Monday, March 18, 2013

March 18, 2013

The Cyprus bailout fiasco is being described as " the single most inexplicably irresponsible decision in banking supervision in the advanced world since the 1930s.":
[EU officials who engineered this weekend's Cyprus bank bailout] have weakened – perhaps catastrophically – the principal pillar supporting modern banking. This pillar is deposit insurance. Ordinary savers who had received a solemn assurance that deposits up to 100,000 euros were safe are now being asked to take a haircut. This raises questions about deposit insurance throughout the EU and invites runs on banks not only in the most “financially-challenged” nations such as Greece and Spain but even in Italy and France.
Methinks life will go on. They said the same thing about the sanctity of contracts and the credit markets when holders of Greek bonds were made to take haircuts; the haircuts were 'voluntary' to avoid triggering credit default swap payments.

Welcome to Flight Club, where the only rule is "We make up the rules as we go".