Indian givers in Cyprus

March 26, 2013 § 102 Comments

I wonder how people’s attitudes would change if, instead of Cyprus, we were dealing with an Indian tribe that had borrowed far more US dollars than it could afford and was operating its own internal banks on the reservation (its sovereign territory) that the Mob was using to launder money and evade taxes.

I’d have a strong inclination not to offer any additional financing at all. But if I was going to offer additional financing I’d definitely have very strict terms. Every big player would have to take a haircut on the deal, including those with an equity stake (whatever it is labeled: labeling it “deposits” doesn’t change its fundamental nature) in bank operations.

They would of course be free to take it or leave it.

§ 102 Responses to Indian givers in Cyprus

  • Steve Nicoloso says:

    I agree that depositing “money” in a bank is an investment, i.e., a loan to the bank the repayment of which you can demand according to the rules of the bank and the conditions on your account. But the myth of the bank, this place where all your cash is safe is very (VERY) old and strong. Lots of people still think you can cash a check at the bank from which the check was drawn. (I’d be happy to hear that that has been done in the last 10 years, but I’m not aware of it. On the contrary, I’ve seen check cashers rudely dismissed trying to do exactly that.) Deposit insurance in the US and Cyprus (and through nearly every western nation last time I checked) reinforces this myth. So that 99.9999% of the time you really can treat the bank as though it was a storage vault for your money.

    What I see in the Cyprian account tax deal then, aside from it being supremely foolish, is a breaking of contract, if not written at least one so overwhelmingly implied, which seems intrinsically unjust. It isn’t so much that it is intrinsically unjust to tax. I happen to believe that it is inherently just (tho’ usually foolish) to tax.

    Laundering money should be a profitable business. I have no idea why those Indians can’t make it work.

    Now, Zippy, please give us some guidance from the Magisterium on Bitcoin investment. Am I a money launderer?

  • Zippy says:

    But the myth of the bank, this place where all your cash is safe is very (VERY) old and strong.

    People who live under willfully delusional myths can’t be saved from themselves. They have to embrace reality, however much they may not want to do so.

    is a breaking of contract

    No it isn’t. A delusional sense of entitlement on the part of an investor doesn’t conjure a contract into existence. A contract requires explicit mutual agreement.

  • Vanessa says:

    Reality is totally overrated.

    At any rate, I say we should just let the banks fail instead of demanding protection money from the mobsters.

  • Steve Nicoloso says:

    Well, I’m not really up on Cyprian law… but… it seems like an explicit mutual arrangement that goes something like my money is safe here (as defined by non-negative interest rates) up to the maximum coverage of the bank insurance corporation limits. If the state is going to step in and “change the deal”, i.e., allow negative interest rates, then that is per se a breach of contract (not with the bank so much as the Cyprian Deposit Insurance Corporation). You need to allow depositors to decide whether they think that’s a fair deal or not, and if not cash out under the old deal, and hide their cash in the mattress or buy donkey dung or something… which they undoubtedly will.

  • Zippy says:

    It isn’t the State that changed the deal. It isn’t even the bank that changed the deal. It is business reality that changed the deal. People who own shares (including the kind of shares called “deposits”) have to suck it up when things go south.

    You need to allow depositors to decide whether they think that’s a fair deal or not, and if not cash out under the old deal, …

    There is no cash to cash out under some “old deal”, which is not a “deal” as much as it is an entitlement attitude on the part of delusional people.

    One of the things I find fascinating about these bank buster events is how the very folks – typically those who think of themselves as fiscal conservatives – who are up in arms about investors sucking it up and dealing with their losses when things go south are the same people who insist that a specific class of investors – the kind who invest in securities labeled “deposits” – absolutely must be bailed out and made whole.

    No, they mustn’t. And at least from a moral standpoint, the sooner these kinds of investors get a strong dose of reality the better.

  • Vanessa says:

    The issue is that this is a breach of contract. The depositors are first in line for a bailout, before the creditors. Some investors are more equal than others, and some are to be protected more than others. The creditors received higher rates than the depositors in exchange for accepting more risk. Now, they’ve turned the tables.

  • Steve Nicoloso says:

    So you’re saying that the Cypriot Deposit Insurance Corporation cannot fufill its obligations, and the depositors were foolish to trust them. And therefore the depositors just gotta take it. Okay. Obviously the Fed backstops the US-FDIC (and related corps), so in the USA then depositors ARE owed their money (at least in inflated dollars). But in Cyprus, okay. I can live with that. Cyprus doesn’t have the right to print Euros and inflate away the losses. Like I said, maturity mismatch, which is the real selling of what doesn’t exist, is to blame for all of this, and the truly intrinsically unjust practice.

  • Vanessa says:

    The injustice isn’t that the depositors have to take it, but that a single penny is being given to anyone else. Not only was this fraud perpetrated against the depositors (unsophisticated investors who were conned into thinking the insurance would help them a wit), but the creditors were complicit in the fraud and are now being bailed out by the depositors. So, the depositors are getting screwed TWICE by the same people.

    And the German people’s retirement savings are being drained to facilitate all of this, against their will.

  • Zippy says:

    Vanessa:
    You’ve mischaracterized the situation.

    Cypress is (was) asking for new money. Whomever shows up with that new money can set the terms upon which they are willing to invest — including requiring the protection of previous investment.

    Cypress could turn the new money down, and divide up the (now worthless) assets under the old capital structure. Of course then everyone loses.

