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The Cyprus Bank Bailout Made Easy to Understand

March 26, 2013

Bank%20ATM%20Out%20of%20ServiceThe Cyprus bank deal is easy to understand.  We are watching the economic expression of a political problem.  We let the politicians put their hand into banking.  Politicians did what was best for politicians rather than what was best for citizens.  This is the result.

Long ago the Cypriot politicians told their banks to lend money to the politician’s friends.  They told the banks to make loans on bad mortgages and on bad government debt.  Not every Cypriot bank went along with the deal.  The Cyprus government is in debt so they cannot bailout the banks and their bad loans despite their promise to do so.

It is the healthy banks that now pose a political problem for the Cypriot politicians.  Letting the politically connected banks fail while the independent banks thrive would point the finger of blame back at the politicians.  It would also point out that Cyprus can not pay all its political obligations.  Now the Cypriot politicians need more money to stay in power, so they robbed all the bank depositors rather than let a few of the politically dirty banks fail.

The politicians who robs you once can always rob you again.  That is why people will take their money out of Cypriot banks.  Many of the honest Cypriot banks will fail as depositors flee.  The collapse will then spread to other weak countries.  Now that the Euro politicians are unmasked, people will take more of their money out of Greek, Italian, Portuguese and Spanish banks.  It is a great time to be a German or Swiss banker.  The French banks will take a few more months to slide down the same slope.

Many Europeans will move their money out of the Euro.  Some will buy gold and silver so the price of precious metals will rise.  Some Europeans will invest overseas in US stocks.  That will push Wall Street to new highs.  That will mask US debt problems for a few months.  I don’t want to ride the US market down so I hope the Europeans solve their financial problems before the US market crashes.

Do you think US politicians would deliberately prolong the European financial crash as a tactic to mask US fiscal problems?


Rob, a master of the obvious.
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