Counterparties: Insane in the Mediterrain
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The island of just under a million, whose central bank governor is actually named Panicos, has closed its banks until Thursday in order to stop its citizens from, well, panicking. Less than a month ago, Cyprus’s newly elected president vowed none of this would be spoken of, let alone happen: “Such an issue isn’t even up for discussion.”
It’s now a reality. Still, the Cyprus bail-in deal looks marginally less crazy if you squint in a particular wonky way. As Lex notes, the cornerstone of modern banking — that deposits are untouchable and risk free — was never really true. This risk-free deposit notion was particularly dubious, Simon Nixon suggests, for a country that’s “one of the most leveraged in the world,” with banking assets eight times the size of its GDP. “Cyprus is not in a position to rule out any ideas, even stupid ones,” Nixon wrote earlier this month. Joseph Cotterill calls the plan, whose official title is the “upfront one-off stability levy”, a “stupid idea whose time has come”.
There has been lots of talk that Cyprus situation is a dangerous precedent. Citi’s Willem Buiter thinks it’s a good precedent that we’ll see repeated many times in the next few years. His logic: bank bail-ins, in which depositors, not bondholders, suffer losses, are the quickest route to restructuring Europe’s debt. Buiter also argues that taxing ordinary folks’ savings accounts is less politically offensive than taxpayer-funded bailouts. Germany, for its part, appears to hate idea of taxing ordinary savers — though Germany presumably hates the idea of paying for the full Cyprus bailout even more.
Jim O’Neill of Goldman Sachs wonders “whether this means investors can trust European politicians at all.” Judging by the the latest official statement on Cyprus, it may be impossible to even understand Europe’s politicians. (Somehow, the Eurogroup has contrived to say that it “reaffirms the importance of fully guaranteeing deposits below €100,000”, while at the same time agreeing that Cyprus should expropriate a significant chunk of those very deposits.)
Matt Levine sees upside in Europe’s consistent inconsistency. The European crisis, he writes, is essentially “a series of rescues that inflicts pain in new and surprising ways each time sends ambiguous messages to the effect of ‘everything might be screwed but you can’t really know that you’ll be the guy who’s screwed.’”
There is some late word that some senior bank debt holders may take losses, not that they hold much debt in the first place. But, don’t worry, if Europe can’t save Cyprus, maybe a Russian state-owned energy giant can. Gazprom has reportedly offered to bail out the country’s financial sector in exchange for rights to its natural gas. — Ryan McCarthy
Twitter founder Jack Dorsey wants to be mayor of New York City – Vanity Fair
“You’re very pretty and you should enjoy it,” Bloomberg told her. “It’s something you’ll look back on all your life.”" – Gawker
Programming a computer to trade securities with itself is probably illegal – WSJ
“If you think that running banks with so little loss-absorbing equity is crazy, you are right” – Martin Wolf
And, of course, there are many more links at Counterparties.