    Inexperienced entrepreneurs and investors always make the mistake of thinking that the capital structure is fixed. It isn’t. Whomever is driving the most recent round of financing gets to set the capital structure. You have to pay to play. If existing depositors wanted to do it they could — that was what the overture to Russia was all about.

  • Vanessa says:

    That’s true.

    I don’t understand why the Cypriots don’t just take their lumps and keep their sovereignty. I’d rather be poor than be enslaved.

  • Vanessa says:

    That’s how I feel about the whole situation, I guess. Never a borrower nor a lender be. Better to scrape your bread together or rely on charity than to go begging a bankster for a meal.

    We’re still kicking ourselves for borrowing money to buy a house. It’s like a noose around our necks and I can’t wait to get out from under it. I just don’t understand why they haven’t finally gotten sick of living on fictitious wealth. Selling their children, their grandchildren, and now even their great-grandchildren into a life of certain poverty.

  • Zippy says:

    I have to think that recovery would be ultimately far simpler under their own sovereign currency. But too many people have too much to lose going that route, I guess.

    Never had the pleasure of a mortgage, myself. Went right from renting to paying cash. Entangling investment and consumption that way has its hazards.

  • Zippy says:

    Steve:
    Like I said, maturity mismatch, which is the real selling of what doesn’t exist, is to blame for all of this, and the truly intrinsically unjust practice.

    Repeating that doesn’t make it true. Deposits are just shares in the bank’s operations with certain terms. (Credit unions actually label them “shares”; but they are shares no matter who pins what name tag to them). These deposit shares are senior in the capital structure, therefore less risky than other classes of shares, and therefore earn lower dividends (labeled “interest”).

    None of that involves selling what doesn’t exist. There isn’t anything intrinsically immoral about fractional reserve banking or maturity arbitrage — as long as the “loan” recourse on default terminates in real assets: that is, as long as no usury is involved.

    You haven’t ever addressed this argument. You just keep repeating that selling liquid low-return deposit shares to the public while investing long is selling what doesn’t exist. But if recourse upon default terminates in real assets – if there is no usury – then you are flat wrong. Shares in a business partnership – what Aquinas calls “a kind of society” – are real assets.

    Repetition doesn’t make your contention any truer.

  • katmandutu says:

    “We’re still kicking ourselves for borrowing money to buy a house.”

    Not sure about how it is in America, Vanessa, but if one buys in a good area, here, one can usually expect the value of their property to rise over the years.
    Have had mortgages in the past but we are debt free, now.
    I think a mortgage with a reputable institution is okay. The big banks here in OZ are pretty solid.(Hey you could always come on over here instead of Germany. 🙂 )

    The downside, is that “good” property is now extremely expensive, due to the mining boom which has seen an influx of men into this state. (All single girls wanting to meet a guy, here is the place to come. 😉 )

    Our home, for which we originally paid AUD $178,000 17 years ago, is now worth about $800,000.

    There is also a shortage of rental properties here. If one has an investment property it can be quite lucrative, with average asking price for a rental property at around AUD $500 per week.

  • Vanessa says:

    It was like that in the States too, but things that can’t go on forever eventually stop.

  • Steven Nicoloso says:

    The bank sells “shares” that you can redeem for cash at any time (the bank is open I guess, and up to rules and transaction limits, etc., etc., etc.). They lend the vast majority of these “shares” out long, which cannot by them be collected at any time. They therefore lie. You cannot redeem your shares at any time, if, which inevitably happens, they don’t happen to have them. This is the definition of a bank run. Backstopping “shares” with the FDIC, who is in turn backstopped by Treasury, who is in turn backstopped by the Central Bank, who can print money to Aleph Nought, merely kicks the can down the road.

    If the bank wants to sell 10 year, or 10 month, or 10 day, or 10 minute shares which you cannot get at before maturity, then that’s fine, as long as they line that money up with someone who needs to borrow for the same amount of time.

    Obviously, very few people want to borrow for 10 minutes, so we would expect interest rates on “shares” that short to be negative. No problemo. The bank needs to make something on the deal.

  • katmandutu says:

    Hey Vanessa!

    You’re daughter is (still) gorgeous. Beautiful eyes like her Mom.

    Mine has grown up so much, now. In her final year of high school. Just had her school graduation ball..

    I’ll send you a pic.

    They grow up so fast. 😛

  • Zippy says:

    Anyone who doesn’t know that bank deposits can become illiquid in extreme circumstances is a fool who needs protection from himself.

    Again we see the bank depositor – a very special class of investor, apparently, utterly distinct from other classes of investor – as transcendent victim, never responsible for his own choices, always duped and exploited by The Man. Bank depositors are the right wing version of racial minorities.

    It must be the fact that he occupies the lowest-interest position in the capitalization table, that makes him the transcendently oppressed “minority”.

  • Vanessa says:

    Thanks, Kat! She just turned six. Still has that strong Slavo-Celtic vibe and she has freckles now, too.

    I figured I’d give y’all a temporary break from my ugly mug and cheer everyone up with a round of elfin cuteness.

  • Vanessa says:

    Anyone who doesn’t know that bank deposits can become illiquid in extreme circumstances is a fool who needs protection from himself.

    Their ignorance isn’t entirely their own fault, anymore than my cleverness is entirely to my own credit. You need to understand that most depositors really do not understand the banking and monetary and insurance systems.

    That is further proof, after all, that we should have more or less protected classes, so that the ignorant cannot be abused in such a manner. We don’t let the blind drive, or children buy alcohol, but we hand out bank accounts to people who don’t even understand what they are. I understand what a bank account is, what a mortgage is, what a mutual fund is, and I realize that I am essentially gambling with my money in more or less risky casinos. How many people truly understand that? Are the clever not merely exploiting the desperation and greed of the ignorant?

