Ron Paul: "The Great Cyprus Bank Robbery"

By Ron Paul

The Great Cyprus Bank Robbery

The dramatic recent events in Cyprus have highlighted the fundamental weakness in the European banking system and the extreme fragility of fractional reserve banking. Cypriot banks invested heavily in Greek sovereign debt, and last summer's Greek debt restructuring resulted in losses equivalent to more than 25 percent of Cyprus' GDP. These banks then took their bad investments to the government, demanding a bailout from an already beleaguered Cypriot treasury. The government of Cyprus then turned to the European Union (EU) for a bailout.

The terms insisted upon by the troika (European Commission, European Central Bank, International Monetary Fund) before funding the bailout were nothing short of highway robbery. While bank depositors have traditionally been protected in the event of bankruptcy or liquidation, the troika insisted that all bank depositors pay a tax of between 6.75 and 10 percent of their total deposits to help fund the bailout.

While one can sympathize with EU taxpayers not wanting to fund yet another bailout of a poorly-managed banking system, forcing the Cypriot people to pay for the foolish risks taken by their government and bankers is also criminal. In their desire to punish a “tax haven” catering supposedly to Russian oligarchs, the EU elites ensured that ordinary citizens would suffer just as much as foreign depositors. Imagine the reaction if in September 2008, the US government had financed its $700 billion bank bailout by directly looting American taxpayers' bank accounts!

While the Cypriot parliament rejected that first proposal, they will have no say in the final proposal delivered by the EU and IMF: deposits over 100,000 euros are likely to see losses of at least 40 percent and possibly as much as 80 percent. “Temporary” capital controls that were supposed to last for days will now last at least a month and might remain in effect for years.

Especially affected have been the elderly, who were unable to use ATMs or to transfer money electronically. Despite the fact that ATMs severely limited the size of withdrawals during the two week-long bank closure, reports indicated that account holders who had access to Cypriot bank branches in London and Athens were able to withdraw most of their funds, leading to speculation that there would be no money available when banks finally opened up again. In other words, the supposed Russian oligarch money may well be already gone.

Remember that under a fractional reserve banking system only a small percentage of deposits is kept on hand for dispersal to depositors. The rest of the money is loaned out. Not only are many of the loans made by these banks going bad, but the reserve requirement in Euro-system countries is only one percent! If just one euro out of every hundred is withdrawn from banks, the bank reserves would be completely exhausted and the whole system would collapse. Is it any wonder, then, that the EU fears a major bank run and has shipped billions of euros to Cyprus?

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one's money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States. We need to end the Federal Reserve, stay away from propping up the euro, and return to a sound monetary system.

Comments

[Slack Jack]

The EU gives the Cypriot system 10,000 per citizen yet Tyler tells us that the EU is stealing from Cyprus.

TYLER IS A TOTAL MORON.

So what does Tyler mean when he implies/says the EU is stealing Cypriot money?

He means the Cypriot banks have stolen the money, right?

If a bank invests your money and loses it, then is that theft?

I posted this above but no one answered the questions.

[Axenolith]

The Cypriot bank, IMF, EU, FED etc... all have FIDUCIARY DUTIES that are CLEARLY OUTLINED in their charters and foundational documents.  WITHOUT FAIL they have violated strictures and requirements wholesale, and not been held to account for it by either the politicians in their respective countries (who've actively colluded) or the citizenry (up to a point).

If the bank invests your money, and then whistles past the graveyard when the investment[s] start heading south, either from the idiotic perception that it will "recover" or that "it will most certainly be bailed out", then they have failed in their duty and need to be swiftly prosecuted.

The EU steals money from the Cypriot banks by holding a gun to their head over the bailout offer, and making the terms contrary to the ordinary structure of losses in a banking unit, i.e. by placing bondholders before depositors.  In the ordinary failure or restructuring of a bank, the stockholders and bondholders get the shaft before the depositors. 

Of course, anyone with more than 100K Euros in a bank (or dollars for that matter here) might as well consider that the money is in a bizarre random casino with shitty odds (returns) and in which Guido randomly selects grannys at slots (depositors), $5 blackjack players (businesses/small institutions) and high stakes guys (some big investors/funds), beats the shit out of them, takes their money and throws them in the gutter...

[Professorlocknload]

But your Honor, the Federal Reserve Bank was under Fiduciary Obligation to protect the value of my dollars. And the FDIC was Chartered to protect all my deposits.

