Saturday, March 16, 2013

Cyprus plans to confiscate up to 10% of bank deposits

It is a bad day to have your money deposited in a bank in the Mediterranean island nation of Cyprus. And it may just mean some bad days ahead for the rest of us.

Early Saturday, the nation reached an agreement with international lenders for bailout help. Part of the agreement: Bank depositors with more than 100,000 euros ($131,000) in their accounts will take a 9.9 percent haircut. Even those with less in savings will see their accounts reduced by 6.75 percent. That’s right: Anyone with money in a Cypriot bank will have significantly less money when the banks open for business Tuesday than they did on Friday. Cypriots have reacted with this perfectly rational reaction: lining up at ATM machines to try to get as much money out in the form of cash before the money they have in their accounts is reduced.
Read the rest here.

I think this is a colossal mistake. People are very logically going to conclude that if this can happen in Cyprus why not in another debt strapped country? It could precipitate a run on banks in every Euro Zone country that has major debt problems. If I lived in Greece Italy Spain or Portugal I would be waiting at my bank on Monday morning to yank every Euro and then convert half to gold and silver coins and bury them in the backyard.

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