A Bank Account Tax
Poor Richards News is outraged at the prospect of a (hefty) levy on bank account deposits:
The financial situation in Cyprus is looking dire, and leaders in the Eurozone country are now seeking to invade private bank accounts to steal 25% of all deposits over €100,000 (about $130,000).
Cyprus said on Saturday it was looking at seizing a quarter of the value of big deposits at its largest bank as it races to raise the funds for a bailout from the European Union and to avert financial collapse.
Finance Minister Michael Sarris said “significant progress” had been made in talks in Nicosia with officials from the European Union, European Central Bank and International Monetary Fund.
He confirmed discussions were centered on a possible levy of around 25 percent on holdings of over 100,000 euros (about $130,000) at Bank of Cyprus, and expressed hope that a package could be ready by the end of the day for approval by parliament.
Cyprus faces a Monday deadline to clinch a bailout deal with the EU or the European Central Bank says it will cut off emergency cash to the island’s over-sized and stricken banks, spelling certain collapse and a potential exit from Europe’s single currency.
If this ends up passing, EU leaders will call it a “tax,” but it is what it is: organized theft. What frightens me more than the instability that this will inevitably cause in the global financial system is the precedent that something like this will set for other countries.
We like to pretend that such brazen theft of private property could never happen here in the US, but the budget passed this morning by Senate Democrats puts us well on the path to where Cyprus is now.
As poor Richard is reliably conservative, I’m a bit surprised at his apparent desire for a consequence-free bailout in Cyprus. (Full disclosure: I’m not actually surprised.) Because absent a bailout, there’s not going to be anything to steal. The banks are facing imminent default. Let’s put that differently. The money is gone. Private individuals put their private money in a private bank that made some private decisions to invest heavily in Greek bonds. A variety of central banks had been providing liquidity to the Cyprus banks and they decided to cut off the Cyprus banks. So now they’re looking for public help. And some of that public help may be a tax on the depositors who are also getting bailed out.
(I’m not quite sure why the budget the Senate Democrats passed would put us “on the path to where Cyprus is now.” I’m unaware of any proposals to further deregulate banks or to try to create an economy disproportionately dominated by high net worth foreign investors. Is the idea that you wouldn’t like to be in Cyprus’s situation and you also don’t like the Democrats?)