UKC

How would this plan to bail out the banking system play out in the UK?

http://www.bbc.co.uk/news/world-europe-21814325

People in Cyprus have reacted with shock to news of a one-off levy of up to 10% on savings as part of a 10bn-euro (£8.7bn; $13bn) bailout agreed in Brussels.

In reply to woolsack:

in a run on the banks? Cant say i would be overly impressed at getting some dubious shares in return.
If it was applied to those who have borrowed recklessly I could see its worth but as it stands it would be punishing those who werent f*ckwits.

In reply to dissonance:

Whilst I am not sure I agree with the planned haircut of deposits, the argument goes ... why should the EU bail out the Cyprus banks which have taken billions of Russian money (much of it likely to be laundered) and then lost it by investing in Greek government bonds? If the Russians aren't prepared to bail out Cyprus, why should the EU? As an offshore financial centre, the banking sector is a huge part of their economy.

The problem is, the EU have forced the Cyprus gov't to tear up its guarantee to protect the first 100k of your deposit with a bank. Most govt's have such guarantees in place; mostly to stop people like you and me taking their money out as soon as there is a financial crisis and causing a run on the banks. If the EU made Cyprus tear up this guarantee, why won't it do it again in Spain, Italy or, potentially, even here.

So the real problem for us and others is the EU's apparent stance on gov't guarantees... which might now make a run on the banks more likely.

I am involved with a fair amount of business over in Cyprus and have been watching this play out with interest. Everyone saw something coming but not quite this.

In reply to woolsack:

would make more sense if borrowers had to pay 10% more as well?

In reply to woolsack: It would be interesting to see the bank accounts of the powers that be to see how much money they moved before coming up with this plan.

In reply to Dax H:

It's a bit of a kick in the bollocks to be honest.

I was in shed loads of student and credit card debt in the late nineties and thought 'as long as I'm not defaulting and paying the min payments, things are ok'. When I finally got my head out of my arse and worked out how much in interest it was all costing I decided to sort it out.

Lived like a pauper for bloody ages. Survived on soup. Everything went on paying off the debt and eventually I became debt free.

Then everything went into savings. Asked whether I 'needed' something or simply 'wanted' something before I bought it. No credit. No buy now / pay later.

Got quite a bit saved up in the bank now that will hopefully go towards buying a house soon but the interest rates are pathetic (thankfully a lot of it was locked away several years ago when rates were a bit better).

But there really hasn't been any incentive to save at all for the past few years (other than for peace of mind I suppose). You'll notice that all the adverts for ISA's now only extoll the benefits of the tax-free status and never show you the actual interest rate because they're so low.

Now this. Awesome.

In reply to ThunderCat:

Nice rant about the position for UK savers

However, what do you think about people in Cyprus who will lose 10% of their savings and where the EU has forced the Cypriot gov't to renege on the 100k bank deposit guarantee for savers? Is that a fair enough price of the EU bail out?

In reply to Skyfall:


I don't know Skyfall, I simply don't know. About economics on a such a grand scale, or about anything. I just feel hard done by (personally) and I was actually trying to be a bit humble and make myself realise how much more p**sed off I would be if I was a Cypriot saver rather than a UK (nowt like looking at someone elses misfortune to make you feel better about your own situation is there )

I thought i was doing the right thing in not using credit, living within my means, saving for a rainy day and sometimes its hard to not think 'maybe I should have spunked it up the wall and lived on the never never.', cos I'm sure a load of cypriots are feeling the same way about now.

In reply to Skyfall: I am stunned by this.It doesn't affect me but I reckon Dick Turpin had more scruples. Like you say if guarantees designed to protect ordinary savers can just be torn up then who is safe? I'd say nobody.
sjm

In reply to woolsack: It is happening in the UK. It's just we do it by currency debasement and importing inflation. Don't be fooled by the official inflation figures, we all know how much more the cost of living is. Our government removes 10% by stealth, that is the only difference.

Having said that, this is probably the beginning of the end of the euro. It is becoming more and more obvious that the populace are now no longer interested in a bunch of unelected beuarocrats telling them what's good for them. See Italy election, see UKIP, it will be the new norm. Thankfully people are beginning to wake up to the flawed EU project and more and more want out. This will continue

I suspect this will encourage bank runs in Greece, Ireland, Spain and portugal (why wouldn't it?) and should be good for physical precious metal prices and the USD (and probably sterling). Be interesting to watch eur$ tomorrow morning.