  • Vanessa says:

    Most people didn’t have bank accounts, in the past. This convenience comes with risk, but that’s not how it has been sold. We are told that it is less-risky than putting cash in a safe-deposit box because the interest we earn makes up for the erosion of inflation. But that is the essential con. Once we put all of our cash in the banks, TPTB were free to rack up insane amounts of debt and inflate away, and nobody cared until the party stopped and interest rates went negative. Now, the people are wishing they’d stuck with the box, after all.

  • Zippy says:

    Vanessa:
    It has been literally generations since the Great Depression. This isn’t some unknowable or esoteric technical territory papered over by deceptive marketing. If people are responsible for the consequences when they drive cars and smoke cigarettes, they are responsible for the consequences when they open bank accounts.

    I think the reason people are deluded about this is because they want to be deluded. They want to be protected
    from the big bad world of reality. So they insist that the world is not what it is, and are filled with revolutionary rage when reality asserts itself.

    And I find it very ironic that many conservatives are willing to embrace bank depositors as a transcendent victim group. All you have to do is change the kind of investment someone owns, from bank account to common stock, in order to transform him from transcendent victim to transcendent oppressor.

  • Zippy says:

    Vanessa:
    We are told that it is less-risky than putting cash in a safe-deposit box because the interest we earn makes up for the erosion of inflation.

    It is less risky in that sense. There isn’t anything false about that claim.

    People want to own stuff without any risk of loss. That isn’t how reality works. Welcome to the real world.

  • Vanessa says:

    That is precisely my point. Most people do not understand that a deposit is a gamble, an investment. They just see it as a place to park their cash in order to make transactions. More and more places do not accept cash at all, in fact.

  • Vanessa says:

    “It is less risky in that sense. There isn’t anything false about that claim.”

    It is not false, but it is only the partial truth. I see this when I speak to my relatives. Even if the express concern about bank runs, someone brings up the FDIC and they are reassured. When I point out that the FDIC is bankrupt and never had the funds to cover everyone anyway, they’re stumped.

  • Zippy says:

    People have no more excuse for ignorance that bank accounts are investments with some (though quite low, as long as business is running normally) risk than they do for ignorance that cigarettes cause cancer and alcohol causes cirrhosis.

  • Vanessa says:

    Not all bank depositors are victims, but I do think some are. Perhaps most. Victims partially complicitiin their abuse. Saying, “They should have known better than to put their grocery money in a bank account,” is like telling a rape victim that she should have known better than to be alone with her rapist.

    Yes, she should have known better. Yes, she should have been more wary. Yes, she should not have allowed her basest instincts to lead her into a dangerous situation. Yes, she better have learned her lesson. Stupid girl, look what’s happened to you.

    But you still have to hunt him down and string him up. This is the conservative position.

  • Vanessa says:

    The difference being that there have not been any educational campaigns about the inherent dangers in savings accounts.

  • Zippy says:

    Who needs educational programs when you have your lying eyes?

    It isn’t that people shouldn’t invest via bank accounts, any more than one shouldn’t drive a car. It is that all the whining that it should be risk free, and that there are so many poor helpless babies who think that it is risk free, is utterly unmoving. Anyone who doesn’t know that there are risks isn’t qualified to zip up his own pants.

    That doesn’t excuse fraud, deception, etc on the other side, of course. Nor have I said anything whatsoever that would imply such an excuse.

  • Vanessa says:

    I think the strong have an obligation to protect the weak. If they not only fail to protect them, but purposely exploit them, they have compounded their sins. Aristotle points this out in The Rhetoric.

    To blame the weak for being weak is uncharitable. What we need is a societal structure that accounts for human weakness. Where power over people and responsibility for them go hand in hand. People think I became a conservative because of my views on marriage, but that is not the case. It is the economic situation that finally swayed me.

  • Zippy says:

    Yes, I know. Bank depositors are transcendent victims, the epitome of
    the weak and oppressed.

  • Vanessa says:

    You are forgetting how long it took to convince people that smoking is bad for long-term health. Even people who didn’t smoke.

  • Zippy says:

    So just give them another century to grow the f*** up, eh?

  • Vanessa says:

    Mom and pop bank depositors appear to be strong, just as young women appear to be strong. I’m merely suggesting that appearances can be deceiving.

  • Elspeth says:

    Truly Zippy, you underestimate the power of propaganda and ignorance even among fairly intelligent people.

    My 80-year-old father, who has always managed to keep his family out of poverty even when it was rare for a man of his station in life to do so, believes his deposits are insured. And I cannot convince him that they’re not.

    I agree with everything you’ve said here, but I tend to lean toward Vanessa’s view on this.

    Bank depositors are not transcendent victims, but they are a type of victim. They believed a lie, yes. But people below a certain threshold of wealth and/or education are often not inclined to search out and learn these things.

  • Vanessa says:

    I was just trying to express the conservative viewpoint, as you are so dismissive of it as illogical. We disagree that common depositors should be a protected class (my first premise), but I don’t think we disagree that there should be protected classes. Neither of us believe in social equality, after all.

  • Zippy says:

    Part of the reason I don’t see depositors as transcendent victims is because to the extent they believe themselves to be earning risk-free interest, they are formally usurers. So they are analogous to the sodomite who feels himself to be a transcendent victim because of the risks associated with being a sodomite.

