The news over the weekend is that the Cyprus banking system will have a “holiday” on Monday which was “scheduled” AND at least Tuesday which was not. The ECB and IMF wanted a 40% haircut and apparently the deal reached is one where balances under €100,000 will be reduced by 6.75% and by 9.9% for those over €100,000. Understand that much of what is deposited in Cyprus are funds from wealthy Russian oligarchs and mafia.
This is a disaster on so many levels I can’t even count them all. First off, what happened to the rule of law? I thought that in a capitalistic society that equity holders lose first, then preferred shareholders followed by unsecured then secured debtors…DEPOSITORS are the absolute last in line to lose money. This is being called a “tax”, when in reality it is outright theft! In this case the depositors are first in line which will surely cause a bank run in Cyprus…which will be followed by runs in other places like Greece, Spain, Italy and Portugal. Make no mistake, this could turn into something ugly and HUGE very quickly as the world runs entirely on confidence and won’t run without it.
Investors (depositors) the world over will see this and shortly understand that the rule of law is no longer and that “possession” is now more than 9/10th’s of the law. The possibility exists that within 2 weeks the entire system is shuttered.
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