Cyprus insanity: You can trust the Eurocrats to do the wrong thing
OVER this Cyprus thing. They’ve decided that everyone who has their bank deposits guaranteed by the government of Cyprus must lose some of their bank deposits guaranteed by the government of Cyprus. Which is insane.
Here’s the real basic problem: banking is inherently unstable. No, I don’t mean casino banking, excessive trading and all that stuff. Because banks don’t keep your money in the vaults, they lend it out to other people. So if we all turn up one day demanding our cash the banks go bust simply because our cash is invested in Mrs. Miggins’ mortgage.
The solution to this is that the government offers deposit guarantees. Not to everyone of course: the rich are presumed to be big boys and know what they’re doing. But to small depositors, you and me, they guarantee that if the bank goes tits up then they’ll make good our small deposits.
So, all the Cypriot banks are tits up. The money that was put into the accounts was then lent to the Greek Government which, as you might already know, defaulted a few months back. So, the Cyprus government should guarantee what they’ve promised, up to 100,000 euro, and all the big boys are shit out of luck.
What have the actually done? They’re going to only take 10% of the biggies but another 6.75% off all the people they’d promised to guarantee. So, that’s something of a blow to the idea that governments can be trusted.
But more than that, it makes all the deposit guarantees of all of the other governments look pretty suspect too. Which increases the chances of bank runs in the future.
I am I’m afraid, simply continually astonished at how these supposedly bright people who have set themselves up to rule over us manage to make exactly the wrong decision every time. They’ve just made the whole of the European banking system even more unstable.