Cyprus Mail
CM Regular ColumnistOpinion

Bail-in was reasonable though not palatable

Wall Street Crash of 1929

Johan van den Kerkhof

KUDOS to DISY MP Rikkos Mappourides for dispensing with Political Correctness and telling it like it is about prostitution. Especially as he must have known that he’d take a lot of stick. Good on yer mate.

And admitting in public that he hired the services of a sex worker, what a gutsy move.

Just one criticism, if I can even call it that: Rik, since you’ve got children – two adult daughters I understand – maybe it wasn’t very clever to advertise your sexscapades. But hey, that’s your business I guess.

Predictably, the usual suspects – female MPs – were all over Mappourides. Even members of the male gender – like DIKO’s Nicolas Papadopoulos – jumped on the PC bandwagon. Nicolas, I didn’t realise you were that sensitive. Now I’m sure I dislike you.

In what was a rare breath of fresh air, Mappourides was talking some sense: the best way to root out exploitation of women is to control the sex trade. Tax it, regulate it, health checks, the whole nine yards.

To all the hypocrites out there: you can’t ban prostitution, neither can you contain it. It has always been with us, and always will be. Outlawing it is like burying your head in the sand, pretending it’s not there so you can feel good about yourselves. All you’ve done is push it underground, making it even more dangerous for women.

You Pharisees don’t understand that ‘legalising’ prostitution doesn’t mean you have to like it.

No, what’s wrong here is that you’re offended by the concept, and are trying to legislate for taste. What a prudish and dictatorial bunch you are.

Next. DIKO spokesperson Christiana Erotokritou blew me away last week, asserting, with poise, that the alleged involvement of the Papadopoulos law firm in the Milosevic money-laundering affair is “just rumours”.

It’s true that no one from the law firm has ever been found guilty in a court of law – nor anyone else in Cyprus for that matter. Yet I’d urge Ms Erotokritou to read the report by Morten Torgildsen, special investigator of the International Criminal Court. There she’ll find mention of the eight offshore companies set up in Cyprus as fronts for Milosevic’s money-laundering scheme.

The companies were registered by the Tassos Papadopoulos & Co law firm, which also happened to be the lawyers for Laiki, the implicated bank.

“Just rumours.” Spin is one thing, but there are limits.

It’s been two years now since the dreaded haircut of deposits, and a lot of folks are still mightily pissed off. And so they should be. Now, being a pauper, I didn’t lose any money in the bail-in, so I can’t imagine what it feels like to have your wealth confiscated. That said, from a cold and detached standpoint, the bail-in was the right solution at the time.

If those depositors hadn’t been burned, the rest of the population with nothing to do with Laiki or Bank of Cyprus would have. The state, that is, the taxpayer, would have ended up footing the bill for recapitalising the banks. One way or another, the shortfall had to be covered. Either way, a recession was on the cards. It’s more reasonable that those directly involved should pay the tab.

Again, reasonable doesn’t mean pleasant or even palatable. The powers that be in the EU decided this was the most rational solution, and they happened to be correct on this count.

But though the EU made the right call, that’s only half the tale. They’d never have pulled this stunt in a country whose commercial lenders were big enough – systemic, in banker jargon. Think what it would do to the euro were a haircut enforced in Italy or France. But in little Cyprus, fallout from a bail-in was manageable, especially since foreign banks (read: Russian) were left untouched.

The basic premise for a bail-in was solid. Too bad for the double standards though. So yes, the bail-in is a template for future bank failures…kind of and sometimes.

People – including myself at the time – were mortified that their savings were not sacrosanct. Well, they aren’t. Thing is, we’ve been programmed to expect that our deposits are insured. It wasn’t always so. In the United States, the Federal Deposit Insurance Corporation (FDIC) was set up in 1933, not that long ago.

In the olden days, when a bank failed, the creditors, including depositors, lost their money – all of it. That’s how it should be. Otherwise you’re subsidising a failed business, throwing good money at bad.

Factoid: in March 2013, the month the bail-in was foisted on Cyprus, there were $10.8 trillion in deposits in US banks. Guess how many funds the FDIC held to insure depositors? Just $33 billion.

Economist Peter Schiff makes a great point when he says, and I quote from a speech of his: “People do a lot of research before they buy a plasma TV, but nobody does any research before they put their money in the bank. No one cares. Who could care? Because the government has created a moral hazard by guaranteeing the accounts.”

Capitalism and free markets aren’t the problem. But what we’ve got here is crony capitalism. Governments should leave the markets the heck alone, instead of bailing out banks and/or printing more money.

A little-known economic meltdown in the US in 1920, arguably worse than the 1929 Wall Street Crash, did not turn into a Great Depression, precisely because the government of the time did absolutely nothing to ‘fix’ the problem, except cut its own spending.

Late last year a story broke, which the mainstream media didn’t pick up on. Journalists discovered filings by the CME Group – which operates the major futures exchange in the United States – showing that central banks are receiving special volume discounts for trading futures on all the major futures exchanges, not just financial futures contracts and metals futures contracts, but even agricultural futures contracts.

The CME Group’s filing listed its customers, which included governments and central banks. If central banks are creating infinite liquidity, which they are, nobody can trade against them. Nope, the markets are no longer free.

Related Posts

Our View: Policy of keeping Moscow happy not set in stone

CM: Our View

A crucial election looms

Christos Panayiotides

What happens when science puts the universe into music

The Conversation

Our View: Ten years on, chance to tackle public sector payroll was missed

CM: Our View

The king without a crown

Paul Lambis

How to write an obituary

CM Guest Columnist


Comments are closed.