These are exciting times for the European country of Cyprus; the country is broke, its banks have no money and many depositors will have less money when the banks reopen – whenever that is. The tiny island of Cyprus is about the size of the Kennedy compound but, we understand, with much better manners. European officials agreed over the weekend to a bailout deal that would keep the Cyprus financial system afloat, kind of, and the country in the Eurozone, sort of. That bailout and a 32 ounce soda will get you a visit from Mayor Bloomberg’s calorie cops, but that’s another story entirely.
In a nutshell, Cyprus and its largest banks went to the other Euro countries and asked for a bailout. The Euro countries said, “We’ll help you, but only if you steal some cash first. So, the Popular Bank of Cyprus (Laiki Bank) will disappear and bondholders will take a hit. Laiki deposits below 100,000 euros ($130,000) will move to the Bank of Cyprus. Deposits over $130,000 are fair game and will be scooped up to fund the bailout. Savings accounts will get what is euphemistically being referred to as a “haircut” of 30% to 40%. To put that in terms that I can understand, that’s like Troy Polamalu of the Pittsburg Steelers going to the barber and asking for just a little off the top and walking out looking like Charles Barkley. Now depositors can go to their local ATM, insert their card and watch their country make a withdrawal.
And for this, Cyprus gets to stay in the Eurozone. Pardon me, but this sounds a lot like the philosophy of a street gang, “Dude, if you want to stay in the gang you have to hold up a liquor store.” And what it means in the long term is that savings deposits in Europe will be as safe as that six-pack at the liquor store on Chicago’s south side.
This brings me to another type of gang, the Mafia. For those who recall the movie, The Godfather, (and if you don’t, shame on you!) a Mafia family that goes to war against a rival family is, in mob parlance, referred to as “going to the mattresses.” In a twist on the phrase, Cyprus depositors specifically and European depositors in general will soon be taking money out of banks and placing them in a much more sure thing, their mattresses. That is until the Eurocrats start confiscating them as well.
Naturally, this whole bailout scheme has everyone a bit skittish. In recent years, we have seen various investment strategies go poof. Real estate is no longer a sure thing. Government bonds – are you nuts? At least one felt secure putting money in a lowly bank savings account that paid little interest but at least wasn’t losing money. Not anymore.
I fear that while President Obama was in the Middle East his advisors at the White House were no doubt looking at the Cyprus bailout strategy with envy. Fortunately, for the next two weeks President Obama will be much more focused on basketball. Prior to leaving for the Middle East, President Obama filled out his bracket for the NCAA basketball tournament. He did not get off to a strong start with most everyone else in America having a better first couple of days than he did bracket-wise. The good news is that he treats his NCAA bracket in much the same way he does the Constitution, that it is a living document that is open to change and interpretation. So, when he picked Wisconsin to advance to the Elite Eight, what he really meant is that they would lose in the first round. Any suggestions to the contrary would, of course, be blamed on the Bush administration.
Basketball aside, before anybody in the United States gets any ideas about stealing from savings accounts, I am looking at a new investment – in mattresses. I have three bedrooms and three beds. Another twelve mattresses ought to do it.
Curtice Mang is the author of the new book, The Constitution – I’m Not Kidding and Other Tales of Liberal Folly. He can be contacted at www.mangwrites.com, where one can also purchase his book; or contact Curtice at mangwrites at cox.net.