Friday, March 22, 2013

Cyprus: The Breakdown of Capitalism II


Coming from the "rich tail wags the poor dog" department, we find this week that a few decision-makers in the Cyprus banks, plus failed Cyprus bank regulation, have caused risk to every Cypriot's savings. One proposal was to confiscate 6.75% even from allegedly "insured" small accounts! And the politicians claim, "We have no choice!"

In tosoc.org's eyes, this is a typical financial squeeze play. In order to save the world, the poor have to pay for the mistakes of the rich.

It worked like this: first you lure Cyprus into the euro zone in 2008. Then you allow Cyprus banks to take in deposits from Russia and elsewhere until the banks are 7 to 8 times the size of the Cyprus GDP. Mix in a financial crisis and a lot of bad loans to Greece, and suddenly the people of Cyprus find themselves on the hook to save the banks.

If we seem repetitious at tosoc.org, it is because we see the same trick working over and over again. You chain the poor with a single currency and they are prosperous for a while. Then a financial crunch comes and you whip them with economic fear until they cough up their money. The poor cannot escape because they are chained to the single currency.

The rich on the other hand work in many currencies. They escape.

If you say this cannot happen in the United States, tosoc.org says that it already has. It has just happened in a different form. Instead of confiscating our bank accounts, the government has added enormous amounts of public debt. This is debt that the rich ultimately do not have to pay because if taxes get too high, they can run away to "friendlier" countries, leaving the debt problems behind.

If the Cypriots do not pay up, another proposal is that they sell their country cheap to raise the cash. In an online Reuters article by Michelle Kambas here, the plan is described this way:

Trying to placate its lenders, the government proposed to parliament a "solidarity fund" that would bundle state assets, including future gas revenues, as the basis for an emergency bond issue, likened by JP Morgan to "a national fire sale".

When an entire nation has to sell its future cheap to pay off obligations made by a few, capitalism has broken down. That is why we called the Greek experience a breakdown of capitalism, and this is just another manifestation of it.

Note also this quote in an online article by Jeff Macke from Breakout, and the accompanying video discussion with Jon Najarian.

Should the EU come under meaningful strain because of a $13 billion bailout, then it was never a real Union in the first place. For the time being, Cyprus is a camera opportunity. The real victims are lined up in front of ATMs trying to extract their deposits, while the truly well-heeled make alternate plans.

Exactly. Many have made this point, including tosoc.org. Why are the few allowed to victimize the many?

Laws and regulations have failed to put a stop to this. That is why tosoc.org recommends multiple exclusive currencies and markets. This automatically imposes capital controls when not everyone is allowed to own units of some currencies. If the internal economy of Cyprus had still been run on the Cypriot pound (a.k.a. the lira), and no one but poor Cypriots allowed to own it, then there would be no currency shortage and threats of confiscation now. There would have been no internal bank closures and the poor would have access to their money.

At the same time, with multiple exclusive currencies, external Cypriot banks could still have played the external currency game with the Russians. Everyone would have known that the people of Cyprus would not be on the hook for international shenanigans. Let the international rich take their own chances. Yes, the banks could fail and some Cypriots would be put out of work temporarily, but it would not have become a national crisis and burden.

One way to express the basic problem is that large banks can put entire populations at economic risk, and they do. The way to stop that is to firewall them away from the rest of us by making them operate in worldwide, external currencies that the poor do not use. That way they cannot reach directly into the pockets of the poor to save themselves, or hold the people hostage in order to make governments help them do it.

The case of Cyprus puts the open and raw extortion efforts by the EU, the ECB, and the IMF on public display. We have a solution at tosoc.org, so please help us put a stop to it, both in the U.S. and elsewhere.



Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (tosoc.org)

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