In reply to sjminfife:

It seems incredible that the EU can just decide to take 10% of peoples savings just like that. How long before this is rolled out across the rest of the EU?

In reply to ThunderCat: Don't be too despondent, there are decent funds out there for stock share ISAs, forget cash...buy into some funds. See and IFA and get some advice.

look at the performance of Invesco Perp high income, First State global emerging leaders..not to say thats will continue...but you get the picture

In reply to Ridge:


its the 6.6% which is more dubious since that is on the 100k which had the insurance guarantee.
A % of the amount above could be considered fair enough (under the right circumstances) as an alternative to losing the lot if the bank fails completely.

In reply to Ridge: The million dollar question. Just be wary on a friday before a bank holiday weekend.

A lot of people will be getting out of euros and into CHF/USD/GBP/NOK...anything with less immediate risk. Probably a good time to open that spread betting account and get involved in some currency pairs, you would expect some volatility off the back of this .

In reply to sjminfife: Agree, this is massive news...make no mistake..a line has been crossed.

In reply to Ridge:


My feelings also. It'll be open season. "Hey Dave I've had a new idea lets not just tax people for having a spare bedroom let's let's just send sjm a mail saying from monday the Jones will be living with him and the Evans can camp on his back lawn and a travelling family on his front standing......"
Hyperbole I know but I'm thinking of starting to collect old car tyres for the inevitable barricades

In reply to sjminfife:

In England people used to be taxed on the number of windows they had! There's no shortage of ideas to increase taxation, what's lacking is ideas about how to reduce unemployment.

In reply to woolsack:

Agreed. This really is shocking... what's next??

To be fair though, as I mentioned above, the Cypriot economy has benefitted hugely from the influx of Russian money. A lot of that is dirty money and the Russians used Cyprus as a gateway into the EU and safety and their relatively lax money laundering regs helped them do that. This massively inflated the banking sector and lots of Cypriots made money out of that. If you visit, you will see lots of Russians spending money there too. So a lot of the locals will have made money out of that in the past. This has been a bit of an open secret for ages and I suppose the EU are effectively saying they're not going to bail out an economy built on dirty money and their membership of the EU to attract it. Harsh but there's some truth in that.

But, I totally agree, it feels like a line has been crossed.

In reply to Doghouse:

Quantitative easing causes the same thing, albeit less visibly. Your balance doesn't change, but its value drops, easily by the amounts mentioned.

In some ways it's a little more up front and honest.

Neil

In reply to Bjartur í Sumarhús:

Whilst I don't disagree about investing in suitable funds, of course the penalty you pay is increased risk. You may look at a fund and it looks ok now and decent track record, but there are plenty examples of funds which do change, for example, when a fund manager leaves. Also, the funds are never going to do better than the underlying investments the funds invests in and, if asset values are volatile, so will the fund value.

Also, ISA's are only any good if you benefit from the tax break. If you don't pay higher rate tax and/or don't use your annual CGT exemption, there may be no benefit at all. So direct investment may be better and more flexible.

In reply to Skyfall: I wouldn't be surprised if the serious Russian money knew about this before it happened and is now safely tucked up somewhere else.

You have to wonder if this is a test piece by Brussels to see the reaction. Interesting week ahead.

In reply to Bjartur í Sumarhús:

I'm absolutely certain a lot of money did leave the island before this happened. We knew something like this was on the cards months ago - the thing which has caught people out is reneging on the 100k per deposit guarantee (whcih mostly affects the man on the street rather than the v wealthy).

Of course, the dirty Russian money may have been difficult to move somewhere safer (with better ML regs) so by default may have been left there.

In reply to Skyfall:


The report makes it sound like the idea is to target the Russians:

"People in Cyprus with less than 100,000 euros in their accounts will have to pay a one-time tax of 6.75%, Eurozone officials said.

Those with greater sums will lose 9.9%."

then:

"European regulators and politicians are convinced that a vast amount of cash in Cypriot banks belongs to Russian money launderers, our business editor writes."