  • Vanessa says:

    I just see these photos of these elderly people lining up for hours, choking down tears, and frantic about getting enough cash out of the ATM to buy bread or tank their car, and my heart goes out to them. Yes, they are victims. They weren’t making a cool gamble, while fully cognizant of the risks. They’re shocked.

    They are stumbling around, upset and traumatized, with a tearstained face. They say, I didn’t know. I didn’t understand. I’ve been stupid.

    Yes, they’ve been stupid. Fetch the rope.

  • Zippy says:

    I feel bad for people who are dying of cancer because they smoked too. I’m not talking about feelings.

    When it comes to action, people who are dying of cancer because they smoked should be treated with compassion. And there was even a time when they could have been considered innocent victims of evil greedy oppressors.

    But that time is long past.

  • Vanessa says:

    First, you claim that they are not to be pitied because they are investors and should be aware of the inherent risk of loss of capital. Then you claim that they are investors who think they are usurers, without proving that they even know what usury is or that they know that it is immoral behavior.

    Are they now usurers who think they are investors, or investors who think they are usurers, or some combination of the two? Perhaps they simply know that everyone has a bank account and that it is hard to even find employment or pay the rent without having one?

  • Vanessa says:

    Yes, that time is past now. But there was a time, when they were still ignorant, when they were to be pitied and the people defrauding them were punished. Why should it be any different now, with the depositors?

  • Vanessa says:

    Is there a reason why I’ve been put in moderation?

  • Zippy says:

    You aren’t in moderation.

    People who sincerely believe in risk free investment (usury) have basically the same status as people who sincerely believe in risk free sex. Whatever you could say about the one could be said about the other.

  • Vanessa says:

    Obviously, the depositors are going to end up impoverished, regardless of what happens, because the wealth is gone and it isn’t coming back anytime soon. You can’t get that money back anymore than you could unrape the woman. What is done is done, and the victim has already been punished for her part in it. But there is some small comfort in further acts of justice, and we owe that to the victims. We also owe that to the perpetrator, as law should always reassert itself.

    I never said that the depositors weren’t partially culpable, but that the other party carried more of the blame. I specifically explained that I did think they shouldn’t have been doing things they didn’t understand, but that taking advantage of other people’s weakness is the greater crime because of the cool calculation and malicious intent involved.

    Thinking you’re going to get something for nothing is idiotic and greedy. Setting up an international financial system where you systematically rob from the poor to give to the rich is the sort of evil that cries out to Heaven. It’s not even just the bank accounts of pensioners. They’ve been stealing food out of the mouth of babes all over the planet with their inflationary tactics and pushing debt on desperate people.

    At the moment, there is absolutely no public/official discussion of the fact that this greater crime was ever committed. We are only discussing how terribly the depositors should be punished for their stupidity and greed.

  • Vanessa says:

    People who sincerely believe in risk free investment (usury) have basically the same status as people who sincerely believe in risk free sex. Whatever you could say about the one could be said about the other.

    Yes, you could. They are obviously stupid or even willfully ignorant. But someone is still seducing them; somebody sold them on the idea. Individual people didn’t come up with the concept of bank accounts on their own.

    It’s okay. It’ll be great. Relax, I’ll take care of everything. Everybody’s doing it. If you don’t do this, people will think there’s something wrong with you. I’ve got an insurance policy to prevent accidents.

  • Vanessa says:

    It’s like we’re all standing around the rape victim, admonishing her that she shouldn’t have worn such tight jeans, while the rapist walks away scott-free. First things first.

  • Zippy says:

    Well, we don’t agree about the banking side either, apparently. There are plenty of sincere bankers too. In my understanding banking (including fractional reserve, etc) is not intrinsically unjust. Fiat currency is actually better than commodity-backed currency; etc. The gap between your understanding and mine may be too large to bridge.

    There is plenty of corruption all around of course. But the whole “big evil banker, small investor victim” narrative is — at best — a one-sided broad brush abstraction that prevents people from growing the Hell up.

  • Vanessa says:

    Right. Because I’m too stupid to understand the beauty and glory of our international finance system. Can I not simply disagree with you without being an idiot? Furthermore, if you have to be a genius to understand how it works, as you contend, doesn’t that just underscore my point that most people shouldn’t be involved in it at all? Most people aren’t geniuses, after all.

    There are still sincere bankers left, that is true. There are also since soldiers left and sincere policemen left and even — amazingly enough — probably some sincere politicians left. But that does not mean that the entire system isn’t rotten to the core and in need of major reform, such as currency reform. It also does not mean that there shouldn’t be criminal prosecutions.

  • Zippy says:

    I didn’t say you were stupid. You aren’t, for the record. But that doesn’t make the gap between your understanding and mine bridgeable.

  • Vanessa says:

    “But the whole “big evil banker, small investor victim” narrative is — at best — a one-sided broad brush abstraction that prevents people from growing the Hell up.”

    This is always the argument against chivalry, that it prevents the people who are suffering from growing up. It could be used as an argument against all charity, in fact.

    But it is a Darwinian argument, a libertarian argument, and therefore does not align with conservative principles.

  • Steve Nicoloso says:

    Zippy you cannot run a polis by assuming that everyone just damn well better get an IQ above 110.

    The system is what it is. As YOU DAMN WELL know people are notoriously bad at estimating tail risks. Smart people are probably even worse at it. If you want to get back to people not trusting banks and stuffing their cash in mattresses, fine. I even agree with you. But making savers (getting a whopping 0.05% on their money these past few years–fscking greed bastards all) take a 10% haircut is an awfully brutal way to do it.

