Tuesday, March 26, 2013

Meanwhile While US Investors Stick Their Head in the Sand.....

Private assets are being taken to bailout bad debts. Don't let anyone fool you, The Cyprus economy may be small, but so was the subprime housing market. Although the country's banks have been 'bailed out', the terms of the rescue appear to set a dangerous precedent. First they will seize the assets and deposits of large depositors, only to change the definition of what large means. If you do not believe me, a Eurozone chief has said just as much. As reported by The Telegraph.....

The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.
The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.
"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'," he said.
"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders."
Ditching a three-year-old policy of protecting senior bondholders and large depositors, over €100,000, in banks, Mr Dijsselbloem argued that the lack of market contagion surrounding Cyprus showed that private investors could now be hit to pay for bad banking debts.

Additionally, the same view reported by Bloomberg.

The message that stakeholders of all stripes can be coerced into helping a cash-strapped nation may make investors more skittish they’ll be targeted if Slovenia, Italy, Spain or even Greece again is next in line to need help. The risk is that bank runs and bond market selloffs become more likely the moment a country applies for a new rescue, said economists and academics from Nicosia to New York.

“We now have a new type of rule and everyone within the euro zone has to sit down and see what that implies for their own finances,” Nobel laureate Christopher Pissarides, an adviser to the Cypriot government, told “The Pulse” on Bloomberg Television.

In my opinion, it will just be a matter of time before this 'rescue' is emulated not only in Europe, but where ever there is a banking crisis. 

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