{"id":263,"date":"2013-03-18T15:50:10","date_gmt":"2013-03-18T19:50:10","guid":{"rendered":"http:\/\/www.dougsbriefcase.com\/blog\/?p=263"},"modified":"2013-03-20T10:12:55","modified_gmt":"2013-03-20T14:12:55","slug":"will-your-checking-account-pay-for-the-next-bank-bailout031813","status":"publish","type":"post","link":"https:\/\/www.dougsbriefcase.com\/blog\/will-your-checking-account-pay-for-the-next-bank-bailout031813\/","title":{"rendered":"Will your checking account pay for the next bank bailout?"},"content":{"rendered":"

Be very afraid: there\u2019s a bank\u00ading cri\u00adsis in Cyprus.<\/p>\n

Huh?<\/p>\n

The banks in Cyprus are in des\u00adper\u00adate straits \u2013 so des\u00adper\u00adate that, over this past week\u00adend, rep\u00adre\u00adsen\u00adta\u00adtives of the \u201ctroi\u00adka\u201d (Inter\u00adna\u00adtion\u00adal Mon\u00ade\u00adtary Fund, Euro\u00adpean Union and the Euro\u00adpean Cen\u00adtral Bank) flew to the Mediter\u00adranean island to engi\u00adneer an emer\u00adgency bailout of its largest banks. The scene has become a famil\u00adiar one in the Euro\u00adzone, so famil\u00adiar that Wall Street already has shrugged it off as just anoth\u00ader sideshow in the glob\u00adal bank\u00ading circus.<\/p>\n

But this sideshow may just be worth watch\u00ading, because this bailout is being financed in large part by funds that peo\u00adple have on deposit in their check\u00ading and sav\u00adings accounts. Under the plan, the troi\u00adka will ride to the res\u00adcue but only if the gov\u00adern\u00adment of Cyprus helps out by con\u00adfis\u00adcat\u00ading mon\u00adey that Cypri\u00adot con\u00adsumers and oth\u00aders have deposit\u00aded in the country\u2019s banks.<\/p>\n

But Cyprus doesn\u2019t have an FDIC<\/span> that insures their deposits, do they? Actu\u00adal\u00adly, deposits are insured up to 100,000 euro. But not if the bailout hap\u00adpens. Under the plan<\/a>,<\/span> the gov\u00adern\u00adment will extract 6.75 per\u00adcent from accounts up to the insured amount of 100,000 euro and 9.9% for deposits in excess of that insured amount . So a Cypri\u00adot fam\u00adi\u00adly that has man\u00adaged to set aside, say, 10,000 euro ($13,000) in a \u201cgov\u00adern\u00adment-insured\u201d sav\u00adings account will lose 675 euro ($878) once the plan is imple\u00adment\u00aded. So much for deposit insurance.<\/p>\n

So how did Cypri\u00adots react? The same way you would: they flocked to their local ATMs<\/a> to get out as much of their mon\u00adey as they could, quick\u00adly drain\u00ading them of avail\u00adable Euros (Mon\u00adday was a bank holiday).<\/p>\n

How did the gov\u00adern\u00adment respond? By announc\u00ading<\/a> that the banks would remain closed until at least Thurs\u00adday . So that calmed every\u00adone down, right?<\/p>\n

\"March<\/a><\/p>\n

Well, maybe not so much, as the Reuters pho\u00adto shows.<\/p>\n

And the clam\u00ador isn\u2019t lim\u00adit\u00aded to the cit\u00adi\u00adzens of Cyprus. The Econ\u00ado\u00admist<\/a> called the plan \u201cunfair, short-sight\u00aded and self-defeat\u00ading\u201d. The Russ\u00adian gov\u00adern\u00adment, home to many sketchy busi\u00adness\u00ades that alleged\u00adly laun\u00adder their mon\u00adey through the island\u2019s banks, is pre\u00addictably out\u00adraged<\/a>. There are even reports from Greek sources<\/a> that Russ\u00adian ener\u00adgy titan Gazprom may try to pull togeth\u00ader its own alter\u00adna\u00adtive to the Troika\u2019s bailout .<\/p>\n

Suf\u00adfice it to say that the Bailout Bunch has real\u00adly stepped in it this time. They very well may use the next cou\u00adple of days of shut\u00adtered banks and emp\u00adty ATMs to devise a Plan B.<\/p>\n

But even if they back off this time, there is a les\u00adson in this for all of us. The glob\u00adal finan\u00adcial cri\u00adsis hasn\u2019t so much end\u00aded as gone dor\u00admant. Like an active vol\u00adcano, there are occa\u00adsion\u00adal hic\u00adcups and belch\u00ades, but no erup\u00adtion. Until the next erup\u00adtion. Gov\u00adern\u00adments can and will take extra\u00ador\u00addi\u00adnary steps to mit\u00adi\u00adgate the con\u00adse\u00adquences of that erup\u00adtion, but they are run\u00adning out of ways to prop up fail\u00ading banks while dis\u00adguis\u00ading the cost of these bailouts from con\u00adsumers and taxpayers.<\/p>\n

The last big bailout of US<\/span> banks result\u00aded in (tem\u00adporar\u00adi\u00adly) high\u00ader fed\u00ader\u00adal deficits, extra\u00ador\u00addi\u00adnar\u00adi\u00adly (and con\u00adtin\u00adu\u00ading) low bor\u00adrow\u00ading rates for banks, a bloat\u00aded Fed\u00ader\u00adal Reserve bal\u00adance sheet, stub\u00adborn\u00adly high rates of unem\u00adploy\u00adment and slug\u00adgish eco\u00adnom\u00adic growth that may end up last\u00ading a decade.<\/p>\n

In oth\u00ader words, we paid (and are still pay\u00ading) for the last erup\u00adtion. Those costs can seem dis\u00adtant and abstract. Until they come for your check\u00ading account.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Be very afraid: there\u2019s a bank\u00ading cri\u00adsis in Cyprus. Huh? Con\u00adtin\u00adue read\u00ading \u2192<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":264,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","wp_typography_post_enhancements_disabled":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"nfd_image_url":"","nfd_onboarding_generated":"","footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[18,14],"tags":[20,1181,1182,24,23,22,26],"class_list":["post-263","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","category-global-economy","tag-banking-crisis","tag-cyprus","tag-european-central-bank","tag-european-union","tag-international-monetary-fund","tag-troika","tag-wall-street"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t