Anorak News | Finally, a sensible settlement in Cyprus

Finally, a sensible settlement in Cyprus

by | 25th, March 2013

Cyprus Financial Crisis

IN fact, the settlement in Cyprus is so sensible that it’s a wonder they didn’t just do this a week ago. Or even 6 months ago when it was obvious that the place needed help. For is was obvious that the banks were bust,. For what they were doing was taking all that lovely Russian money and then lending it to the Greek Government. Who, as you might recall, then decided not to pay 90% of the money they’d borrowed back. From which point on the Cypriot banks were bust no matter what else happened.

Given all of that what should have happened is that the shareholders and bondholders in the bust banks should lose all their money. Only then should depositors lose any of theirs. And among the depositors, those covered by deposit insurance shouldn’t lose any. Those who are not covered by deposit insurance should lose enough to solve the problem. As to why this, well, deposit insurance is the government just telling everyone that this is the way it will be. So, when it happens, this is the way it should be.

And that’s p0retty much the deal that’s on offer now. And it’s about the best deal that could be got. It obeys the law, solves the problem as best it can be solved and there’s pretty much an end to it.

The biggest difference between this deal and the one of last week though isn’t that they’ve protected the small depositors. It’s that last week they were going to bankrupt every bank in Cyprus. This week they’re only going to bankrupt the two which are bankrupt. This is something of a step forward for financial logic.

There’s a bigger lesson here too. When someone or something is broke it’s best to just admit it. Yup, you’re broke. Now, who is going to have to take the losses? It’s much better to do it that way than to try and carry on as if nothing is wrong. They waited far too long in Cyprus but at least now, finally, they’ve done the right thing.

Photo: A man passes a sprayed entrance of a store that buys gold which reads in Greek ” thieves” in capital Nicosia, Cyprus, Monday, March 25, 2013. Cyprus secured what its politicians described as a “painful” solution to avert imminent bankruptcy, agreeing early Monday to slash its oversize banking sector and make large account holders take losses to help pay to secure a last-minute euro10 billion (US$13 billion) bailout. 

Posted: 25th, March 2013 | In: Money Comment | TrackBack | Permalink