I guess they're thinking that most Cypriots won't have more than €100K in any one account.

Great news for UKIP of course..

In reply to Removed User:

Great news for UKIP, because without the EU there would have been some sort of bail-out at all?

Neil

In reply to Neil Williams:

So in the UK what is the approx % depreciation in the value of my savings due to QE?

In reply to Jimbo W: My understanding is that QE is creating Central Bank Reserves and not money that goes directly into general circulation and is a drop in the ocean compared to the amount of credit created by commercial banks. Money created by the BofE surprisingly makes up less than 3% of our money supply (M4 I believe it is called).

In reply to Jimbo W:

Not sure off the top of my head. But inflation is certainly running quite high at present...

Neil

In reply to woolsack: And yet our friends at the top of the banking tree remain largely unaffected as they divvy up the spoils of another year of successfully skimming off the cream. Socialising the debt, what a masterful idea!

This will devastate the Cyprus economy generally I suspect. I am sure everyone will suffer from that regardless, though it's true that proportionately it is likely to hit the less well off more. Of course, if you were in debt, you're fine (in terms of immediate impact)!

In reply to woolsack:

I suspect this made sense to some out of touch economists and/or politicians who view our bank deposits as a loan to the bank for which we receive payment either in the form of (derisory )interest rates or 'free' banking. They therefore think that as the 'loan' has gone bad depositors should take what is euphemistically called' a haircut' and the rest of us call havin g our money nicked. It seems good fun when it happens to other bankers and hedgefunds but not so funnyt now..

Unfortunately that is not how punters like you and me view it. We put our money in the bank thinking it is absolutely safe, not least because of government guarantees. Now we know better and all bets are off and I'd have thought some some of run on the banks, especially in the PIGS must be almost inevitable. If I lived in any of the PIGS I'd be first in the queue at th bank doors.

In reply to Skyfall:

I'd have thought it will hit the middle hardest because they are the ones with savings they rely on. If you are some Russian gangster with £10m and lose £1m you'd be damned annoyed but it will hardly change your life(style). Likewise if you have no savings at all you are unaffected. But if you only had a few thou saved up for retirement etc you'll feel it.

In reply to Wiley Coyote:


Well exactly but I've already said that. I am calling that the less well off in this context.

In reply to Skyfall: Just received email...opening line (pf =pure fear)

"I see it's pf on the asia open....make sure hedge book open on euro......blah blah"

eurjpy down 2.38 big figures already, one has to wonder if this will take on a mind of its own.

In reply to Bjartur í Sumarhús:

of dear, all my gains of recent months about to get flushed down the pan....

In reply to woolsack: Italy did something similar before joining the euro in order to help "balance the books". I wouldn't want to be living in Spain or Italy right now.

In reply to icnoble:

I have a funny feeling about the UK in a few years time.

In reply to Wiley Coyote:

Surely it isn't the economists who are out of touch but the public?

It is funny that this is causing so much fuss. Who do people think is paying for the bank bailouts elsewhere? One way or another it is the ordinary public who are funding all of the bailouts.

Savers in the UK have been massively hit by the prolonged super low interest rate. This has affected retired people especially hard. As stated above if you have money saved in the bank it is virtually impossible to match inflation so you are in effect losing money. Due to the structure of the modern British economy it hasn't had the traditional stimulatory effect that was the stated aim and arguably because of the reduction in retirees income that it causes it could have the reverse effect.

In reply to Bjartur í Sumarhús:

If they didn't you can bet on there being some pretty pissed off Russians. Pity much of Europe's gas comes from that direction. Paybacks are a bummer. Much of that hooky money is probably Putin's friends

In reply to woolsack: Is this not a bit of a catch 22? As savers we generally forget that we are still investors. Despite government guarantees if the bank goes pop you still lose your money. Better to loose 10% that everything. The thing I don't understand is that the Cypriate banks are weak as a result of investing in Greece, but I thought Greece had been bailed out so that it didn't have to default... on the likes of Cyprus?

In reply to BigBrother:


Its that people are being charged on the 100k or less which is dubious.
No point having a guarantee on the savings if it is so easily cancelled out.