Ron Paul: The Great Cyprus Bank Robbery!
- The Great Cyprus Bank Robbery!
by Dr. Ron Paul, http://www.goldseek.com/
The dramatic recent events in Cyprus have highlighted the fundamental weakness in the European banking system and the extreme fragility of fractional reserve banking. Cypriot banks invested heavily in Greek sovereign debt, and last summer’s Greek debt restructuring resulted in losses equivalent to more than 25 percent of Cyprus’ GDP. These banks then took their bad investments to the government, demanding a bailout from an already beleaguered Cypriot treasury. The government of Cyprus then turned to the European Union (EU) for a bailout.
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The terms insisted upon by the troika (European Commission, European Central Bank, International Monetary Fund) before funding the bailout were nothing short of highway robbery. While bank depositors have traditionally been protected in the event of bankruptcy or liquidation, the troika insisted that all bank depositors pay a tax of between 6.75 and 10 percent of their total deposits to help fund the bailout.
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While one can sympathize with EU taxpayers not wanting to fund yet another bailout of a poorly-managed banking system, forcing the Cypriot people to pay for the foolish risks taken by their government and bankers is also criminal. In their desire to punish a “tax haven” catering supposedly to Russian oligarchs, the EU elites ensured that ordinary citizens would suffer just as much as foreign depositors. Imagine the reaction if in September 2008, the US government had financed its $700 billion bank bailout by directly looting American taxpayers’ bank accounts!
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While the Cypriot parliament rejected that first proposal, they will have no say in the final proposal delivered by the EU and IMF: deposits over 100,000 euros are likely to see losses of at least 40 percent and possibly as much as 80 percent. “Temporary” capital controls that were supposed to last for days will now last at least a month and might remain in effect for years.
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read more!
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Ron Paul is right to castigate fractional reserve. Just to expand on that, Cyprus would have been a storm in a tea cup under full reserve and for the following reasons.
Under full reserve, depositors are made to choose between, first having their money lodged in a genuinely 100% safe manner: e.g. having the money lodged at the central bank where it cannot possibly be lost, but the money earns little or no interest. Second, depositors can choose to let their bank lend on or invest their money. But in that case depositors foot the bill if it all goes wrong (i.e. they can be bailed in). At least that sort of “two account” system operates under full reserve as advocated by Laurence Kotlikoff and secondly by this lot:
http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf
In that scenario, Cyprus depositors who had chosen 100% safety would have lost nothing. While those who had chosen to let their money be put at risk would have taken a hair cut. But the latter would have been nothing more than they signed up for when first lodging their money.
Problem solved.
Reblogged this on Family Survival Protocol.