    George Bailey should have been strung up by his B&L shareholders for lending long by borrowing short.

  • Zippy says:

    Vanessa:
    That people need to take some responsibility for their own choices – including their financial choices – is not a Darwinian argument. I think you are just hurling caricatures at this point.

  • Vanessa says:

    But that doesn’t make the gap between your understanding and mine bridgeable.

    Just systems tend to be transparent and simple. Complexity breeds corruption. I should be perfectly able to understand what is going on without needing to be Einstein. It is only quite recently that most of us were informed (thank you, Ron Paul) that the Federal Reserve is not a true state bank, and they print our money.

    If someone of my intellect cannot understand it, then that means whoever designed it or allowed it to grow to such opaqueness doesn’t want me to understand it. The complexity itself is concrete proof of their malicious intent.

    I am not a genius, and I shouldn’t have to be one.

  • Zippy says:

    Complexity is proof of malicious intent?

  • Vanessa says:

    getting a whopping 0.05% on their money these past few years

    They’ve been getting negative real rates for years now, but they don’t even realize it. They don’t understand even that most basic thing.

    And don’t even get me started on how inflation is being calculated.

  • Zippy says:

    Steve:
    You don’t need a high IQ to
    understand that in extreme situations you might not be able to withdraw money from your account.

  • The Deuce says:

    Vanessa:

    “I don’t understand why the Cypriots don’t just take their lumps and keep their sovereignty. I’d rather be poor than be enslaved.”

    The Cypriots haven’t actually had a say in this, even indirectly through their representatives. It’s all been handled by their financial overlords acting unilaterally.

  • Vanessa says:

    “Complexity is proof of malicious intent?”

    Yes, it is. When you make something that should be simple into something complex, without good reason, you are up to no good. You are either trying to con someone yourself, or you are creating a system that enables such activity by someone else. Complexity doesn’t happen merely by accident. It requires effort.

    It’s a common software development concept that transparency and simplicity lead to more robust systems. If your code is a bunch of gobbledygook and you make no effort to reform it, everyone is right to question your intentions. Microsoft had to deal with that accusation.

  • Vanessa says:

    “You don’t need a high IQ to understand that in extreme situations you might not be able to withdraw money from your account.”

    That’s what the insurance is for. Or so they are being told.

  • Vanessa says:

    “That people need to take some responsibility for their own choices – including their financial choices – is not a Darwinian argument.”

    You keep misrepresenting my argument. I never said that they shouldn’t have to suffer and that they shouldn’t learn from their mistake. I am saying that to show indifference to their plight is Darwinian. The strong triumph over the weak and we are all supposed to stand up and give the strong a round of applause for being superior.

  • Zippy says:

    The Deuce:
    The Cypriots haven’t actually had a say in this, even indirectly through their representatives. It’s all been handled by their financial overlords acting unilaterally.

    By elected officials, actually.

    Not that matters. There are all sorts of
    investments that do involve passive money: where the investor has no say in how the money is managed.

  • Vanessa says:

    No, by the finance cabinet. They were appointed. The elected officials were parliamentarians who rejected the deal.

  • Zippy says:

    Vanessa:
    You keep misrepresenting my position as indifference. I am no more indifferent to the plight of the bankrupt depositor than I am to the smoker with cancer or the sodomite with AIDS.

  • Zippy says:

    I guess appointees are conjured out of thin air.

  • Vanessa says:

    Most of the people at the meeting were not from Cyprus.

    Everyone knows I’m an insufferable bleeding heart, so it’s not really surprising what my view on this is. I don’t think you are indifferent to the plight of the weak, Zippy, but you do seem to stand on the side of the strong. They already have their own back, you know. They don’t really need the help, and our preference should always be for the poor, for the weak.

    The strong have to go out of their way to justify their behavior as not involving a relinquishment of their duty to the weak.

  • The Deuce says:

    Zippy:

    Cypress is (was) asking for new money. Whomever shows up with that new money can set the terms upon which they are willing to invest — including requiring the protection of previous investment.

    No, Cyprus’ central bankers are asking for new money. An investor can demand certain terms when showing up with new money. However, a borrow cannot rightfully offer that which they do not rightfully own as collateral, nor retroactively tear up the contracts they’ve made with others in doing so, nor can an investor rightfully demand that a borrower do otherwise. Furthermore, just as the borrower must face the music when they can’t pay, so must a lender deal with inevitable consequences when the loan they made goes bad, and they may not rightfully change the terms retroactively to divert their lawfully merited lumps onto someone else.

    Lawfully, the depositors should’ve been the last to get shaved after everyone else was cleaned out, just as was lawfully and contractually agreed to, even if it meant the EU investors got hosed.

  • Zippy says:

    Vanessa:
    but you do seem to stand on the side of the strong

    Where, precisely? If I say that the smoker needs to take responsibility for the consequences of his actions, how is that taking the side of the strong against the weak?

  • Zippy says:

    The Deuce:

    Yes, as I said, one option was to unwind everything under current contractual terms with no new money; in which case everyone gets nothing.

    AFAIK insured deposits are still intact. Uninsured deposits aren’t. If there is a contractual violation it isn’t obvious from news reports; but maybe you can edify me.

  • The Deuce says:

    And, might I add, the EU “investors” practically begged basket-case countries to join the Eurozone as part of their idiot dreams of centralized socialist world government, promising wealth and financial security in return. Both lawfully and morally, they deserve to suffer the inevitable fallout for that foolishness just as much as the borrowers do for greedily accepting the offer, and they have no more right to have savers’ assets confiscated (in violation of contract) to rescue them from the consequences of their own actions than the borrowers have to confiscate them on their behalf.

