost their mind??

  3. Phillip_in_TX says:

    Inside the I-495 Beltway, yes, they lost whatever minds they had.

  4. Obamacare will do the same thing. It will imitate the actions of HMO's, in which any doctor or hospital who wants to see patients "insured" (what a laugh) by the HMO, must sign a contract with the HMO that pretty much says the doctor and the hospital will assume the liability for all costs over and above what the HMO sets as the "co-pay" for the patietn. This way the insurance company fixes its costs at a predetermined level below what its receipts in premiums are. If the "insured" need care that costs more than the "co-pay" covers, along with the capitation payments, the doctor learns that he has becoome the insurance company, and the insurance company has become the doctor.

    Depositors finding out that they are now the bank assuming all risks, and the owners of the bank have now become the depositorsw owning the deposits? Obama is taking notes on this one, too.

  5. We didn't bail out the banks. We stopped them from suing the Federal Government for their losses directly caused by the government's interference in the banking rules. The banks were forced to give out bad loans. They weren't greedy. The demoRats were greedy. They still are.

  6. Socialization of risk causes more risky behavior.

    The ironic part is that the "Cyprus Solution" may ultimately make the EU a better place to do business.

    America, in time, may need its own "cyprus solution" just so we can be competitive in a global market.

  7. YOU are buying they lies. The 'safety nets' did not morph into anything. They were ALWAYS what you claim they morphed into.