"Dream on, case dismissed." 

This is how all Fascist Systems die. Grand Theft.

[marcusfenix]

let's say you had $200,000 saved in a bank account.

one day, after the banking sector and government in the country in which you live took some incredibly stupid risks (namely, buying up debt from a country in which it was painfully obvious that they could never make good on the re-payments) causing your countries entire financial system to teeter on the edge of the cliff when said country's bonds turned out to be, surprise, surprise...junk.

now, none of this was your fault, the only "risk" you took was opening a bank account in which your money, being constitutionally recognized as "private property" was 100% guaranteed safe. in fact the head of your countries central bank issued a memo confirming that very thing and stated that there was no reason to even discuss seizing deposits because it could not be done legally.

suppose, a few days later you find out 2 things-

1. you can't withdraw any of your money due to an impromptu bank holiday for a week, and when they do finally re-open you are only allowed to take out $300 per day. remember, this is your money, your property.

2. your government colluded with a foreign group of bank heads and as a result you will lose 40%  of your savings, and you have nothing to say about it. no vote, no debate, no democratic process of any type and there isn't shit you can do about it. almost half of your savings vaporized because of the stupidity of others.

so let me ask, if it was you, wouldn't that seem as though they outright stole your money? more importantly would you really give a shit if the "system" was getting 10,000 per citizen? your money is gone, never to return and even if you directly received 10,000 as a result of the bailout, which of course you won't, it would still be a shitty deal and you would still lose big.

when somebody takes your property, without your permission or even consulting you, regardless of who they are or what reason is offered that is theft.

and that is exactly what happened in Cyprus.

[Kickaha]

You seem to be equating the Cyprus banking system with the people of Cyprus.  No Cypriot received $10,000 from anybody.  Bankrupt banks owing massive amounts of money to non-cypriot creditors had money pumped into them so that it could be piped directly to those creditors.  Thanks a pantsload, troika.

Most of those creditors are probably in the EU.  The EU is giving money to itself, with one important difference.

The ordinary people of Cyprus, at least those with some amount of personal wealth, are being told they must also pump money to these creditors out of their own meager personal wealth or their banks will be shut down and they will lose everything.  These debts are not their debts, but pragmatically it is probably better (if they can't simply withdraw and hide their money) to pitch in a percentage than to lose it all.

In the final analysis, the people of Cyprus are getting nothing, and being forced to funnel their money to EU creditors.

[Antifaschistische]

"Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking."

Even under a gold money situation, when you take your gold to the bank, you have two choices. Put it in a safe deposit box which is a "100% personal reserve" or you give it to the bank, to earn interest "which will become a "fractional reserve."

The problem isn't really the reserve requirement. The problem is the delta between a consumers perception of a "demand deposit" and reality. In a true market banking system large scale "demand deposits" would not be available. The deposit portfolios would need to align with the investment portfolio. So, if you took your 100k to the bank you'd be forced to choose 1 yr, 5 yr, 10 yr. etc. If you refused to choose one of these you would be charged a fee for depositing that amount as a "demand deposit" on a monthly basis.

So, this isn't really a byproduct of a fiat system, but a byproduct of a regulatory environment that prevents market forces from working the way they normally should.

[damage]

Try to explain this to most of the indoctrinated Rothbardtards, and they'll just keep parroting "fractional reserve is fraud" blah blah blah. Fucking sick of this whole circle jerk, every damn day lately it's some post where they try to blame the issue on lack of reserve requirements, when the problem is exactly as you explain.

Central banks with their monopoly on banknotes and reserves are the issue along with a completely fucking retarted regulatory regime.

I appreciate ZH, but at the same time I really don't appreciate this stupid at best, and deceitful at worst "loans are bad" meme.

I love Ron Paul, but his insistence that the problem is "fractional reserve banking" unfortunately makes him look stupid to anyone who actually knows how banking works. Also I'd bet $1000 this was written by Lew Rockwell and not Ron Paul.

In the end both Rothbard and Lew Rockwell can be blamed for ruining the libertarian movement from the inside, both with their retarded fixation on "fractional reserve banking" and their "outreach to the rednecks" program, which came back to bite them and Ron Paul back in 2008.

[Zola]

The world would have been so different with ron paul president. We have all been robbed of 4 years of our lives, on top of the 5 ones since 2008. What a shame