  • Vanessa says:

    “If I say that the smoker needs to take responsibility for the consequences of his actions, how is that taking the side of the strong against the weak?”

    I am saying the same thing. The difference is that I am not using that as an excuse for the person who sold him the cigarettes while reassuring him that they were good for his health. The one does not absolve the other. Too little of your ire is directed higher up, toward the people with the least excuse for ignorance.

  • Vanessa says:

    Cause I’m the resident moral arbiter and perfect saint, of course. LOL

  • Zippy says:

    Vanessa:
    The difference is that I am not using that as an excuse for the person who sold him the cigarettes while reassuring him that they were good for his health.

    Quote where I do that.

  • Zippy says:

    The Deuce:
    It is always easy to play politics with other people’s money. But I’ve seen no evidence that a better or more fair deal for actual investors was likely.

  • The Deuce says:

    Yes, as I said, one option was to unwind everything under current contractual terms with no new money; in which case everyone gets nothing.

    If everyone gets nothing under that scenario, then everyone gets nothing in the current scenario as well. If there’s really nothing to go around, it’s not going to be turned into something by having a few central bankers rearrange the nothing.

    Of course, there’s not nothing. There’s some wealth there, but not nearly enough to pay the debts. All the debt has just created the illusion that the little bit of wealth is a lot.

    What actually would’ve happened is that the savers (who are the least culpable party in this mess) would’ve gotten what little scraps of wealth there actually are in Cyprus (which would’ve been a lot less than what they thought they had, but more than nothing), while the most guilty parties (the lenders and borrowers) would’ve gotten nothing. Meanwhile, the illusion that there is more than there is would’ve been shattered.

    What happens with this scenario is that most of those little scraps of wealth are redistributed to the most guilty parties, while the savers are given the illusion of wealth, which is allowed to be maintained a little longer, in return.

  • Zippy says:

    The Deuce:
    If everyone gets nothing under that scenario, then everyone gets nothing in the current scenario as well

    That is certainly incorrect as a general statement. New money frequently changes the outlook dramatically.

  • Vanessa says:

    Quote where I do that.

    You know that I can’t. You’ve carefully worded everything and you’re a much clearer writer than I. I’m just inferring it from your tone. If you would make a positive statement in the other direction, I would be relieved, but you simply asked me to prove the negative.

  • Vanessa says:

    I think we can see what is generally going on with the Gazprom intervention, and also what happened in Greece. The savers are being held hostage in order to extract true wealth in the form of gas rights, gold, etc. We’ll bail you out, if you give us XYZ in return. They’re taking advantage of these people’s desperation to get them to sell the family silver.

    Everyone acts like they’re doing these people some sort of favor, but they’re actually loan sharks.

  • Zippy says:

    Vanessa:
    You know that I can’t.

    That’s right. Unless I’ve been sloppy somewhere, I say what I mean to say and I don’t say what I don’t mean to say.

  • Vanessa says:

    Yes, I’m instinctively responding to your omission.

  • Zippy says:

    Making inferences from what I don’t say is a mistake. There are all sorts of reasons to remain silent, and relatively fewer to speak.

  • Vanessa says:

    Fine.

    I know that you find my passion disturbing and my arguments overly simplistic. You have not, however, been able to prove to me or to anyone else here, that your arguments are the more conservative ones or that our own arguments are less logical than yours.

  • Vanessa says:

    I feel about clever men the way I feel about pretty women, and it goes double for handsome geniuses and shrewd beauties.

    When they are being cruel, they always want to use the other person’s weakness and susceptibility as an excuse for their abuse. But they know that they are pretty. They know that they are clever. They know the advantage it gives them in any transaction. They should be taking this into account, so that the person they are dealing with is not led to self-destructive behavior.

    It means that they will always have to hold back. They will never be able to maximize their talents for their own personal benefit. If anything, they will be called to greater sacrifice for the good of others. This is what they don’t want to accept. This is at the core of the decay of the financial sector, the marriage market, the educational market, and etc. It’s a veritable plague of meritocracy. Just because they can, doesn’t mean they should. They have obligations to those lower down that derive from their superior status.

    Isn’t that the main argument of the reactionary? I thought this was one thing we both agreed on, Zippy. What I don’t get is why you draw the line here. I just don’t understand.

    Alright, you say you can’t explain further. I’m sorry I pestered you.

  • Zippy says:

    Vanessa:
    What appears to be happening, to me, is that you are filling in a lot of blanks with your own ideas where I have said nothing.

    I’ve said some specific targeted things here, and only those specific targeted things. That is pretty much what I always do: I promote adjustments in perspective where I think I have something to say that isn’t being said. I’m not into big comprehensive manifestos.

    That may explain why the prevailing combox scenario here is people showing up to disagree with me. I’m not much of a choir-preacher.

  • Vanessa says:

    Alright.

    But do you agree with my core argument, that “they have obligations to those lower down that derive from their superior status”, and that this is an essential part of a conservative system?

    I empathize with the strong most, you know. Not with the weak.

  • Vanessa says:

    I’m inferring again, but I feel like you just wrote, “I don’t want to be a role model.” I used to think the same thing, but some people just have charisma, Zippy. It’s such a cross. LOL

  • Zippy says:

    Vanessa:
    But do you agree with my core argument, that “they have obligations to those lower down that derive from their superior status”, and that this is an essential part of a conservative system

    Sure. I might quibble with the term “conservative”, replacing it with “good, true, and beautiful”. But my bona fides are already well established on the subject of chivalry.

