{"id":693,"date":"2013-04-23T14:59:39","date_gmt":"2013-04-23T14:59:39","guid":{"rendered":"http:\/\/www.thebizsense.com\/views\/?p=693"},"modified":"2013-04-23T18:08:59","modified_gmt":"2013-04-23T18:08:59","slug":"lessons-from-cyprus","status":"publish","type":"post","link":"https:\/\/www.thebizsense.com\/views\/business\/lessons-from-cyprus","title":{"rendered":"Lessons from Cyprus"},"content":{"rendered":"
\"Cyprus<\/a>

Cyprus Banking<\/p><\/div>\n

Once again, scary speculation about the consequences of the financial collapse in Cyprus turned out to be rubbish.<\/p>\n

The outcome has been very nasty for Cypriots. And there could be worse to come as they are hammered by the absurd combination of economic collapse, unbearable national debt, and a fixed exchange rate against their 16 partner-nations in the Eurozone.<\/p>\n

Very nasty, too, for all those wealthy Russians who got used to viewing the island-nation as their informal colony. They\u2019ve suffered a wipe-out of\u2026 how much? Certainly many billions.<\/p>\n

The rest of us escaped. There was no panic flight from banks in the Eurozone. No flight either from the euro itself. It had been sliding in dollar terms for months, but actually kicked up a bit when the immediate crisis was resolved.<\/p>\n

However, there are some important lessons for investors from what Eurozone governments and their officials tried to force on the Cypriots and eventually agreed to.
\nTheir actions and attitudes have magnified and clarified the hierarchy of risks faced by investors in any serious financial crisis:
\n\u25ba Most at risk are foreign owners of bank deposits and securities. Iceland\u2019s discrimination against foreign savers in its banking collapse was a precedent. In Cyprus the Eurocrats targeted the large deposits and bonds of the two biggest banks knowing apparently that most of the wealth seized\/destroyed belonged to Russians.
\n\u25ba Next at risk are domestic customers of\/investors in, banks, who are ordinary folk without much wealth or financial sophistication. They believe their savings are safe because they are explicitly guaranteed by their governments. In the Eurozone, up to \u20ac100,000. In the US, $250,000.
\nIn the Cyprus crisis, the Eurocrats tried to force the country to steal from all the small savers enjoying that guarantee by imposing a levy on them. Technically, not a breach of the guarantee. In practice, exactly that.
\nSavers in banks around the world, not just in the Eurozone, now know that no guarantee offers certain protection against partial or total seizure of their assets in a crisis.
\nThere will be much soothing talk about the safety in guarantees that are embodied in laws, even constitutions. But the ways the Eurocrats have been behaving, and governments of many countries have acted in the past, show that in a serious crisis such legal protections are ignored, legitimized retrospectively, or simply cancelled by proclamation.<\/p>\n