    But I don’t see it as pertinent to the specific point I’ve been making here. My blog isn’t likely to be read (let alone taken seriously) by wealthy banksters and policy makers at all. It is likely to be read by ordinary folks who are deluding themselves about the nature of bank deposits as an investment, papering over reality with an outraged revolutionary oppressor-victim narrative, and failing to see that depositor-investors are not specially entitled to official victim status. That is, my blog is a lot more likely to be read by a few righties for whom depositors are the new super-special oppressed minority bereft of moral agency and righteously ignorant of the nefarious machinations of their bankster oppressors.

    One of the things I try to do is challenge my audience. I’m not writing generalized manifestos for Everyman.

  • Vanessa says:

    Yes, you are firmly on the side of chivalry. This has been established and proven. That is why I was so confused. I see your point now, but I think you could have made it better by offering it in full. As you just did. You weren’t offering any concessions before and that undermined your argument.

    I do think that you are wrong about the importance of offering a balanced argument to the common people. It is very possible that the common people will be overrunning national governments soon, so it is perhaps wise to spread the word that problem with capitalism is that there are too few capitalists, but the problem with finance is that there are too many investors.

    Most people with surplus, in other words, should be investing their wealth in the concrete, rather than in abstract bits of electronic paper they don’t understand. This is my core message and I think that it’s a strong one, and that it would resonate with the populace. They can now all see for themselves what comes of widespread financialization, so perhaps they will be amenable to that argument.

  • The Deuce says:

    That is certainly incorrect as a general statement. New money frequently changes the outlook dramatically.

    1) Cyprus hasn’t been given new wealth, but merely another loan that their central bank has to pay back. The outlook is only changed if the loan results in Cyprus producing more wealth than they otherwise would have.

    2) I was talking about the wealth that exists in the country now, not hypothetical wealth that could supposedly be created in the future. If default means that everyone gets nothing, then everyone still gets nothing when the nothing is redistributed to lenders and borrowers, at least right now. That this loan could have a “multiplier effect” that will ultimately result in more to go around in the future is another issue, which I’ll address next.

    3) Even if the loan somehow results in Cyprus producing more wealth in the future than they otherwise would have, the injustice of confiscating the wealth of the savers to redistribute to the most guilty parties can only be justified, even within a consequentialist moral framework, if the loan results in the savers having more assets at the end of the day than they would have under a default.

    3a) However, the only way that that’s going to happen is if the loan results in Cyprus producing *so much* more wealth than they otherwise would have that it more than compensates for both the amount that they must pay the EU bankers and the amount being confiscated from them.

    3b) Consequentialism is wrong, and hence this thing cannot actually be justified at all. You cannot rightfully do evil (arbitrarily looting the least-guilty savers to pay off the most-guilty borrowers and lenders) so that good (which, as always in these calculations, is merely hypothetical) may come of it.

    3c) The chances that this is going to result in a greater overall production of wealth is nil in any event, much less enough to compensate for the confiscation and the loan interest. Sure, a loan can result in more net wealth being produced when made to an enterprising person with a solid business plan who merely lacks capital. However, a loan to someone who needs a bailout because they aren’t producing enough wealth to pay back the previous loan is pretty much guaranteed not to do so. When it’s a country that needs the bailout, it’s even less likely to result in more wealth being produced, especially when the terms of the loan involve arbitrarily raiding 40% of the assets of the very people who are supposedly going to produce that wealth! No enterprising individual in his right mind is going to attempt to do any business in Cyprus for decades now, or at least as long as they remain in the EU, and no sane person will attempt to build their savings there anymore. This loan is not going to result in more wealth, and I doubt anyone seriously believes otherwise. All that’s happening is, there’s a little bit more than nothing left in Cyprus, and the irresponsible lenders and borrowers are redistributing what’s left from the savers to themselves while they can, instead of taking the well-deserved medicine for their irresponsibility.

  • Vanessa says:

    What Deuce said. Totally.

  • Zippy says:

    The Deuce:
    Cyprus hasn’t been given new wealth, but merely another loan that their central bank has to pay back. The outlook is only changed if the loan results in Cyprus producing more wealth than they otherwise would have.

    That is true of all investments, always. When two guys with an idea get $5 million in venture capital, no new wealth is created in the transaction. When a factory is saved by a loan to update equipment, no new wealth is created in the transaction. etc, etc, etc.

    But so what? The point was that new money changes prospects dramatically and concretely all the time. That is in fact the whole point of investing new money. And it is directly contrary to your claim that “If everyone gets nothing under that [no new money] scenario, then everyone gets nothing in the current [new money] scenario as well.”

    If your claim were true, nobody would ever profit from investing in an existing enterprise.

    The chances that this is going to result in a greater overall production [or less destruction – Z] of wealth is nil in any event.

    That’s one opinion. It might even be right. But your opinions about the financial prospects of particular investments don’t add up to a moral imperative.

  • Zippy says:

    In 2008, conservatives were screaming at me that TARP was going to be a disaster and cost the taxpayers billions. In actual fact, as I predicted, it produced profits for taxpayers in addition to preventing the destruction of massive amounts of wealth.

    I haven’t looked at this deal closely enough to have an opinion on it’s prospects. But a bunch of conservatives raving at me that it is a disaster does not constitute credible evidence that it is in fact a disaster; and even if it did turn out to be a financial disaster in the end, that wouldn’t add up to making it a morally wrong decision.

  • Zippy says:

    Vanessa:
    You weren’t offering any concessions before and that undermined your argument.

    What you see as “not offering concessions” I see as “staying on topic”.

  • Vanessa says:

    Because viewing the Cyprus bailout as the result of the depositor’s greed alone was staying on topic? You write as if the banksters don’t exist, or as if their methods are completely honorable.

    At any rate, TARP is a mess. It never turned a profit, it undermined true competition in a bloated industry (which is why car parks are piling up all over America again and liar loans are back), and it created moral hazard by creating TBTF companies. Which are now run by TBTJ (too big to jail) management.

  • The Deuce says:

    That is true of all investments, always.

    I said as much. And I also pointed out the obvious difference between loaning to a person because they’ve got a solid enterprise and need more capital to implement it, and loaning to a person because they were too unproductive to pay the last loan you loaned them.

    That’s one opinion. It might even be right. But your opinions about the financial prospects of particular investments don’t add up to a moral imperative.

    The moral imperative comes from the wrongness of seizing other peoples’ property that one has no right to as collateral for a bailout meant to reduce the consequences to oneself for a problem one was primarily responsible for causing. Apart from that, it’s just a loan that’s obviously not going to work, and isn’t meant to (at least where “work” means “turn Cyprus around” rather than “cling to the EU project at all costs”).

    I’d like somebody to please show me where taking on more debt has gotten an indebted country out of debt and made them more productive. It would defy logic and common sense even if this “capital injection” weren’t accompanied by simultaneously stripping the potential entrepreneurs of their capital and announcing to the world that no savings are safe in Cyprus (Let’s not forget that Plan A, which the EU and Cyprus bankers negotiated unilaterally and tried to ram through, confiscated from *everyone* and not just uninsured accounts over 100,000 Euros).

  • Mike T says:

    In 2008, conservatives were screaming at me that TARP was going to be a disaster and cost the taxpayers billions. In actual fact, as I predicted, it produced profits for taxpayers in addition to preventing the destruction of massive amounts of wealth.

    Or did it, in fact, merely delay the inevitable? Vox Day, Denninger and many others disagree with you that TARP fixed rather than merely delaying the bank failure. I don’t know who among you is right on this, but I know enough to keep my money away from TBTF banks.

    As you and I discussed a while back, and I believe you conceded, irrespective of the merits of TARP with respect to turning a profit for the treasury we may have missed out on a critical moment of national reflection. One that might have sparked some hard introspection and brought the culture war to a critical point before the left had the upper hand as they do now.

  • Zippy says:

    Vanessa:
    Because viewing the Cyprus bailout as the result of the depositor’s greed alone was staying on topic?

    There you go again. If you carefully read my words, you’ll find that nowhere do I assign cause to Cyprus’ financial troubles at all. I haven’t done the due diligence to have a solid opinion on the question, actually.

    Really, stop trying to tar me with crap I haven’t said. It is a pet peeve, it wastes my time responding to it, and though I value your comments if you keep it up you may well find yourself in moderation just so I can filter out your posts when you do it.

    At any rate, TARP is a mess. It never turned a profit,

    That Huffpo article is an equivocal mess from the first sentence. I am on record (you can read the old threads at W4) supporting TARP (which is in fact profitable, and more importantly in my view prevented trillions of dollars worth of wealth destruction and would have been worth it even if it had been a total writeoff) and opposing the auto bailouts and other nonsense.

  • Zippy says:

    The Deuce:
    I said as much.

    Then I’ll leave you to argue the matter out with yourself.

  • Dystopia Max says:

    I don’t think the government would go all Custer on an Indian tribe doing something as inconsequential as laundering money for mobsters, especially MS-13 mobsters.

    You’d have to do something really evil, like “excluding Designated Victim Groups in the name of tribal solidarity.

  • Zippy says:

    Dystopia Max:
    I don’t think the government would go all Custer on an Indian tribe doing something as inconsequential as laundering money for mobsters, especially MS-13 mobsters.

    It isn’t a question of going Custer or not though; it is a question of loaning them more money or not.

    If you post the missing link I can insert it into your comment.

  • Vanessa says:

    I do not retract that statement.

    Your original analogy was comparing the Cypriot banks to an Indian tribe laundering money on US soil for the mob, and you have repeatedly insisted that the individual depositors should pay the price for this misappropriation of funds because they are investors. I am saying that the depositors were not the only investors and that the other investors should pay up first.

    But whenever I point that out, and attempt to justify it with the basic concept of chivalry, you claim that I am getting off-topic. No, I am not off-topic. I am merely disagreeing with you. I think this situation has a moral component and that it is impossible to mount any logical argument one way or the other without taking that into consideration.

    To do so is to start with a false premise, the premise that all investors are qualitatively the same and should be treated equally under the law. That everyone should get the same lumps when an investment goes sour. I disagree. The law should have a preference for the poor because they suffer the most through impoverishment.

    You are saying, “If X, then Y, therefore Z.” And I am saying, “Yes, but what about W? W changes the picture entirely.” And you are respond, “W is off-topic.” Well, then what’s the point of having the discussion at all? If X, then Y, therefore Z, and basta.

  • Zippy says:

    Vanessa:
    you have repeatedly insisted that the individual depositors should pay the price for this misappropriation of funds because they are investors

    Quote me. Your paraphrase is wrong.

  • Zippy says:

    I have a new post up on the moral question.

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